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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Date of Report (date of earliest event reported): April 17, 1998
ProMedCo Management Company
(Exact name of Registrant as specified in its charter)
Delaware 0-21373 75-2529809
(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
801 Cherry Street, Suite 1450
Fort Worth, Texas 76102
(Address of principal executive offices, including zip code)
(817) 335-5035
(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets
On April 17, 1998, ProMedCo Management Company ("ProMedCo" or the
"Company"), through a wholly owned subsidiary, acquired all of the outstanding
stock of Berkshire Physicians & Surgeons, P.C., a Massachusetts professional
corporation ("Berkshire"). Concurrent with the acquisition, the subsidiary
entered into a long-term service agreement (the "Service Agreement") with
Berkshire. Berkshire is a multi-specialty physician group based in Pittsfield,
Massachusetts, comprised of 79 physicians, 15 mid-level providers and 15
physicians in an independent practice association network. The total
consideration for the transaction was approximately $29.5 million, which
consisted of a $16.1 million of cash, $7.6 of convertible subordinated notes and
$5.8 million of the Company's common stock (to be issued in 1999). The
convertible subordinated notes accrue interest at the rate of 4 3/4% paid
annually on March 31. The notes can be converted into shares of the Company's
common stock any time after April 17, 1999 and prior to March 31, 2005 at a
conversion price of $17.50 as adjusted per the note agreements. The
consideration was determined through arm's length negotiations between the
representatives of ProMedCo and Berkshire. The factors considered in determining
the purchase price included information with respect to the financial condition,
assets, liabilities, businesses and operations of each entity on both a
historical and prospective basis. The cash portion of the purchase price was
funded with borrowings from the Company's revolving credit facility. The
acquisition will be accounted for using the purchase method of accounting.
Assets acquired will be used by the Company to provide administrative and
medical support services to Berkshire pursuant to the terms of the Service
Agreement.
Item 7. Financial Statements and Exhibits
Financial Statements
(a) and (b) Financial statements of Berkshire and certain pro forma
financial information relating to the Berkshire affiliation were previously
reported in the Company's registration statement on Form S-3 (File No.
333-50105) filed with the Securities and Exchange Commission on April 23, 1998.
Exhibits
(c) Agreement for Statutory Merger by and between ProMedCo Management
Company, ProMedCo of Berkshire, Inc. and Berkshire Physicians & Surgeons, P.C.
dated April 17, 1997. Service Agreement by and between Commonwealth Health
Management Services, Inc. and BP&S, P.C., effective April 1, 1998
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ProMedCo Management Company
By: /s/ H. Wayne Posey
H. Wayne Posey
President and Chief Executive Officer
Date: May 1, 1998
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AGREEMENT FOR STATUTORY MERGER
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PROMEDCO MANAGEMENT COMPANY
PROMEDCO OF BERKSHIRE, INC.
AND
BERKSHIRE PHYSICIANS & SURGEONS, P.C.
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April 14, 1998
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Table of Contents
ARTICLE 1 DEFINITIONS...............................................1
Adjusted BP&S Equity.......................................1
Affiliate..................................................1
BP&S ..................................................1
BP&S Debt..................................................1
BP&S Financial Statements..................................1
BP&S Physicians............................................1
Consideration..............................................1
COBRA ..................................................2
Contingent Consideration...................................2
Closing ..................................................2
Closing Date...............................................2
Code ..................................................3
Contracts..................................................3
Definitive Closing Statements..............................3
Exhibit Volume.............................................3
Final Closing Statement....................................3
Former BP&S Shareholders...................................3
GAAP ..................................................3
Health Center Facility.....................................3
Interim Service Agreement..................................3
Inventory..................................................3
IRS ..................................................3
Managed Care Surplus.......................................3
Medical Professional.......................................3
Medical Professional Employment Agreement..................3
NBERK ..................................................4
Pension Plan...............................................4
Person ..................................................4
ProMedCo-Berkshire Distribution............................4
ProMedCo ..................................................4
ProMedCo-Berkshire.........................................4
ProMedCo Notes.............................................4
ProMedCo Stock.............................................4
Service Agreement..........................................4
Shareholder Representative.................................4
Stock Agreement............................................4
Third Party Payor Program..................................4
to the knowledge of BP&S...................................4
Unit Share Price...........................................4
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ARTICLE 2. MERGER AND OTHER TRANSACTIONS............................5
2.1 Merger of BP&S and ProMedCo-Berkshire..................5
2.2 Closing and Effective Date of Merger...................6
2.3 Further Assurances.....................................7
2.4 Dissenting Stockholders of BP&S........................7
2.5 Effect of Merger........................................7
2.6 ProMedCo Stock..........................................7
2.7 Anti-Dilution Provisions................................7
2.8 Legend.................................................8
2.9 Other Transactions at the Closing......................8
2.10 Consideration Adjustments.............................9
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BP&S ..................11
3.1 Organization, Corporate Power and Qualification.......11
3.2 Authority; Binding Effect.............................11
3.3 Capitalization of BP&S................................12
3.4 Subsidiaries, Affiliates, Affiliated
Companies and Joint Venture......................12
3.5 Financial Statements....................................13
3.6 Professional Income......................................13
3.7 Absence of Undisclosed Liabilities......................13
3.8 Absence of Certain Recent Changes.......................13
3.9 Title to Assets.........................................15
3.10 Contracts..............................................15
3.11 Absence of Related Party Transactions..................16
3.12 Defaults...............................................16
3.13 Inventory..............................................16
3.14 Equipment..............................................17
3.15 Receivables............................................17
3.16 Permits and Licenses...................................17
3.17 Litigation, etc........................................17
3.18 Court Orders, Decrees and Laws.........................17
3.19 Taxes..................................................18
3.20 Immigration Act........................................18
3.21 Program Compliance. ..................................19
3.22 Environmental Matters..................................19
3.23 ERISA..................................................20
3.24 Pension, etc. .........................................20
3.25 Employee Matters.......................................21
3.26 Insurance and Bonds....................................21
3.27 Labor Matters..........................................22
3.28 Third Party Payor Compliance...........................22
3.29 Improper Payments......................................22
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3.30 Books of Account; Reports......................................22
3.31 No Finders or Brokers..........................................22
3.32 Disclosure.....................................................22
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PROMEDCO AND PROMEDCO-
BERKSHIRE............................................................23
4.1 Organization and Standing of ProMedCo and ProMedCo-Berkshire....23
4.2 Prospectus; Financial Statements.................................23
4.3 Absence of Certain Changes......................................24
4.4 ProMedCo Stock..................................................24
4.5 Authority; Binding Effect.......................................24
4.6 No Finders or Brokers...........................................25
4.7 Consents and Approvals of Governmental Authorities..............25
4.8 ProMedCo Capitalization.........................................25
4.9 Consents and Approvals of Third Parties..........................25
4.10 Legal Proceedings...............................................25
4.11 Compliance with Laws...........................................26
4.12 Permits and Licenses...........................................26
4.13 Contracts......................................................26
4.14 Disclosure.....................................................26
4.15 Experience and Investigation...................................26
ARTICLE 5 COVENANTS OF PROMEDCO AND PROMEDCO-BERKSHIRE ......................27
5.1 Best Efforts to Secure Consents.................................27
5.2 Corporate Action................................................27
5.3 Handling of Documents...........................................27
5.4 Non-Disclosure..................................................27
5.5 Return of Records................................................27
5.6 Unusual Events..................................................27
ARTICLE 6 COVENANTS OF BP&S .................................................28
6.1 Access and Information..........................................28
6.2 Effect of Access.................................................28
6.3 Conduct of Business.............................................29
6.4 Compliance with Agreement.......................................29
6.5 Unusual Events..................................................29
6.6 Confidential Information........................................29
6.7 Return of Records................................................30
6.8 Interim Financial Statements....................................30
6.9 Departmental Violations.........................................30
6.10 Insurance Ratings..............................................30
6.11 Maintain Insurance Coverage....................................30
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6.12 Exclusive Dealings............................................31
ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BP&S ..................31
7.1 Representations and Warranties True............................31
7.2 Opinions of Counsel............................................31
7.3 Authority......................................................31
7.4 No Obstructive Proceeding......................................32
7.5 Delivery of Certain Certified Documents........................32
7.6 Approval by Stockholders of BP&S...............................32
7.7 Proceedings and Documents Satisfactory.........................32
7.8 Hart-Scott-Rodino Filings......................................32
7.9 No Agency Proceedings..........................................32
7.10 Closing Transactions..........................................33
7.11 Hedge..........................................................33
7.12 No Adverse Change..............................................33
ARTICLE 8 [RESERVED] .......................................................33
ARTICLE 9 TERMINATION......................................................35
9.1 Optional Termination...........................................35
9.2 Notice of Abandonment. ........................................36
9.3 Mandatory Termination..........................................36
9.4 Termination....................................................36
9.5 Shareholder Representative.....................................36
ARTICLE 10 SURVIVAL AND INDEMNIFICATION .....................................37
10.1 Nature and Survival of Representations........................37
10.2 Limited Grant of Indemnity by Former BP&S Shareholders........37
10.3 Limited Grant of Indemnity to Former BP&S Shareholders........38
10.4 Representation, Cooperation and Settlement....................38
10.5 Threshold and Limitations.....................................39
10.6 Remedies Cumulative...........................................40
ARTICLE 11 MISCELLANEOUS.....................................................40
11.1 Expenses......................................................40
11.2 Notices. .....................................................41
11.3 Certain Provisions of Employment Agreements....................41
11.4 Entire Agreement..............................................44
11.5 Alternative Dispute Resolution................................44
11.6 Governing Law.................................................44
11.7 Time..........................................................44
11.8 Section Headings..............................................44
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11.9 Waiver.........................................................44
11.10 Exhibits......................................................45
11.11 Assignment....................................................45
11.12 Binding on Successors and Assigns.............................45
11.13 Parties in Interest...........................................45
11.14 Amendments....................................................45
11.15 Drafting Party................................................45
11.16 Counterparts..................................................45
11.17 Reproduction of Documents.....................................46
11.18 Access to Records After Closing...............................46
11.19 Disclosure of Certain Information.............................46
11.20 Press Releases................................................46
APPENDIX 1 FORM OF CONVERTIBLE SUBORDINATED NOTE
APPENDIX 2.9 SERVICE AGREEMENT
Appendix 7.5 A thereto - Form of Professional Service Provider Security
Agreement Appendix 7.5 B thereto - Form of Exhibit A to UCC-1 Financing
Statement Appendix 7.5 C thereto - Form of Perfection Certificate
Appendix 7.5 D thereto - Form of Closing Certificate of Service
Provider
APPENDIX 7.2 FORM OF OPINION OF PROMEDCO-BERKSHIRE'S COUNSEL
APPENDIX 8.3 FORM OF OPINION OF BP&S'S COUNSEL
APPENDIX 8.5 FORM OF STOCK AGREEMENT
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Agreement for Statutory Merger
Agreement for Statutory Merger dated as of April 14, 1998, among
Berkshire Physicians & Surgeons, P.C., a Massachusetts professional corporation
("BP&S"), ProMedCo Management Company, a Delaware corporation ("ProMedCo") and
ProMedCo of Berkshire, Inc., a Massachusetts corporation ("ProMedCo-Berkshire"),
a wholly owned subsidiary of ProMedCo.
RECITAL:
BP&S operates a multi-specialty medical practice in and around
Berkshire County, Massachusetts. ProMedCo, through its subsidiaries, including
ProMedCo-Berkshire is engaged in the business of providing medical practice
facilities, non-medical personnel and medical practice management and
administrative services.
The parties hereby agree as follows:
ARTICLE 1 DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
"AdjustedBP&S Equity" means all the assets of BP&S shown on a balance sheet of
BP&S other than real estate and deferred tax assets less all
liabilities other than fees paid under the Interim Service Agreement
and BP&S Debt.
"Affiliate" means with respect to any Party, any entity which controls, is
controlled by, or is under common control with such party all as more
fully set forth in the rules and regulations of the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
"BP&S" means Berkshire Physicians & Surgeons, P.C., a Massachusetts professional
corporation.
"BP&S Debt" means the total of the following lines on the Definitive Closing
Statement: Line of Credit; Current Portion of Long Term Debt; Current
Portion of Capital Leases; Deferred Tax Liability; Long Term Debt, net
of current maturities; and Obligations under Capital Leases, net of
current portion.
"BP&S Financial Statements" is defined in ss. 3.5.
"BP&S Physicians" means the physicians licensed to practice medicine in
Massachusetts who are employed by BP&S on the date hereof pursuant to
Employment Agreements with BP&S which are in full force and effect on
the date hereof.
"Consideration" means the $23,425,518 as adjusted pursuant to ss. 2.10,
consisting of (i) such number of shares of ProMedCo Stock, rounded down
to the next whole share as is obtained by dividing $5,850,000 by the
Unit Share Price, (ii) $7,572,518 in principal amount of ProMedCo 4
3/4% Convertible Subordinated Notes in the form attached hereto as
Appendix
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1 (the "ProMedCo Notes"), (iii) $10,003,000 in cash, and (iv) the
Contingent Consideration, if any.
"COBRA" means Title X of the Consolidated Omnibus Budget Reconciliation Act of
1985, 26 U.S.C. ss. 162 et seq.
"Contingent Consideration" means the additional cash consideration amounts
described herein if ProMedCo's share of Managed Care Surpluses, net of
equalization adjustments, under the Service Agreement exceeds the
following amounts ("Targeted Amounts") during any of the following
periods:
Period Targeted Amount
------ ---------------
Eleven Months ended December 31, 1998 $84,180
Calendar year ended December 31, 1999 277,431
Calendar year ended December 31, 2000 992,678
Calendar year ended December 31, 2001 1,045,245
Calendar year ended December 31, 2002 1,095,730
by
$100,000 but less than $199,999.99, ProMedCo
shall pay the former shareholders of BP&S
additional cash consideration of $183,333 if
the year ended December 31, 1998 and
$200,000 with respect to that year if it
ended on December 31 1999, 2000, 2001 or
2002;
$200,000.00 but less than $299,999.99,
ProMedCo shall pay the former shareholders
of BP&S additional cash consideration of
$320,833 if the year ended December 31, 1998
and $350,000 with respect to that year if it
ended on December 31 1999, 2000, 2001 or
2002;
$300,000.00 or more, ProMedCo shall pay the
former shareholders of BP&S additional cash
consideration of $458,333 if the year ended
December 31, 1998 and $500,000 with respect
to that year if it ended on December 31
1999, 2000, 2001 or 2002;
with amounts being paid within 180 days
after the end of the relevant year.
"Closing" and "Closing Date" is April 16, 1998
"Code" means the Internal Revenue Code of 1986, as amended.
"Contracts" means any instrument listed in Exhibit 3.10.
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"CPA Firm" is defined in ss. 2.10(a).
"Definitive Closing Statements" is defined in ss. 2.10.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Exhibit Volume" means the volume of Exhibits referred to in this Agreement
prepared and delivered by BP&S.
"Final Closing Statement" is defined in ss. 2.10.
"Former BP&S Shareholders" means the individuals owning stock of BP&S in the
amounts as set forth in Exhibit 3.3.
"GAAP" means generally accepted accounting principles.
"Health Center Facility" means the Health Center facilities located at: (i) 137
North Street, Pittsfield, MA 01201; (ii) 99 West Street, Pittsfield, MA
01201; (iii) 777 North Street, Pittsfield, MA 01201; (iv) 212 South
Street, Pittsfield, MA 01201; (v) 44 Housatonic Street, Lenox, MA
01240; (vi) 27 Lewis Avenue, Great Barrington, MA 01230; (vii) 140 West
Avenue, Great Barrington, MA 01230; (viii) 38 Mahaiwe Street, Great
Barrington, MA 01230; (ix) 21 Taconic Avenue, Great Barrington, MA
01230; (x) Stockbridge Road, Lee, MA 01238; (xi) Salisbury Road,
Sheffield, MA 01257; (xii) 33 North Street, Dalton, MA 01226; (xiii)
Main Street, Canaan, CT 06018; (xiv) 125 Liberty Street, Springfield,
MA 01103; (xv) 29 Cottage Street, Amherst, MA 01002.
"Interim Service Agreement" means the Interim Service Agreement effective
February 1, 1998 between ProMedCo and BP&S.
"Inventory" means the inventory of BP&S.
"IRS" means the Internal Revenue Service.
"Managed Care Surplus" shall have the meaning ascribed thereto in the Service
Agreement.
"Medical Professional" shall have the meaning ascribed thereto in the Service
Agreement.
"Medical Professional Employment Agreement" is defined in ss. 2.9
"NBERK" means BP&S, P.C., a Massachusetts professional corporation.
"Pension Plan" and "Pension Plans" means any "employee pension benefit plan"
listed in Exhibit 3.23.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust or unincorporated organization.
"ProMedCo-Berkshire Distribution" shall have the meaning ascribed thereto in the
Service Agreement.
"ProMedCo" means ProMedCo Management Company, a Delaware corporation which is
the sole shareholder of ProMedCo-Berkshire.
"ProMedCo-Berkshire" means ProMedCo of Berkshire, Inc., a Massachusetts
corporation.
"ProMedCo Notes" is defined in the definition of Consideration.
"ProMedCo Stock" means the $.01 par value Common Stock of ProMedCo.
"Service Agreement" means the Service Agreement effective April 1, 1998 between
ProMedCo-Berkshire and NBERK.
"Shareholder Representative" is defined in ss. 9.5.
"Stock Agreement" means the Stock and Registration Rights Agreement attached as
Appendix 8.5.
"Third Party Payor Program" means a medical care reimbursement scheme operated
by an individual, organization, firm, or governmental entity, including
but not limited to a self-insured employer, employer coalition, health
insurance purchasing cooperative, insurer, health maintenance
organization, preferred provider organization, physician-hospital
organization, independent practice association, Medicare, Medicaid, or
similar organization.
"to the knowledge of BP&S" or "to the best knowledge of BP&S" and words and
phrases substantially similar thereto, shall mean to the actual
knowledge of (i) Peter Zwerner, M.D., President of BP&S; (ii) Philip S.
Volastro, M.D., Medical Director of BP&S; (iii) James Wonnacott, Chief
Administrative Officer of BP&S; or (iv) John Greeley, Chief Financial
Officer of BP&S.
"Unit Share Price" means the average closing price per share of ProMedCo
Stock on NASDAQ for the five trading days immediately preceding the
Closing,
ARTICLE 2. MERGER AND OTHER TRANSACTIONS
2.1 Merger of BP&S and ProMedCo-Berkshire. On the Effective Date (as
defined in ss. 2.2 hereof), ProMedCo-Berkshire shall be merged with and into
BP&S in accordance with the applicable laws of the Commonwealth of Massachusetts
as provided in Articles of Merger ("Articles of Merger") to be prepared by
Boult, Cummings, Conners & Berry, PLC and subject to the approval of BP&S and
ProMedCo-Berkshire, which sets forth the Plan of Merger, certain provisions of
which are as follows:
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2.1.1 Surviving Corporation. BP&S shall be the surviving
corporation (the "Sur viving Corporation") from and after the Effective
Date, and the name of the Surviving Corporation shall be "Commonwealth
Health Management Services, Inc." On the Effective Date, the separate
existence of ProMedCo-Berkshire shall cease, and the Surviving Corpo
ration shall without other transfer succeed to all the rights and
property, subject to all debts and liabilities, of BP&S and
ProMedCo-Berkshire in the same manner as if the Surviving Corporation
itself had incurred them.
2.1.2 Articles of Organization. From and after the Effective
Date, the Articles of Organization of the Surviving Corporation shall
be amended and restated be substantially the same as ProMedCo-Berkshire
immediately prior to the Closing.
2.1.3 By-Laws. From and after the Effective Date, the by-laws
of the ProMedCo-Berkshire as they exist on the date hereof shall be the
by-laws of the Surviving Corporation.
2.1.4 Directors and Officers. The directors and officers of
ProMedCo-Berkshire immediately prior to the Effective Date shall be the
officers and directors, respectively, of the Surviving Corporation, to
serve, in both cases, until their successors shall have been elected
and shall qualify or until otherwise provided by law and the Articles
of Organization and by-laws of the Surviving Corporation.
2.1.5 Exchange of Shares for Cash and/or Securities. The
manner and basis of exchanging and converting the shares of common
stock of the ProMedCo-Berkshire and BP&S on the Effective Date shall be
as follows:
(a) Common Stock of ProMedCo-Berkshire. By virtue of the Merger and without any
action of the holder thereof each share of common stock of
ProMedCo-Berkshire outstanding on the Effective Date shall remain out
standing and unchanged as a share of the common stock of the Surviving
Corporation.
(b) Common Stock of BP&S. By virtue of the merger and without any action of the
holders thereof each share of the $1.00 par value common stock of BP&S (the
"BP&S Common Stock") outstanding at the Effective Date (other than the
Dissenting Shares, if any) shall be reclassified into the right to receive
the portion of each component of the Consideration determined in accordance
with the exchange formula set forth inss.2.1.7 hereof and distributable in
accordance with the time schedule set forth in such section, except that
any share of BP&S Common Stock then owned by BP&S shall be canceled,
retired and cease to exist such that no Consideration shall be delivered in
exchange therefor. All BP&S stock options not exercised prior to the
Closing Date shall be canceled.
2.1.6 Rights of BP&S's Stockholders Pending and Upon Surrender
of Certificates. From and after the Effective Date, except as provided
in the Massachusetts Business Corporation Law with respect to rights of
dissenting stockholders, each holder of a certificate representing
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shares of BP&S Common Stock shall be entitled, upon surrender thereof
to the Surviving Corporation, to receive in exchange therefor the
portion of the Consideration to which such holder would otherwise be
entitled on the basis provided for in ss.2.1.5(b) of this Agreement.
2.1.7 BP&S Exchange Formula. As a result of the Closing, each
share of BP&S Common Stock (other than the Dissenting Shares, if any)
shall be exchanged for the right to receive the portion of each
component of the Consideration obtained by dividing (x) Consider ation,
as adjusted pursuant to ss. 2.10, by (y) the number of shares of BP&S
Common Stock issued and outstanding immediately prior to the Effective
Date. Immediately after the Closing, the portion of Consideration
consisting of components other than ProMedCo Stock and Contingent
Consideration (the "Initial Portion of the Consideration") shall be
distributed to the Former BP&S Shareholders and on the earlier of:
(i) the day, if any, occurring between the beginning of
the 180th day after the Closing and the first
anniversary of the Closing on which ProMedCo sells
securities to the public pursuant to an underwritten
public offering, or
(ii) first day after the first anniversary of the Effective Date,
the balance of the Consideration other than Contingent Consideration
due hereunder (the "Balance of the BP&S Consideration") shall be
distributed to the Former BP&S Shareholders. The Surviving Corporation
shall not deliver any fraction of a share of ProMedCo Stock but will
deliver a whole number of shares of ProMedCo Stock rounded down to a
whole number with the value of the fractional share being paid in cash.
Contingent Consideration will be distributed on the dates contemplated
in the definition thereof.
2.2 Closing and Effective Date of Merger. At the closing (the
"Closing"),
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but in no event later than July 31, 1998 (the "Closing Date") at the offices of
McDermott, Will & Emery, in Boston, MA, in addition to other actions
contemplated hereunder, BP&S and ProMedCo-Berkshire shall execute in accordance
with the Massachusetts Business Corporation Law, and shall cause to be filed and
recorded with the appropriate offices under the laws of the Commonwealth of
Massachusetts copies of the Articles of Merger relating to the Merger and such
officers' certificates and other documents as may be necessary or appropriate in
the opinion of counsel to ProMedCo to cause the Merger to become effective under
the laws of the Commonwealth of Massachusetts. The Merger shall become effective
at the time the Articles of Merger are duly filed with the Secretary of State of
Massachusetts (the "Effective Date").
2.3 Further Assurances. The Surviving Corporation, through its
appropriate officers and direc tors, is hereby authorized, in the name of
ProMedCo-Berkshire or BP&S , or itself, to execute, acknowl edge and deliver all
instruments of further assurance and to do all such acts and things as it may,
at any time, deem necessary or desirable to vest in the Surviving Corporation
any property or rights of either BP&S or ProMedCo-Berkshire, or to carry out any
of the purposes expressed in this Agreement.
2.4 Dissenting Stockholders of BP&S. Each stockholder of BP&S, if any,
who becomes entitled, pursuant to ss. 90 of the Massachusetts Business
Corporation Law, to payment of the fair value of his BP&S Common Stock (a
"Dissenting Stockholder") shall receive payment therefor from the Surviving
Corporation but only after the value thereof shall have been agreed upon or
finally determined pursuant to such provisions. Shares of BP&S Common Stock
acquired by either BP&S or the Surviving Corporation from Dissenting
Stockholders shall be canceled. Any such payment shall be a deduction from the
Consideration to the extent provided in ss. 2.10(e).
2.5 Effect of Merger. The Merger shall have the effects set forth in
Chapter 156B, Section 80 of the Massachusetts Corporation Law.
2.6 ProMedCo Stock. All shares of ProMedCo Stock to be distributed to
the holders of BP&S Common Stock pursuant to the Merger shall be duly and
validly issued, fully paid and nonassessable.
2.7 Anti-Dilution Provisions. If after the date hereof and prior to the
Effective Date, ProMedCo shall have declared a stock split (including a reverse
split) of ProMedCo Stock or a dividend payable in ProMedCo Stock, or any other
distribution of securities or dividend (in cash or otherwise) to holders of
ProMedCo Stock with respect to their ProMedCo Stock (including without
limitation such a distribution or dividend made in connection with a
recapitalization, reclassification, merger, consolidation, reorganization or
similar transaction) then the Consideration and amounts of ProMedCo Stock
subject to registration rights shall be appropriately adjusted to reflect such
stock split or dividend or other distribution of securities.
2.8 Legend. The certificates representing the ProMedCo Common Stock
issued to the Former BP&S Shareholders as the result of the merger shall bear
the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR
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OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH
SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH STATE LAWS, OR PURSUANT
TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT AND SUCH LAWS. TRANSFER OF THESE SHARES IS ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS SET FORTH IN THE STOCK AND REGISTRATION RIGHTS
AGREEMENT DATED _______, 1998 BETWEEN THE COMPANY AND THE HOLDER
HEREOF."
and the ProMedCo Notes will bear a restrictive legend in substantially the
following form:
"THIS NOTE AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH NOTE OR SHARES ARE
REGISTERED UNDER SUCH ACT, OR PURSUANT TO AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. TRANSFER OF
THIS NOTE IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS SET FORTH IN THE
STOCK AND REGISTRATION RIGHTS AGREEMENT DATED _______, 1998 BETWEEN THE
COMPANY AND THE HOLDER HEREOF."
2.9 Other Transactions at the Closing. In addition to the transactions
set forth above, the following additional transactions shall occur
simultaneously with the execution of this Agreement:
- - (a) NBERK and the Surviving Corporation shall enter into a
Service Agreement in the form attached hereto as Appendix 2.9B
to be effective on the Closing Date.
(b) NBERK shall enter into employment agreements, effective on the
Closing Date, conforming to the requirements of the ss. 11.3
hereof and of the Service Agreement (the "Medical Professional
Employment Agreements") with each BP&S Physician who agrees to
participate in the Merger.
(c) NBERK shall execute and deliver instruments in the form of the
other appendices to the Service Agreement (i.e., the
Professional Service Provider Agreement in the form attached
thereto as Appendix 7.5A, UCC-1 Financing Statement with an
Exhibit A in the form attached thereto as Appendix 7.5B,
Closing Certificate of Service Provider in the form attached
thereto as Appendix 7.5C, and Perfection Certificate of
Service Provider in the form attached thereto as Appendix
7.5D) to be effective on the Closing Date.
(d) ProMedCo shall cause the BP&S Debt to be paid in full and
discharged as of the Closing Date.
<PAGE>
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2.10 Consideration Adjustments.
(a) Definitive Closing Statements. Within 120 days after the Closing or by such
time as is reasonable under the circumstances, ProMedCo shall prepare and
deliver to the Former BP&S Shareholders and the Shareholder Representative
a final combined balance sheet of BP&S as of the Closing Date ("Final
Closing Statement"). ProMedCo covenants that the Final Closing Statement
shall be true, complete and accurate and will present fairly the assets and
liabilities of BP&S as at the Closing Date, calculated in accordance with
GAAP as presented in the BP&S Financial Statements (as defined inss.3.5),
and the requirements of this Agreement. The BP&S Shareholders and the
Shareholder Representative and their representatives shall be provided
access to the books and records of BP&S as necessary to verify the accuracy
of such calculations. If within 60 business days of receipt of the Final
Closing Statement, the Shareholder Representative fails to deliver to
ProMedCo written notice specifying any unacceptable entries on the Final
Closing Statements and the reasons therefor, then such Final Closing
Statement shall constitute the Definitive Closing Statement. If the
Shareholder Representative timely and duly delivers such notice within 60
business days of receipt thereof, the parties shall attempt in good faith
to resolve the differences, and if they are unable to do so, within 30 days
thereafter either party may deliver the Final Closing Statement to a "big
six" accounting firm chosen by ProMedCo, which shall not be the accounting
firm which audits the financial statements of ProMedCo (the "CPA Firm"),
who shall have 20 business days to review the Final Closing Statement and
make such adjustments thereto as it deems necessary to ensure that the
Final Closing Statement has been prepared in accordance with GAAP as
presented in the BP&S Financial Statements calculated on a consistent basis
and the requirements of this Agreement and conform to consistently ap plied
generally accepted accounting principles. The Final Closing Statement as so
adjusted shall constitute the Definitive Closing Statement and shall be
binding on Pro MedCo and the Former BP&S Shareholders. If the total amount
payable by ProMedCo pursuant to clause (b), (c), (d) or (e) below increases
from that shown on the Final Closing Statement, ProMedCo shall pay the fees
and expenses of the CPA Firm, otherwise such fees and expenses shall be
borne by the BP&S Shareholders. Notwithstanding anything to the contrary
herein, in the event that any material surplus or risk pool calculations
(whether positive or negative) accrued under any risk contract in effect as
of the Closing Date between Blue Cross-Blue Shield of Massachusetts and
BP&S (or Commonwealth Health Management Services, Inc. or Commonwealth IPA)
has not been liquidated as of the date of the Final Closing Statement or
the Definitive Closing Statement, as the case may be (each a "BCBS
Accrual"), ProMedCo shall prepare and deliver to the Former BP&S
Shareholders an Amendment to the Final Closing Statement or Definitive
Closing Statement, as the case may be, when such BCBS Accrual is
liquidated, which Amend ment shall reflect the liquidated amount of the
BCBS Accrual; and in such case each reference in this Agreement to the term
"Final Closing Statement" shall mean as amended by such Amendment to the
Final Closing Statement, and each reference in this Agreement to
"Definitive Closing Statement" shall mean as amended by such Amendment to
the Definitive Closing Statement.
<PAGE>
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(b) Equity Adjustment. To the extent that the Definitive Closing Statement
shows Adjusted BP&S Equity at Closing to be less than Adjusted BP&S Equity
on the BP&S Audited Financial Statements as of December 31, 1997, the
Consideration shall be reduced on a dollar-for-dollar basis.
(c) Excess Debt Adjustment. To the extent the Definitive Closing Statement
shows BP&S Debt in excess of $6,067,639, the Consideration shall be reduced
on a dollar-for-dollar basis.
(d) Initial BP&S Physician Adjustment. The parties agree that in the event any
of the BP&S Physicians have not, as of the Closing Date, signed a Medical
Professional Employment Agreement (the "Non-Signing BP&S Physicians"), the
Consideration will be reduced by an amount equal to (x) 1.4 multiplied by
(y) the difference obtained by subtracting (1) the amount of Health Center
Expenses attributable to each Non-BP&S Physician for the twelve months
prior to March 31, 1998 from (2) the amount of Net Health Center Revenue
attributable to the physician over the same period (as such terms are
defined in the Service Agreement below) in each case annualized if such
Non-Signing BP&S Physician had been associated with BP&S for less than a
full year; provided however, such adjustment shall be made only if the
aggregate difference between Health Center Expenses and Health Center
Revenues for all such Non-Signing BP&S Physicians exceeds $350,000, in
which case the adjustment shall apply to the entire difference.
(e) Payments to Dissenting Shareholders. Consideration shall be reduced or
increased, as the case may be, on a dollar-for-dollar basis to the extent
payments made to Dissenting Shareholders by ProMedCo or the Surviving
Corporation are more or less than $630,000.
(f) NOL. Consideration will be increased on a dollar-for-dollar basis in an
amount equal to the present value, discounted at 10% per annum over the
shortest period permitted by ss. 382 under the Code, of 35% of the sum of
the cumulative NOL stated in BP&S's 1997 Federal income tax return plus any
additional NOL resulting from BP&S's 1998 operations. If the Surviving
Corporation is entitled to utilize the NOL to offset Massachusetts
corporate income taxes, the 35% figure in the preceding sentence shall be
increased to 38%.
Any reduction or increase in the Consideration resulting from clauses (b), (c),
(d), (e) or (f) of this ss. 2.10 shall be accomplished by first reducing or
increasing, as the case may be, the principal amount of the ProMedCo Convertible
Preferred Notes, and if the net result of such adjustments is a reduction in the
Consideration and such reduction exhausts the principal of the ProMedCo
Convertible Preferred Notes, then the other components of the Consideration,
starting with cash, shall be reduced. To the extent such adjustment are effected
though increases or decreases in the number of shares of ProMedCo Stock issuable
hereunder, the reduction (or increase, as the case may be) shall be at the rate
of one share of ProMedCo Stock for each Unit Share Price, rounded down, to the
next whole share equal to the difference. Notwithstanding the foregoing, any
reduction in Consideration pursuant to clause (c) of this ss. 2.10 in excess of
$500,000 shall be effected through a reduction in the cash portion of the
Consideration first.
<PAGE>
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ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BP&S
BP&S hereby represents and warrants to ProMedCo-Berkshire as follows:
3.1 Organization, Corporate Power and Qualification. BP&S is a
professional corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and has full corporate power
and authority and all authorizations, licenses and permits necessary to own,
lease and operate its properties and assets and to carry on its business as and
where it is now being conducted, to enter into this Agreement, and to consummate
the transactions contemplated hereby. BP&S is duly qualified to do business and
is in good standing in each jurisdiction in which the character of the
properties owned or leased by it or the nature of the business transacted by it
makes such qualification necessary. BP&S is qualified to do business in the
states and foreign countries listed in Exhibit 3.1A of the Exhibit Volume. No
jurisdiction where BP&S is not presently qualified as a foreign corporation has
made any assertion that such corporation's business or ownership of property
makes qualification as a foreign corporation in such jurisdiction necessary. A
copy of the Articles of Organization and all amendments thereto as of the date
hereof of BP&S and a copy of its by-laws, as amended to the date hereof (both
certified by the Secretary of BP&S), are included as Exhibit 3.1B of the Exhibit
Volume and are true, accurate and complete as of the date hereof. BP&S is not in
default under or in violation of any provision of its Articles of Organization
or bylaws.
3.2 Authority; Binding Effect. Subject to satisfaction of the
conditions precedent set forth herein, BP&S has full power and authority to
enter into this Agreement and, subject to the convening of a stockholders'
meeting and the approval of stockholders as required by Massachusetts law and
under the terms of that certain Amended and Restated Stockholders Agreement
dated January 1, 1998 as amended (the "BP&S Stockholders Agreement"), to carry
out the transactions contemplated hereby. The Board of Directors of BP&S has
taken all corporate action required by law and by BP&S's Articles of
Organization and by-laws, or otherwise, to authorize the execution and delivery
of this Agreement and the transactions contemplated hereby. The execution,
delivery, and performance of this Agreement constitutes the valid and binding
agreement of BP&S enforceable in accordance with its terms (except as the same
may be restricted, limited or delayed by applicable bankruptcy or other laws
affecting creditors' rights generally and except as to the remedy of specific
performance which may not be available under the laws of various jurisdictions)
assuming that this Agreement has been duly authorized, delivered and executed by
ProMedCo and ProMedCo-Berkshire and constitutes the valid and binding
obligation, enforceable against ProMedCo and ProMedCo-Berkshire in accordance
with its terms (except as enforceability against ProMedCo and ProMedCo-Berkshire
may be restricted, limited or delayed to the same extent as referred to in
parenthetical phrase immediately above). Assuming that all indebtedness of BP&S
to BankBoston made under its existing Line of Credit is discharged in full at
Closing, the execution, delivery and performance of this Agreement is not in
conflict with any other material agreement to which BP&S is a party, and will
not result in the acceleration or imposition of any other obligation against
BP&S.
3.3 Capitalization of BP&S. The authorized capital stock of BP&S
consists of 10,000 shares of $1.00 par value common stock, of which as of the
date hereof, 360 shares are validly issued and outstanding. There are no voting
trusts, proxies, or any other agreements or understandings with respect to the
voting stock of BP&S other than the BP&S Stockholders Agreement. Attached hereto
as Exhibit
<PAGE>
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3.3 is a complete and accurate capitalization schedule listing all of the
shareholders of BP&S as of the Closing Date, and the number of shares of BP&S
stock held by each.
3.4 Subsidiaries, Affiliates, Affiliated Companies and Joint Venture.
Except as set forth in Exhibit 3.4, BP&S has no direct or indirect ownership
interest in, by way of stock ownership or otherwise, any corporation,
association or business enterprise. Each corporation in which BP&S has a
controlling interest ("Subsidiary"): is (i) a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts and has full corporate power and authority and all authorizations,
licenses and permits necessary to own, lease and operate its properties and
assets and to carry on its business as and where it is now being conducted, to
enter into this Agreement, and to consummate the transactions contemplated
hereby; (ii) duly qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
the nature of the business transacted by it makes such qualification necessary;
and (iii) is qualified to do business in the states and foreign countries listed
in Exhibit 3.4. No jurisdiction where a Subsidiary is not presently qualified as
a foreign corporation has made any assertion that such corporation's business or
ownership of property makes qualification as a foreign corporation in such
jurisdiction necessary. A copy of the Articles of Organization and all
amendments thereto as of the date hereof of each Subsidiary and a copy of its
by-laws, as amended to the date hereof (both certified by the Secretary of such
Subsidiary, are included in Exhibit 3.4 and are true, accurate and complete as
of the date hereof. No Subsidiary is in default under or in violation of any
provision of its Articles of Organization or bylaws.
3.5 Financial Statements. Exhibit 3.5 consists of the following
financial statements of BP&S: balance sheet of BP&S at December 31, 1997 and the
related statements of operations, stockholders' equity and cash flow for the
year then ended, together with the audit opinion report thereon of Coopers &
Lybrand, LLC, independent public accountants (such financial statements and the
related notes being herein called "BP&S Financial Statements").
The BP&S Financial Statements are true, complete and accurate, have
been based upon the information contained in the books and records of BP&S and
present fairly the assets, liabilities and financial condition of BP&S as of the
dates thereof and the results of its operations for the periods then ended,
prepared in conformity with generally accepted accounting principles.
3.6 Professional Income. Exhibit 3.6 lists all medical directorships
and other sources of professional income and the amounts thereof derived by
physicians associated with BP&S which are not reflected in the statements of
operations contained in the BP&S Financial Statements.
3.7 Absence of Undisclosed Liabilities. Except as disclosed herein or
in the exhibits hereto or as and to the extent reflected or reserved against in
the BP&S Financial Statements and except for commitments and obligations
incurred in the ordinary course of business and consistent with past practice
accruing after December 31, 1997, BP&S as of December 31, 1997, had, or will
have at Closing, no liabilities, claims or obligations (whether accrued,
absolute, contingent, unliquidated or otherwise, whether or not known to BP&S or
any directors, officers or employees of BP&S, whether due to become payable and
regardless of when or by whom asserted).
<PAGE>
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3.8 Absence of Certain Recent Changes. Except as expressly provided in,
or contemplated under, this Agreement or as set forth on Exhibit 3.8 in
alphabetical order corresponding to the following subsections, since December
31, 1997, BP&S has not:
(a) except in the usual and ordinary course of its business,
consistent with past practice, and in an amount which is
reasonable under the circumstances then in effect, incurred
any indebtedness or other liabilities (whether accrued,
absolute, contingent or otherwise), guaranteed any
indebtedness or sold any of its assets;
(b) transferred, disposed of, or further encumbered or pledged any
of its assets other than in the usual and ordinary course of
its business;
(c) suffered any damage, destruction or loss, whether or not
covered by insurance, in excess of $10,000;
(d) suffered the resignation or other termination of any
management personnel of BP&S, or the loss of or other
termination of a business relationship with any material
customers or suppliers of BP&S's business;
(e) increased the regular rate of compensation payable by it to
any employee other than normal merit and cost of living
increases granted in the ordinary course of business; or
increased such compensation by bonus, percentage, compensation
service award or sim ilar arrangement theretofore in effect
for the benefit of any of its employees, and no such increase
is required;
(f) established or agreed to establish, amended or terminated any
pension, retirement or welfare plan or arrangement for the
benefit of its employees not theretofore in effect;
(g) outside of changes (x) in the ordinary course of business or
(y) reflected in internal monthly management financial
reports, suffered any change in its financial condition,
assets, liabilities, operations, prospects or business or
suffered any other event or con dition of any character which
individually or in the aggregate has or might reasonably have
a material adverse effect on BP&S;
(h) experienced any labor organizational efforts, strikes or
complaints other than grievance procedures in the ordinary
course of business or entered into any collective bargaining
agreements with any union;
(i) made any single capital expenditure which exceeded $5,000 or
made aggregate capital expenditures which exceeded $10,000;
(j) except with respect to liens or encumbrances arising by
operation of law, permitted or al lowed any of its assets to
be subjected to any pledge, lien, security interest,
encumbrance, restriction or charge of any kind;
<PAGE>
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(k) written down the value of any of its assets, or written off as
uncollectible any notes or accounts receivable, except for
write-downs and write-offs in the ordinary course of busi ness
and consistent with past practice, none of which are material
or revalued any of its assets;
(l) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise) other
than in the usual and ordinary course of business;
(m) suffered any extraordinary losses, canceled any debts or
waived any claims or rights of substantial value, not in the
usual and ordinary course of business;
(n) paid, lent or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or
arrangement with, any stockholder of BP&S or any of the
officers or directors of BP&S or of any "Affiliate" of any of
its officers or directors, except for reimbursement of
ordinary and reasonable business expenses related to the
business of BP&S and com pensation to officers at rates not
exceeding the rates of compensation at December 31, 1997;
(o) amended, terminated or otherwise altered (whether by action or
inaction) any contract, agreement or license of significant
value to which BP&S is a party, except in the ordinary course
of business;
(p) entered into a material transaction other than in the ordinary
course of business or made any change in any method of
accounting or accounting practice;
(q) canceled, or failed to continue, insurance coverages; or
(r) agreed, whether in writing or otherwise, to take any action
described in this ss. 3.8.
3.9 Title to Assets. The assets of BP&S consisting of owned tangible
and intangible personal property are subject to no liens or encumbrances except
the security interests of record set forth on Exhibit 3.9 of the Exhibit Volume,
which Exhibit is a copy of a Uniform Commercial Code ("UCC") search as of a
recent date duly obtained by ProMedCo. There are no other security interests of
record. Such assets constitute all the assets necessary for the continued
operation of the Health Center Facility consistent with past practice.
3.10 Contracts. Exhibit 3.10 of the Exhibit Volume contains a copy of
each written contract, lease, agreement and other instrument to which BP&S is a
party or is bound which involves an unperformed commitment or obligation
(contingent or otherwise) of more than $10,000 in the aggregate, including,
without limitation, the following: service agreements, maintenance agreements,
bank loans and equipment financings, real estate leases, payor contracts,
professional service agreements, software licensing agreements and other
agreements. To the best of BP&S's knowledge and except as noted in such Exhibit
3.10: (i) all such contracts, leases and agreements are in full force and
effect; (ii) there has been no threatened cancellation thereof; (iii) there are
no outstanding disputes thereunder; (iv) each is
<PAGE>
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with unrelated third parties and was entered into on an arms-length basis in the
ordinary course of business and all will continue to be binding in accordance
with their terms after consummation of the transactions contemplated hereby; and
(v) there are no employment agreements or other agreements to which BP&S is a
party or by which BP&S is bound that contain any severance or termination pay
liabilities or obligations.
To its best knowledge, BP&S is not, as of the date of this Agreement, a
party to or bound by any agreement, contract, understanding or business venture
with any physician, other provider or any other Person which violates the
Medicare/Medicaid Fraud and Abuse amendments or any regulations thereunder
adopted by the U.S. Department of Health and Human Services.
3.11 Absence of Related Party Transactions. Except as disclosed on
Exhibit 3.11, neither BP&S, nor to the knowledge of BP&S any shareholder,
officer, director or affiliate of BP&S, has any material direct or indirect
financial or economic interest in any competitor or supplier of BP&S. BP&S is
not a party to any transaction or proposed transaction, including without
limitation the leasing of property, the purchase or sale of materials or goods
(except with respect to BP&S's service business) or the furnishing of its
services (except as employees of BP&S), with any Affiliate of BP&S, or, to the
knowledge of BP&S, any immediate family member of a shareholder of BP&S; and
BP&S has not directly or indirectly entered into any agreement or commitment
which could result in BP&S becoming obligated to provide funds in respect of or
to assume any obligation of any such Affiliated or other person. Except as set
forth on Exhibit 3.11, there are no debts owing to BP&S by, or any contractual
agreements or understandings between BP&S and, any shareholder, director or
officer of BP&S, or, to the knowledge of BP&S, any member of their respective
families, or any Affiliate, and none of the foregoing individuals or any
Affiliate of them owns any property or rights, tangible or intangible (other
than an equitable interest), used in or related to BP&S's business. BP&S is not
indebted to any shareholder, officer, director or employee of BP&S, or to any
member of their respective families, or to any Affiliate of any of the foregoing
individuals, in any amount whatsoever, other than for payment of salaries and
compensation for services actually rendered to BP&S in the ordinary course of
their businesses.
3.12 Defaults. Except as disclosed in Exhibit 3.12, BP&S is not in
default under, nor has any event occurred which, with the lapse of time or
action by a third party, could result in a default under any outstanding
indenture, mortgage, contract, instrument or agreement to which BP&S is a party
or by which BP&S may be bound or under any provision of the Articles of
Organization or by-laws of BP&S. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not violate any provision of, or result in the breach of, or
constitute a default under, any order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal; constitute a violation of or a
default under, or a conflict with, any term or provision of the Articles of
Organization or by-laws of BP&S, or (assuming the BankBoston line of credit is
discharged at Closing) any material contract, commitment, indenture, lease,
instrument or other agreement, or any other restriction of any kind to which
BP&S is a party or is bound; or cause, or give any party grounds to cause (with
or without notice, the passage of time or both) the maturity of any liability or
obligation of BP&S, to be accelerated, or increase any such liability or
obligation.
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3.13 Inventory. The inventory reflected on the BP&S Financial
Statements consists of a quality and quantity usable in the ordinary course of
business and is carried on the balance sheet included in the BP&S Financial
Statements at the lower of cost or market, except for items of obsolete
materials and materials of below standard quality, substantially all of which
have been written down in the balance sheet included in the BP&S Financial
Statements to net realizable market value or for which adequate reserves have
been provided in the balance sheet included in the BP&S Financial Statements.
The present quantity of the inventory of BP&S is reasonable and warranted in the
present circumstances of the business conducted by BP&S. The only transactions
related thereto since December 31, 1997 have been additions, dispositions or
sales in the ordinary course of business.
3.14 Equipment. All assets of BP&S consisting of equipment are well
maintained and in good operating condition and are sufficient for their current
purpose, except for reasonable wear and tear. The present quantity of all such
equipment of BP&S is reasonable and warranted in the present circumstance of the
business conducted by BP&S and its subsidiaries. The only transactions related
thereto since December 31, 1997, have been additions thereto and dispositions
thereof in the ordinary course of business.
3.15 Receivables. All notes and accounts receivable of BP&S shown on
the BP&S balance sheet and all those arising since the balance sheet dates have
arisen in the ordinary course of business. Attached as Exhibit 3.15 is a true
and correct aging of the accounts receivable currently on the books and records
of BP&S.
3.16 Permits and Licenses. Included as Exhibit 3.16 in the Exhibit
Volume is a schedule of permits and licenses, listing and briefly describing
each material permit, license or similar authorization from each governmental
authority issued with respect to the operation or ownership of properties by
BP&S together with the designation of the respective expiration dates of each
(if any), and also listing and briefly describing each association in which BP&S
is a member and each association or governmen tal authority by which BP&S is
accredited or otherwise recognized. BP&S is not required to obtain any
additional permits, licenses or similar authorizations (including, without
limitation, any additional certificates of need) from any governmental authority
for the proper conduct of its business as of the date hereof or to become a
member of or accredited by any association or governmental authority other than
those listed on Exhibit 3.16 in the Exhibit Volume, and except as listed on
Exhibit 3.16, there are no proceedings pending, or to the best of BP&S's
knowledge, threatened, which may result in the revocation, cancellation,
suspension, or other adverse modification of, any license or permit listed in
Exhibit 3.16.
3.17 Litigation, etc. Except as set forth in Exhibit 3.17 of the
Exhibit Volume: (i) there is no litigation, arbitration, governmental claim,
investigation or proceeding pending or, to the knowledge of BP&S, threatened
against BP&S at law or in equity, before any court, arbitration tribunal or
governmental agency; (ii) no such proceeding set forth in Exhibit 3.17 concerns
the ownership or other rights with respect to the assets of BP&S; (iii) BP&S has
received no notice from a third party that there are facts based on which
material claims may be hereafter made against BP&S; and (iv) all claims and
litigations against BP&S are fully covered by insurance.
3.18 Court Orders, Decrees and Laws. There is no outstanding or, to the
knowledge of BP&S, threatened, order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal in
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<PAGE>
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which BP&S is a party affecting BP&S or its assets. The operation of the
business of BP&S as currently conducted by BP&S is not in material violation of
any applicable federal, state or local law, regulation or administrative order
which is material to the business of BP&S, and BP&S has received no notices of
alleged violations thereof. To the knowledge of BP&S, no governmental
authorities are presently conducting proceedings against BP&S and no such
investigation or proceeding is pending or being threatened.
3.19 Taxes. Except as set forth in Exhibit 3.19 of the Exhibit Volume,
all federal, state and other tax returns of BP&S required by law to be filed
have been timely filed, and BP&S has paid or provided for all taxes (including
taxes on properties, income, franchises, licenses, sales and payrolls) which
have become due pursuant to such returns or pursuant to any assessment, except
for any taxes and assessments of which the amount, applicability or validity is
currently being contested in good faith by appropriate proceedings and with
respect to which BP&S has set aside on its books adequate reserves. All such tax
returns have been prepared in compliance with all applicable laws and
regulations and are true and accurate in all respects. The amounts set up as
provisions for taxes (including provision for deferred income taxes) on the BP&S
Financial Statements are sufficient for the payment of all unpaid federal,
state, county and local taxes accrued for or applicable to all periods (or
portions thereof) ending on or before the Closing Date. There are no tax liens
on any of the assets of BP&S except those with respect to taxes not yet due and
payable and except for any taxes and assessments of which the amount,
applicability or validity is currently being contested in good faith by
appropriate proceedings and with respect to which BP&S has set aside on its
books adequate reserves. There are no pending tax exami nations nor has BP&S
received a revenue agent's report asserting a tax deficiency. No written claim
has been received by BP&S from a taxing authority in a jurisdiction where BP&S
does not file tax returns asserting that BP&S is or may be subject to taxes
assessed by such jurisdiction. BP&S has withheld from each payment made to its
employees the amount of all taxes (including, but not limited to, federal, state
and local income taxes and Federal Insurance Contribution Act taxes) required to
be withheld therefrom and all amounts customarily withheld therefrom, and has
set aside all other employee contributions or payments customarily set aside
with respect to such wages and has paid or will pay the same to, or has
deposited or will deposit such payment with, the proper tax receiving officers
or other appropriate authorities.
3.20 Immigration Act. BP&S is in compliance with the terms and
provisions of the Immigration Act in all material respects. For each employee
(as defined in 8 C.F.R. ss.274a.1(f)) of BP&S for whom compliance with the
Immigration Act by BP&S is required, BP&S has obtained and retained a complete
and true copy of each such employee's Form I-9 (Employment Eligibility
Verification Form) and all other records or documents prepared, procured or
retained by BP&S pursuant to the Immigration Act. BP&S has not been cited,
fined, served with a Notice of Intent to Fine or with a Cease and Desist Order,
nor, to BP&S's knowledge, has any action or administrative proceeding been
initiated or threatened against BP&S, by reason of any actual or alleged failure
to comply with the Immigration Act.
3.21 Program Compliance. To the best of BP&S's knowledge, neither BP&S
nor any of its shareholders, employees or agents (acting on matters for which
BP&S is held legally responsible) have engaged in or is being investigated for
any activities which are prohibited under either (a) Section 1320a- 7a or
1320a-7b of Title 42 of the United States Code, (b) Section 1395nn of Title 42
of the United States Code, or (c) Section 3729 of Title 31 of the United States
Code, or the regulations promulgated
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thereunder, or any similar or related state or local statutes or regulations, or
which are prohibited by rules of professional conduct, including, but not
limited to, the following: (i) knowingly presenting or causing to be presented a
false claim for payment, (ii) knowingly making or using a false record in order
to receive payment for a claim, (iii) knowingly and willfully making or causing
to be made a false statement or representation of a material fact in any
application for any benefit or payment; (iv) knowingly and willfully making or
causing to be made any false statement or representation of a material fact for
use in determining rights to any benefit or payment; (v) any failure by a
claimant to disclose knowledge of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with the intent to fraudulently secure such benefit or
payment; (vi) knowingly and willfully soliciting or receiving any remuneration
(including any kickback, bribe or rebate) directly or indirectly, overtly or
covertly, in cash or in kind, or offering to pay or receive such remuneration
(A) in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (B) in return for
purchasing, leasing or ordering or arranging for, or recommending, purchasing,
lease or ordering any good, facility, service or item for which payment may be
made in whole or in part by Medicare or Medicaid; or (vii) referring a patient
for "designated health services" to a person or entity with which the referring
physician has a financial relationship.
3.22 Environmental Matters. Except as disclosed on Exhibit 3.22:
(a) there are no outstanding violations for which BP&S has been
cited, or any consent decrees entered against BP&S regarding
environmental matters, including, but not limited to, matters
affecting the emission of air pollutants, the discharge of
water pollutants, the management of hazardous or toxic
substances or wastes, or noise.
(b) there are no claimed, threatened or alleged violations with
respect to any federal, state or local environmental law,
rule, regulation, ordinance, permit, license or authorization,
and there are no present discussions with any federal, state
or local governmental agency concerning any alleged violation
of environmental laws, rules, regulations, ordinances,
permits, licenses or authorizations.
(c) the operations of BP&S as currently conducted and conducted in
the past, have been and are in compliance in all material
respects with all federal, state and local statutes, rules,
regulations, ordinances, permits, licenses and authorizations
relating to environmental compliance and control.
3.23 ERISA.
(a) Except as listed in Exhibit 3.23 of the Exhibit Volume, BP&S has no
"employee benefit plans", as such term is defined under Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
any other plan or similar arrangement, written or otherwise, which provides
any type of pension or welfare benefit to any of its directors, employees,
or former employees.
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(b) With respect to all of the plans listed in Exhibit 3.23, BP&S has delivered
to ProMedCo true and exact copies of (i) all plan documents embodying the
provisions of such plans, together with all amendments thereto, (ii) all
summary plan descriptions and summaries of material modifications
pertaining thereto, (iii) copies of the most recent Internal Revenue
Service determination letters, if any, relating to such plans, (iv) copies
of the last three (3) years' Annual Report (Form 5500 series), as filed
with respect to such plans with the Internal Revenue Service, together with
all Schedules and attachments thereto, including, without limitation,
copies of the plan audits and/or actuarial valuations, (v) copies of all
contract administration agreements between BP&S and third party adminis
trators, (vi) copies of all participant-related forms currently in use in
connection with such plans including, without limitation, salary reduction
agreements and beneficiary designations and (vii) participant-specific
claims history for any "welfare benefit plan" (within the meaning of
Section 3(1) of ERISA) that has been in existence during any part of the
last three years.
(c) No "prohibited transaction", as such term is defined under Section 4975(c)
of the Code or under Section 406 of ERISA, and the respective regulations
thereunder, has occurred or is occurring with respect to any "employee
benefit plan" maintained by BP&S or with respect to any trustee or
administrator thereof.
3.24 Pension, etc.
(a) No "unfunded accrued liability", as such term is defined under Section
3(30) of ERISA, exists with respect to any "employee pension benefit plan"
listed in Exhibit 3.23 (each a "Pension Plan" and collectively the "Pension
Plans").
(b) None of the Pension Plans or any related trusts have been partially or
fully terminated (through the complete cessation of contributions thereto
or otherwise). In addition there have not occurred any "reportable events",
as such term is defined under Section 4043 of ERISA, which could have a
material adverse effect on the condition, financial or otherwise, of BP&S.
(c) None of the Pension Plans or any related trusts have incurred any
"accumulated funding deficiency", as such term is defined under Section
302(a)(2) of ERISA or Section 412(a) of the Code (whether or not waived),
since the effective date of ERISA.
(d) With respect to each Pension Plan, there are not in existence any
liabilities other than those liabilities shown on the Annual Reports (Form
5500 series) delivered to ProMedCo in connection herewith. No material
change with respect to the matters covered by the most recent Annual Report
for each Pension Plan has occurred since the filing date thereof. The terms
and operation of each Pension Plan have complied, and are in compliance,
with the applicable provisions of ERISA and the Code. All Pension Plans
have at all times been and are qualified under Section 401(a) of the Code,
except for those Pension Plans set forth in Exhibit 3.24 of the Exhibit
Volume. None of the financial ------------ obligations under the Pension
Plans listed in Exhibit 3.23 is unfunded. ------------
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3.25 Employee Matters. Included as Exhibit 3.25A of the Exhibit Volume
is a list of all em ployees of BP&S together with their annual rates of
compensation and a list of all people who were paid bonuses in the last twelve
months plus the amount thereof. Other than the employment agreements between
BP&S and its physicians and other practitioners (which require six-month notice
before termination) and employment agreements between BP&S and James Wonnacott,
Jack Greeley, Linda Smith and Priscilla Black (which require no more than 90
days notice before termination), no written employment agreement to which BP&S
is a party requires longer than a four-week notice before termination, and there
is no agreement to lend, or guarantee any loan, to an employee, or an agreement
relating to a bonus, severance pay or similar plan, agreement, arrangement or
understanding, except as set forth in Exhibit 3.25B. Exhibit 3.25C of the
Exhibit Volume is a written description of the employee benefits provided by
BP&S to its employees.
3.26 Insurance and Bonds. Exhibit 3.26A contains a list of all fire,
liability and other insurance coverage maintained by BP&S currently in force,
including the amounts and losses and risks covered; all such policies are fully
paid as to all premiums heretofore due. Exhibit 3.26B contains a description of
all malpractice liability insurance policies of BP&S since January 1, 1993.
Except as set forth on Exhibit 3.26B, BP&S has not had in the last seven years
filed a written application for any insurance coverage which has been denied by
an insurance agency or carrier. Exhibit 3.26C sets forth a list of all medical
malpractice claims asserted against BP&S and/or physicians employed by or
otherwise associated with BP&S since January 1, 1993. Exhibit 3.26D sets forth
all claims for any insured loss in excess of $5,000 per occurrence, filed by
BP&S during the three year period immediately preceding the date hereof,
including, but not limited to, workers compensation, general liability and
environmental liability. BP&S is not in material default with respect to any
provision contained in any such policy and has not failed to give any notice or
present any claim under any such policy in due and timely fashion.
3.27 Labor Matters. There are no collective bargaining agreements with
any labor union to which BP&S is a party or by which BP&S is bound, and it is
not currently negotiating with a labor union. During the last three years, no
employees of BP&S have petitioned for a representation election. BP&S is in
compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice. There is no
unfair labor practice complaint against BP&S pending before the National Labor
Relations Board. There is no labor strike, dispute, slowdown or stoppage
actually pending or, to its knowledge, threatened against or affecting BP&S. No
grievance which might have a material adverse effect on BP&S or the conduct of
its business nor any such arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claim therefor exists. BP&S
has not experienced any employee strikes during the last three years. BP&S will
advise ProMedCo of any such labor dispute, petition for representative election
or negotiations with any labor union which shall arise before the Closing Date.
Except as may be required by ss.4980B of the Code or applicable state health
care continuation coverage statutes, BP&S has no liability to any current or
future retiree or terminated employee under any BP&S plan or arrangement which
provides welfare benefits, including medical and life insurance.
3.28 Third Party Payor Compliance. BP&S is participating in or
otherwise authorized to receive reimbursement from or is a party to Medicare,
Medicaid, and certain other third-party payor programs (collectively "Third
Party Payor Programs"). All necessary certifications and contracts required
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for participation in such programs are in full force and effect and have not
been rescinded, revoked or assigned as of the date hereof, and BP&S has not
taken or failed to take any action which in itself or with the giving of notice
or the lapse of time or both would result in the suspension, revocation,
impairment, forfeiture or non-renewal of any such Third Party Payor Program. To
BP&S's knowledge, BP&S is in compliance with all material requirements of all
such Third Party Payor Programs applicable thereto.
3.29 Improper Payments. To its best knowledge, neither BP&S nor any
officer or employee of BP&S have made any bribes, kickbacks or other improper
payments on behalf of BP&S to, or received any such payments from, vendors,
suppliers or other persons contracting with BP&S.
3.30 Books of Account; Reports. The books of account of BP&S are in
reasonable detail, accu rately and fairly reflect its transactions and the
disposition of its assets. BP&S has filed all reports and returns required by
any law or regulation to be filed by it.
3.31 No Finders or Brokers. Neither BP&S nor any officer or director of
BP&S has engaged any finder or broker in connection with the transactions
contemplated hereunder other than Shattuck Hammond Partners, Inc. which has been
engaged by BP&S to provide investment banking service to BP&S in connection with
the transactions contemplated hereby.
3.32 Disclosure. BP&S has not made an untrue statement of material fact
in any representation or warranty in this Agreement or in any document or
certificate furnished to ProMedCo nor has BP&S omitted to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances, not misleading.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PROMEDCO AND PROMEDCO-
BERKSHIRE
ProMedCo and ProMedCo-Berkshire hereby represent and warrant as
follows:
4.1 Organization and Standing of ProMedCo and ProMedCo-Berkshire.
ProMedCo and ProMedCo-Berkshire are each corporations duly organized, validly
existing and in good standing under the laws of the states of Delaware and
Massachusetts, respectively; each has full corporate power and authority to
conduct its business as now being conducted, to enter into this Agreement and to
consummate the transactions contemplated hereby; and each is duly qualified to
do business in each juris diction in which the nature of the property owned or
leased or the nature of the business conducted by it requires such
qualification. No jurisdiction where ProMedCo or ProMedCo-Berkshire is not
presently qualified as a foreign corporation has made any assertion that such
corporation's business or ownership of property makes qualification as a foreign
corporation in such jurisdiction necessary. Neither ProMedCo nor
ProMedCo-Berkshire is in default under or in violation of any provision of its
Articles of Incorporation, or Articles of Organization, as the case may be, or
bylaws.
4.2 Prospectus; Financial Statements.
(a) Prospectus. ProMedCo has delivered to BP&S a copy of its Prospectus dated
March 12, 1997 as filed with the Securities and Exchange Commission ("SEC")
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and complete and correct copies of all other reports and other filings filed by
ProMedCo with the SEC pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since January 1, 1997, through the date
hereof, including, without limitation its annual report on Form 10-K for
the year ended December 31, 1997 (such reports and other filings are
collectively referred to herein as the "ProMedCo Exchange Act Filings"). As
of their respective dates, the ProMedCo Exchange Act Filings complied in
all material respects with the published rules and regulations of the SEC
with respect thereto and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The description of ProMedCo,
its business and other salient features contained in the Prospectus as
modified by the ProMedCo Exchange Act Filings are correct in all material
respects and may be relied upon by a prudent investor contemplating an
investment in ProMedCo Stock.
(b) ProMedCo Financial Statements. The Prospectus contains the consolidated
balance sheet of ProMedCo and its subsidiaries at December 31, 1996, and at
December 31, 1995, and the related consolidated statement of operations,
stockholders' equity and cash flows for the years then ended, together with
the opinion thereon of Arthur Andersen & Co., LLP, certified public
accountants. The financial statements included in the ProMedCo Exchange Act
Filings, including without limitation, the consolidated balance sheet of
ProMedCo and its subsidiar ies at December 31, 1997, and at December 31,
1996, and the related consolidated statement of operations, stockholders'
equity and cash flows for the years then ended, together with the opinion
thereon of Arthur Andersen & Co., LLP, certified public accountants, have
been based upon the information contained in the books and records of
ProMedCo and present fairly the financial condition of ProMedCo and its
subsidiaries as at the respective dates thereof and the results of their
operations for the periods ended at the respective dates thereof, in each
case prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved and with
prior periods, except as stated in the unaudited portion of the financial
statements.
4.3 Absence of Certain Changes. Since December 31, 1997, there has not
been: (i) any change in the assets, liabilities or financial condition of
ProMedCo and its subsidiaries other than changes which, in the aggregate, have
not been materially adverse; (ii) any material adverse change in the business of
ProMedCo and its subsidiaries; or (iii) any damage, destruction, casualty or
loss materially and adversely affecting the business or property of ProMedCo and
its subsidiaries.
4.4 ProMedCo Stock. The ProMedCo Stock to be issued in connection with
the transactions contemplated hereby will be duly authorized, validly issued,
fully paid and non-assessable.
4.5 Authority; Binding Effect. Each of ProMedCo and ProMedCo-Berkshire has
corporate power to execute and deliver this Agreement and consummate the
transactions contemplated hereby and
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has taken (or by the Closing Date will have taken) all action required by law,
its Articles of Incorporation, by-laws or otherwise to authorize such execution
and delivery and the consummation of the transactions contemplated hereby. The
execution and delivery of this Agreement has been approved by the Board of
Directors of ProMedCo and by the Board of Directors and sole shareholder of
ProMedCo-Berkshire. The execution, delivery, and performance of this Agreement
constitutes the valid and binding agreement of each of ProMedCo and
ProMedCo-Berkshire enforceable in accordance with its terms (except as the same
may be restricted, limited or delayed by applicable bankruptcy or other laws
affecting creditors' rights generally and except as to the remedy of specific
performance which may not be available under the laws of various jurisdictions)
assuming that this Agreement has been duly authorized, delivered and executed by
BP&S and constitutes the valid and binding obligation, enforceable against BP&S
in accordance with its terms (except as enforceability against BP&S may be
restricted, limited or delayed to the same extent as referred to in
parenthetical phrase immediately above).
4.6 No Finders or Brokers. Neither ProMedCo, ProMedCo-Berkshire nor any
officer or director of either has engaged any finder or broker in connection
with the transactions contemplated hereunder.
4.7 Consents and Approvals of Governmental Authorities. No
characteristic of ProMedCo or ProMedCo-Berkshire or of the nature of their
business or operations requires any consent, approval or authorization of, or
declaration, filing or registration with any governmental or regulatory
authority in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
4.8 ProMedCo Capitalization. ProMedCo has an authorized capitalization
of 20,000,000 shares of Preferred Stock and 50,000,000 shares of Common Stock,
par value $.01 per share, of which no shares of Preferred Stock and 13,502,226
shares of Common Stock were issued and outstanding at April 6, 1998 and no
shares are held in treasury. All of the issued and outstanding shares of
ProMedCo Common Stock have been duly and validly issued and are fully paid and
nonassessable. Except as disclosed in its Annual Report on Form 10-K for the
fiscal year ended December 31, 1997, which has been delivered to BP&S and as
otherwise disclosed in Exhibit 4.8, as of January 1, 1998 there are no options,
warrants or similar rights granted by ProMedCo or any other agreements to which
ProMedCo is a party providing for the issuance or sale by it of any additional
securities. ProMedCo will at all times reserve and keep available, solely for
issuance and delivery upon the date ProMedCo Stock is required to be delivered
pursuant to ss. 2.1.7 of this Agreement and upon the conversion of the ProMedCo
4 3/4% Convertible Subordinated Notes, the number of shares of ProMedCo Common
Stock required to be issued at such time; and all such ProMedCo Stock so issued
shall be validly issued, fully paid and nonassessable with no liability on the
part of the holders thereof.
4.9 Consents and Approvals of Third Parties. The execution, delivery
and performance of this Agreement by ProMedCo and ProMedCo-Berkshire will not
violate or conflict with the provisions of, or result in the acceleration of any
obligation of either under any mortgage, lien, agreement, instrument, order,
judgment, decrees or arbitration award to which ProMedCo or ProMedCo-Berkshire
is a party or by which either is bound, or violate any restrictions of any kind
to which ProMedCo is subject.
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4.10 Legal Proceedings. There is no pending or, to ProMedCo's
knowledge, threatened litigation, governmental investigation, or other
proceeding against or relating to or affecting ProMedCo or ProMedCo-Berkshire or
the transactions contemplated by this Agreement for which ProMedCo or
ProMedCo-Berkshire is uninsured or which, if resolved adversely to ProMedCo or
ProMedCo-Berkshire, would have a material adverse effect on ProMedCo or
ProMedCo-Berkshire or on the transactions contemplated by this Agreement, and to
ProMedCo's and ProMedCo-Berkshire's knowledge, no basis for any such action
exists.
4.11 Compliance with Laws. The operation of the business of ProMedCo as
currently conducted by ProMedCo is not in material violation of any applicable
federal, state and local laws, regulations and administrative orders which are
material to the business of ProMedCo, and ProMedCo has received no written
notice of any alleged violation thereof. The consummation of the transactions
contemplated by this Agreement will not violate any law or restriction to which
ProMedCo or ProMedCo-Berkshire is subject.
4.12 Permits and Licenses. Each of ProMedCo and ProMedCo-Berkshire
holds all licenses, certificates and other regulatory approvals required or
necessary in connection with its business as presently conducted, all of which
are in full force and effect, and none of which are subject to any action by any
governmental authority which in any way challenges the validity of, or seeks to
revoke or restrict any such license, certificate or regulatory approval.
4.13 Contracts. Neither ProMedCo or any Affiliate of ProMedCo (i) is
currently in default under any debt agreements or any financial covenants
therein, (ii) has defaulted or is currently in default under any Service
Agreement or other management services agreement with any physician practice
group or IPA, or (iii) has received any notice from any practice group or IPA
under management by ProMedCo or any Affiliate of ProMedCo to the effect that (A)
such practice group or IPA intends to terminate its service agreement with
ProMedCo or any Affiliate or ProMedCo or desires to re-negotiate the terms
thereof, or (B) alleging any material non-compliance by ProMedCo or any
Affiliate of ProMedCo with the terms of such service agreement.
4.14 Disclosure. Neither ProMedCo or ProMedCo-Berkshire has made an
untrue statement of material fact in any representation or warranty by either of
them in this Agreement or in any document or certificate furnished by either of
them to BP&S pursuant hereto nor has ProMedCo or ProMedCo-Berkshire omitted to
state a material fact necessary in order to make statements contained herein and
therein not misleading in light of the circumstances then prevailing.
4.15 Experience and Investigation. ProMedCo is an informed and
sophisticated purchaser, experienced in the evaluation and acquisition of
physician practice assets and liabilities as contemplated hereunder. ProMedCo
has undertaken such investigation and has been provided with and has evaluated
such information as it deems necessary to enable it to make an informed and
intelligent decision with respect to the execution, delivery and performance of
this Agreement. Except for the representations and warranties expressly provided
herein, BP&S has made no representation or warranty as to the prospects,
financial or otherwise, of BP&S or its business.
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ARTICLE 5 COVENANTS OF PROMEDCO AND PROMEDCO-BERKSHIRE
ProMedCo and ProMedCo-Berkshire hereby covenant and agree as follows:
5.1 Best Efforts to Secure Consents. ProMedCo and ProMedCo-Berkshire
shall use their best efforts to secure before the Closing all necessary consents
and approvals needed to satisfy all the conditions precedent to their
obligations hereunder.
5.2 Corporate Action. ProMedCo and ProMedCo-Berkshire will take all
necessary corporate and other action and use its best efforts to obtain all
consents, approvals and amendments of agreements required of it to carry out the
transactions contemplated by this Agreement and to satisfy the conditions
specified herein.
5.3 Handling of Documents. With respect to information provided by BP&S
pursuant to this Agreement prior to the Closing, ProMedCo and ProMedCo-Berkshire
shall keep all such information confidential which is not in the public domain,
except to the extent that such information (i) becomes generally available to
the public other than as a result of a disclosure directly or indirectly by
ProMedCo or ProMedCo-Berkshire, (ii) was known by ProMedCo or ProMedCo-Berkshire
on a non-confidential basis prior to disclosure to ProMedCo or
ProMedCo-Berkshire by BP&S pursuant to this Agreement or (iii) becomes available
to ProMedCo or ProMedCo-Berkshire on a non-confidential basis from a source
(other than BP&S) which is entitled to disclose the same, and to exercise the
same care in handling such information as it would exercise with similar
information of its own.
5.4 Non-Disclosure. ProMedCo and ProMedCo-Berkshire will keep
confidential and not disclose to any third party any information relating to the
business of BP&S, whether acquired by ProMedCo or ProMedCo-Berkshire before or
after the Closing Date, which BP&S has not made generally available to the
public.
5.5 Return of Records. If the transactions contemplated by this
Agreement are not consummated and this Agreement terminates, ProMedCo agrees to
promptly return all documents, records and other written information furnished
to ProMedCo by BP&S or its Affiliates and to destroy any evaluation materials
prepared by ProMedCo or its agents based on such documents, records and other
information furnished by BP&S or its Affiliates.
5.6 Unusual Events. On or before the Closing Date, ProMedCo shall
supplement or amend all relevant representations by it and/or ProMedCo-Berkshire
with respect to any matter arising or discovered after the date of this
Agreement which, if existing or known at the date of this Agreement, would have
been required to be set forth or described in such representations; provided,
however, that for the purposes of the rights and obligations of the parties
hereunder, any such supplemental disclosure shall not be deemed to have been
disclosed as of the date hereof or any other date, and shall not be deemed to
amend or supplement any representations or to prevent or cure any
misrepresentation, breach of warranty or breach of covenant, unless agreed to in
writing by BP&S.
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ARTICLE 6 COVENANTS OF BP&S
BP&S hereby covenants and agrees as follows:
6.1 Access and Information. Between the date of this Agreement and the
Effective Date, BP&S will, to the extent permitted by law: (i) provide to
ProMedCo-Berkshire and its officers, attorneys, accountants and other
representatives, during normal business hours, or otherwise if
ProMedCo-Berkshire deems reasonably necessary, free and full access to all of
the properties, assets, agreements, commitments, books, records, accounts, tax
returns, and documents of BP&S and permit them to make copies thereof; (ii)
furnish ProMedCo-Berkshire and its representatives with all information
concerning the business, properties and affairs of BP&S as ProMedCo-Berkshire
reasonably requests, with such information to be certified by the officers of
BP&S, if requested; (iii) cause the independent public accountants of BP&S to
make available to ProMedCo-Berkshire and its representatives all financial
information relating to BP&S requested, including all working papers pertaining
to audits and reviews made heretofore by such auditors; (iv) furnish
ProMedCo-Berkshire true and complete copies of all financial and operating
statements of BP&S; (v) permit access to customers (but not patients) and
suppliers for consultation or verification of any information obtained by
ProMedCo-Berkshire and use their best efforts to cause such customers (but not
patients) and suppliers to cooperate with ProMedCo-Berkshire in such
consultation and in verifying such information; and (vi) cause their employees
and accountants to make disclosure of all material facts known to them affecting
the financial condition and business operations of BP&S and to cooperate fully
with any audit, review, investigation or examination made by ProMedCo-Berkshire
and its representatives, including, without limitation, with respect to:
(a) The books and records of BP&S;
(b) The reports of state and federal regulatory examinations;
(c) Leases, contracts and commitments between the BP&S and any
other person;
(d) Physical examination of the Health Center Facility; and
(e) Physical examination of the equipment and furnishings within the
Health Center Facility.
6.2 Effect of Access. To the extent that the due diligence and
investigations conducted by ProMedCo prior to the Closing have resulted in
actual knowledge of ProMedCo or its employees or agents of the inaccuracy or
falsehood of any representation or warranty of BP&S herein or in any other
document or certificate furnished by BP&S pursuant to this Agreement, ProMedCo
shall not be entitled to rely upon such representation or warranty by BP&S.
6.3 Conduct of Business. Between the date hereof and the Effective
Date, except as otherwise expressly approved in writing by ProMedCo-Berkshire,
BP&S shall conduct its business only in the ordinary course thereof consistent
with past practice and in such a manner that the representations and warranties
contained in Article 3 of this Agreement shall be true and correct at and as of
the Closing Date (except for changes contemplated, permitted or required by this
Agreement) and so that the conditions to be satisfied by BP&S at the Closing
shall have been satisfied. BP&S will, consistent with conducting
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its business in accordance with reasonable business judgment use its reasonable
best efforts to: (i) preserve the business of BP&S intact; (ii) preserve and
maintain the business organization and the physician relationships of the Health
Center; (iii) keep available to ProMedCo-Berkshire the services of the present
employees of BP&S (except those dismissed for cause, those who voluntarily
discontinue their employment and those whose termination is consented to by
ProMedCo-Berkshire); and (iv) preserve for ProMedCo-Berkshire the goodwill of
the physicians, suppliers, patients and others having business relations with
the BP&S.
6.4 Compliance with Agreement. BP&S shall not undertake any course of
action inconsistent with satisfaction of the conditions applicable to it set
forth in this Agreement, and, consistent with the conduct of its business in
accordance with reasonable business judgement, shall do all such acts and take
all such measures as may be reasonably necessary to comply with the
representations, agreements, conditions and other provisions of this Agreement.
BP&S shall give ProMedCo-Berkshire prompt written notice if BP&S becomes aware
of any material change in any information contained in the representa tions and
warranties made in Article 3 hereof and on the Exhibits referred to therein
(provided, however, that such notice shall not limit ProMedCo-Berkshire's rights
under ss. 8.1 hereof) and of any condition or event which constitutes a default
of any covenant or agreement made in Article 6 or in any other section hereof.
6.5 Unusual Events. On or before the Closing Date, BP&S shall
supplement or amend all relevant Exhibits in the Exhibit Volume with respect to
any matter arising or discovered after the date of this Agreement which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in such Exhibits; provided, however, that for the
purposes of the rights and obligations of the parties hereunder, any such
supplemental disclosure shall not be deemed to have been disclosed as of the
date BP&S delivers to ProMedCo-Berkshire the Exhibit Volume pursuant to ss. 9.1
of this Agreement or any other date, and shall not be deemed to amend or
supplement any Exhibits or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant, unless agreed to in writing by
ProMedCo-Berkshire.
6.6 Confidential Information. BP&S shall keep confidential all
information provided by ProMedCo and ProMedCo-Berkshire regarding the business
plan, financial condition and operations of ProMedCo and ProMedCo-Berkshire,
except to the extent that such information (i) becomes generally available to
the public other than as a result of a disclosure directly or indirectly by
BP&S; (ii) was known by BP&S on a non-confidential basis prior to disclosure to
BP&S by ProMedCo or ProMedCo-Berkshire pursuant to this Agreement or (iii)
becomes available to BP&S on a non-confidential basis from a source (other than
ProMedCo or ProMedCo-Berkshire) which is entitled to disclose the same, and
shall exercise the same care in handling such information as it would exercise
with similar information of its own. BP&S may disclose information it deems
advisable to its physician employees provided such physician employees are
advised of the confidential nature of such information and agree to keep such
information confidential as provided herein. ProMedCo and ProMedCo-Berkshire
shall be third party beneficiaries of such agreements.
6.7 Return of Records. If the transactions contemplated by this
Agreement are not consummated and this Agreement terminates, BP&S agrees to
promptly return all documents, records and other written information furnished
to BP&S by ProMedCo or its Affiliates and to destroy any evaluation materials
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prepared by BP&S or its agents based on such documents, records and other
information furnished by ProMedCo or its Affiliates.
6.8 Interim Financial Statements. Within 30 days after the end of each
calendar month subse quent to the date of this Agreement and prior to the
Closing Date, BP&S shall deliver to ProMedCo-Berkshire an unaudited balance
sheet of BP&S as of the end of such calendar month together with the related
statement of operations. All such financial statements shall fairly present the
financial position, results of operations and cash flows for the financial
periods indicated, in accordance with generally accepted accounting principles
consistently applied except that footnote information may be omitted in such
statements, and that such statements shall be subject to normal year-end audit
adjustments, but only if such adjustments are of a normal, recurring type and
are not material in the aggregate.
6.9 Departmental Violations. All written notices of violations of law
or municipal ordinances, orders or requirements received by BP&S from the
departments of buildings, fire, labor, health, or any other state or municipal
department having jurisdiction against or affecting the business, property or
assets of BP&S shall be complied with prior to the Closing Date to the extent
BP&S has the time and resources to do so or contested in good faith by BP&S.
Upon written request, BP&S shall furnish ProMedCo-Berkshire with an
authorization to make the necessary searches for such notes or notices.
6.10 Insurance Ratings. BP&S shall take all action reasonably requested
by ProMedCo-Berkshire to enable it to succeed to the Workers' Compensation and
Unemployment Insurance ratings, insurance policies, deposits and other interests
of BP&S and other ratings for insurance or other purposes established by BP&S.
ProMedCo-Berkshire shall not be obligated to succeed to any such rating, insur
ance policy, deposit or other interest, except as it may elect to do so.
6.11 Maintain Insurance Coverage. From the date hereof until the
Closing, BP&S shall maintain and cause to be maintained in full force and effect
the existing insurance on the Assets and the operations of BP&S and shall
provide, upon request by ProMedCo-Berkshire, evidence satisfactory to
ProMedCo-Berkshire that such insurance continues to be in effect and that all
premiums due have been paid.
6.12 Exclusive Dealings. During the period from the date of this
Agreement to the Closing Date, or until the earlier termination of this
Agreement pursuant to Article 9, except as otherwise required by law, BP&S shall
refrain from taking any actions, directly or indirectly, to encourage, initiate,
or engage in discussions or negotiations with, or provide any information to,
any corporation, partnership, person, or other entity or group, other than
ProMedCo-Berkshire, concerning the purchase of BP&S or its assets, or any
merger, joint venture or similar transaction involving BP&S and will not enter
into any such transaction.
ARTICLE 7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BP&S
All obligations of BP&S which are to be discharged under this Agreement
at the Closing are subject to the performance, at or prior to the Closing, of
all covenants and agreements contained herein which are to be performed by
ProMedCo and ProMedCo-Berkshire at or prior to the Closing and to the
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fulfillment at, or prior to, the Closing, of each of the following conditions
(unless expressly waived in writing by BP&S at any time at or prior to the
Closing):
7.1 Representations and Warranties True. All of the representations and
warranties made by ProMedCo and ProMedCo-Berkshire contained in Article 4 of
this Agreement shall be true as of the date of this Agreement, shall be deemed
to have been made again at and as of the date of Closing, and shall be true at
and as of the date of Closing in all material respects (without taking into
account any disclo sures made by ProMedCo and ProMedCo-Berkshire to BP&S
pursuant to ss. 5.6 hereof); ProMedCo and ProMedCo-Berkshire shall have
performed and complied in all material respects with all covenants and
conditions required by this Agreement to be performed or complied with by them
prior to or at the Closing; and BP&S shall have been furnished with a
certificate of the President or any Vice President of ProMedCo and of
ProMedCo-Berkshire, dated the Closing Date, in such officer's capacity,
certifying to the truth of such representations and warranties as of the Closing
and to the fulfillment of such covenants and conditions.
7.2 Opinions of Counsel. BP&S shall have been furnished with an opinion
dated the Closing Date of Boult, Cummings, Conners & Berry, PLC, counsel to
ProMedCo and ProMedCo-Berkshire, in form and substance satisfactory to BP&S, to
the effect set forth as Appendix 7.2 attached hereto and from Dyer, Ellis &
Joseph, ProMedCo's special securities counsel, in form and substance
satisfactory to BP&S, to the effect that issuance of the ProMedCo Stock and
ProMedCo Notes pursuant to the terms of this Agreement is exempt from
registration under the Securities Act of 1933, as amended.
7.3 Authority. All action required to be taken by or on the part of
ProMedCo and ProMedCo-Berkshire to authorize the execution, delivery and
performance of this Agreement by ProMedCo and ProMedCo-Berkshire and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken by the Boards of Directors of ProMedCo and ProMedCo-Berkshire and
by the sole shareholder of ProMedCo-Berkshire.
7.4 No Obstructive Proceeding. No action or proceedings shall have been
instituted against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be subsisting against BP&S, or the
officers or directors of BP&S, which seeks to, or would, render it unlawful as
of the Closing to effect the transactions contemplated hereby in accordance with
the terms hereof, and no such action shall seek damages in a material amount by
reason of the transactions contemplated hereby. Also, no substantive legal
objection to the transactions contemplated by this Agreement shall have been
received from or threatened by any governmental department or agency with
jurisdiction over the parties hereto.
7.5 Delivery of Certain Certified Documents. At the Closing,
ProMedCo-Berkshire shall deliver to BP&S copies of the Articles of Organization
of ProMedCo-Berkshire and the Articles of Incorporation of ProMedCo certified
(not more than 30 days prior to the Closing Date) by the appropriate
governmental authorities, copies of resolutions of the Board of Directors of and
ProMedCo-Berkshire, and sole shareholder of ProMedCo-Berkshire certified by the
secretary or assistant secretary of such corporation authorizing the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and copies of resolutions of the Board of Directors of
ProMedCo,
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certified by the secretary or assistant secretary of ProMedCo approving the
issuance of the ProMedCo Stock and ProMedCo Notes.
7.6 Approval by Stockholders of BP&S. The holders of at least
two-thirds of the outstanding shares of BP&S shall have approved the amendment
of the Articles of Organization of BP&S necessary to convert the professional
corporation to a business corporation under Massachusetts law, and the merger of
BP&S and ProMedCo-Berkshire as contemplated hereunder in accordance with the
Massachusetts Business Corporation Law.
7.7 Proceedings and Documents Satisfactory. All proceedings in
connection with the transac tions contemplated hereby and all certificates and
documents delivered to BP&S pursuant to this Agree ment shall be satisfactory in
form and substance to BP&S and its counsel acting reasonably and in good faith.
7.8 Hart-Scott-Rodino Filings. ProMedCo and BP&S shall have made all
required antitrust filings under, and there shall be no impediments to Closing
hereunder relative to ss. 7A of the Clayton Act, 15 U.S.C.A. ss. 18a (the "HSR
Act").
7.9 No Agency Proceedings. There shall not be pending or, to the
knowledge of BP&S, ProMedCo or ProMedCo-Berkshire, threatened, any claim, suit,
action or other proceeding brought by a governmental agency before any court or
governmental agency, seeking to prohibit or restrain the transactions
contemplated by this Agreement or material damages in connection therewith.
7.10 Closing Transactions. All the transactions described in ss. 2.9
shall have been consummated simultaneously with the Closing.
7.11 Hedge. From and after the Closing, ProMedCo shall continue to use
its best efforts to to arrange for the issuance, at no cost to BP&S or the
Former BP&S Shareholders, of a commercially available "hedge" of between 90% and
123.5% of the Unit Share Price from reputable financing institutions covering at
least 400,000 shares of ProMedCo Stock (the "Hedged Stock"). In connection
therewith, the parties contemplate that the Hedged Stock may be issued to a
trustee for the benefit of the Former BP&S Shareholders pending occurrence of
the date upon which ProMedCo is obligated to otherwise issue the Hedged Stock to
the Former BP&S Shareholders. Until delivery of the "hedge" described above,
ProMedCo shall provide the following "collar" protection to the Former BP&S
Shareholders:
(a) Downside Protection. In the event that on the Valuation Date, the Value of
Hedge Stock is less than $________1 ("Floor Value"), ProMedCo shall pay to
the Former BP&S Shareholders the difference between such Value of Hedge
Stock and the Floor Value, said payment to be in the form of (i) cash, or
(ii) additional shares of ProMedCo $0.01 par Common Stock such that the
Value, multiplied by the sum of the Hedge Stock and the additional shares
equals the Floor Value. ProMedCo shall have the right to determine 1 90% of
the Unit Share Price multiplied by 400,000
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whether to pay said difference in cash or in additional stock, it being
understood that if ProMedCo is unable to pay such amount in cash, it shall
be obligated to issue the additional stock set forth herein.
(b) In the event that on the Valuation Date the Value of the Hedge Stock is
more than $________2 (the "Ceiling Value"), ProMedCo shall reduce the
number of shares of Hedge Stock such that the number of shares actually
issued, when multiplied by Value, is the Ceiling Value.
(c) If the hedge obtained by ProMedCo pursuant to the initial paragraph of this
Section 7.11 is more favorable to the Former BP&S Shareholders than the
"collar" arrangements set forth in paragraphs (a) and (b) above, and if on
the Valuation Date the Former BP&S Shareholders are in fact entitled to
receive a benefit in the form of additional shares or cash beyond what is
is provided in paragraphs (a) and (b), ProMedCo shall be entitled to such
additional benefit. Conversely, if the hedge obtained by ProMedCo is is
less favorable to the Former BP&S Shareholders than the "collar" protection
of paragraphs (a) and (b), and if on the Valuation Date the Former BP&S
Shareholders do in fact receive fewer shares or less cash than they would
have beenn entitled under the "collar" arrangements of paragraphs (a) and
(b), ProMedCo shall pay the Former BP&S Shareholders the difference, either
in cash or additional shares of $0.01 par value ProMedCo Common Stock.
For purposes of this Section 7.11, the following definitions shall
apply:
"Hedge Stock" means 400,000 shares of ProMedCo $0.01 par value Common
Stock as constituted on the date hereof. At any date later than the
date hereof, "Hedge Stock" shall mean such 400,000 shares adjusted for
stock splits, reverse stock splits, and the like;
"Value" means the average closing price of one share of ProMedCo $0.01
par value Common Stock on NASDAQ (or the American or New York Stock
Exchange, if applicable) for the five trading days prior to the
Valuation Date;
"Valuation Date" means the earlier of the date the Hedge Stock is
issued pursuant to this Merger Agreement or May 17, 1999;
"Value of Hedge Stock" means the amount obtained by multiplying Value
by Hedge Stock
7.12 No Adverse Change. There shall have been no material adverse
change in ProMedCo or its financial condition prior to the Closing.
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ARTICLE 8 [RESERVED]
<PAGE>
ARTICLE 9 TERMINATION
9.1 Optional Termination. This Agreement may be terminated and the
transactions contemplat ed hereby abandoned at any time prior to the Effective
Date, notwithstanding stockholder approval as follows:
(a) By the mutual consent of ProMedCo, ProMedCo-Berkshire and
BP&S; or
(b) By BP&S, if any of the conditions set forth in Article 7 shall
not have met by April 30, 1998; provided that BP&S shall not
be entitled to terminate this Agreement pursuant to this ss.
9.1(b) if BP&S's willful breach of this Agreement has
prevented the consummation of the transactions contemplated
hereby; or
(c) By ProMedCo-Berkshire, if any of the conditions provided in
Article 8 hereof have not been met by April 30, 1998; provided
that ProMedCo-Berkshire shall not be entitled to terminate
this Agreement pursuant to this ss. 9.1(c) if
ProMedCo-Berkshire's willful breach of this Agreement has
prevented the consummation of the transactions contemplated
hereby.
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9.2 Notice of Abandonment. In the event of such termination by either
ProMedCo and ProMedCo-Berkshire or BP&S pursuant to ss. 9.1 above, written
notice shall forthwith be given to the other party hereto.
9.3 Mandatory Termination. If the Closing has not occurred by July 31,
1998, this Agreement shall automatically terminate and no longer be of any force
or effect.
9.4 Termination. In the event this Agreement is terminated as provided
above, the parties shall comply with ss.ss. 5.5 and 6.7; and none of the parties
nor any of their respective partners, shareholders, directors, or officers shall
have any liability to the other party for costs, expenses, loss of anticipated
profits, consequential damages, or otherwise, except for any deliberate breach
of any of the provisions of this Agreement.
9.5 Shareholder Representative.
(a) Appointment. By their execution of the Joinder at the foot of this
Agreement, the Shareholders of BP&S irrevocably constitute and appoint
Eugene L. Curletti, M.D., Joel D. Curran, M.D., Larry J. Pellish, M.D.,
Michael J. Shreefter, M.D., Paul R. Silverstein, M.D., Philip S. Volastro,
M.D., Arthur H. Wasser, M.D. and Peter L. Zwerner, M.D. collectively as the
agent and attorney-in-fact of the Shareholders (collectively, the
"Shareholders' Representative") to act for and on behalf of each of the
Shareholders with respect to all matters arising in connection with this
Agreement, including but not limited to, the power and authority, in the
Shareholders' Representative's sole discretion, to:
(i) take any action contemplated to be taken by,
and receive any notices contemplated to be
given to, the Shareholders' Representative
under this Agreement;
(ii) negotiate, determine, defend and settle any
dispute which may arise under this Agreement
between the Shareholders' Representative and
the other parties hereto and to accept
service of process in connection therewith;
and
(iii) make, execute, acknowledge and deliver any
release, assurance, receipt, request,
instruction, notice, agreement, certificate
or other instrument, and to generally do any
and all things and to take any and all
actions which my be requisite, proper or
advisable in connection with this Agreement.
All decisions by the Shareholders' Representative shall be
made by a majority vote of the individuals constituting the
Shareholders' Representative, one of whom shall be designated
by the others to sign documents on behalf of the Shareholders'
Representative.
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(b) Indemnification of Shareholders' Representative. Each Shareholder shall
indemnify and hold the Shareholders' Representative harmless with respect
to anything done by the Shareholders' Representative in good faith in
connection with their responsibilities hereunder and to reimburse the
Shareholders' Representative, in proportion to their respective interests
in the Consideration for any costs or expenses, including attorneys' fees,
incurred by the Shareholders' Representative in the satisfaction of their
responsibili ties hereunder.
(c) Selection of Successor. If the individuals constituting the Shareholder
Representative or any successor Shareholder Representative shall die,
become disabled, or otherwise be unable to continue to act as a member of
the Shareholder Representative such that fewer than 3 such individuals
remain, the Shareholders who formerly received a majority of BP&S
Consideration, within fifteen (15) days of such occurrence, shall appoint a
successor Shareholder Representative and shall promptly notify the other
parties hereto in writing of the identify of such successor.
ARTICLE 10 SURVIVAL AND INDEMNIFICATION
10.1 Nature and Survival of Representations. All statements contained
in any certificate deliv ered by or on behalf of any of the parties to this
Agreement pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties made by the
respective parties hereunder. No representations or warranties made by the
parties shall survive the Closing by more than 12 months, except for the
following representations and warranties of BP&S set forth in ss.ss. 3.9, 3.17,
3.19, 3.21, and 3.22, and 3.24 and all covenants and agreements of the parties
intended to be performed after the Closing shall survive the Closing for the
applicable period of limitations for the commencement of actions.
10.2 Limited Grant of Indemnity by Former BP&S Shareholders. By their
execution of the Joinder at the foot of this Agreement, each of the Former BP&S
Shareholders agrees to indemnify, defend and hold ProMedCo and
ProMedCo-Berkshire and their Affiliates, and subsidiaries, and its and their
respective employees, representatives, officers and agents on a pro rata basis
based on each Former BP&S Shareholder's proportionate interest in the
Consideration, harmless from and against any claims, losses, settlement
payments, liability, obligations, lawsuits, deficiencies, encumbrances, damages
or expense of whatever nature, whether known or unknown, accrued, absolute,
contingent or otherwise including (without limitation) interest, penalties,
reasonable attorneys' fees, third party costs of investigation and all
reasonable amounts paid in defense or settlement of the foregoing, suffered or
incurred by ProMedCo or ProMedCo-Berkshire a result of the occurrence of any of
the following: (i) any inaccuracy in any representation or warranty made by BP&S
in this Agreement or in any agreement referred to herein or furnished by BP&S
pursuant hereto or thereto; and (ii) any failure by BP&S to perform or comply in
any material respect with any covenant or agreement contained in this Agreement
or in any agreement referred to herein or furnished by BP&S pursuant hereto or
thereto. As used herein, "Loss" or "Losses" shall mean any damage, liability,
loss or deficiency (including reasonable attorneys' fees and other costs and
expenses incident to, and amounts paid by ProMedCo or ProMedCo-Berkshire in
settlement of, any claim, suit, action or proceeding) sustained, incurred or
paid or required to be paid by ProMedCo or the Surviving Corporation (any loss
to Surviving Corporation being conclusively
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deemed to be a Loss to ProMedCo). Notwithstanding any representation or warranty
made by BP&S in this Agreement or in any agreement referred to herein or
furnished by BP&S pursuant hereto or thereto, if the landlord under that certain
Sublease dated February 8, 1990, by and between Berkshire Consolidated Realty,
Inc. and Berkshire Physicians & Surgeons, P.C. relating to the office space in
the Medical Arts Complex at 777 North Street, Pittsfield, Massachusetts,
challenges the right of the Surviving Corporation to continue its tenancy of the
leased premises thereunder as a result of the consummation. of the Merger, any
Losses incurred by any party to this Agreement related thereto shall be treated
as Health Center Expenses under the Service Agreement.
10.3 Limited Grant of Indemnity to Former BP&S Shareholders. ProMedCo
and ProMedCo-Berkshire jointly and severally agree to indemnify, defend and hold
the Former BP&S Shareholders and their Affiliates and their respective
representatives and agents, harmless from and against any claims, losses,
settlement payments, liability, obligations, lawsuits, deficiencies,
encumbrances, damages or expense of whatever nature, whether known or unknown,
accrued, absolute, contingent or otherwise including (without limitation)
interest, penalties, reasonable attorneys' fees, third party costs of
investigation and all reasonable amounts paid in defense or settlement of the
foregoing, suffered or incurred by the Former BP&S Shareholders as a result of
the occurrence of any of the following: (i) any inaccuracy in any representation
or warranty made by ProMedCo or ProMedCo-Berkshire in this Agreement or in any
agreement referred to herein or furnished by ProMedCo or ProMedCo-Berkshire
pursuant hereto or thereto; and (ii) any failure by ProMedCo or
ProMedCo-Berkshire to perform or comply in any material respect with any
covenant or agreement contained in this Agreement or in any agreement referred
to herein or furnished by ProMedCo or ProMedCo-Berkshire pursuant hereto or
thereto. As used herein, "Loss" or "Losses" shall mean any damage, liability,
loss or deficiency (including reasonable attorneys' fees and other costs and
expenses incident to, and amounts paid by the Former BP&S Shareholders in
settlement of, any claim, suit, action or proceeding) sustained, incurred or
paid or required to be paid by them.
10.4 Representation, Cooperation and Settlement.
(a) Each party agrees to give prompt notice to the other(s) of any claim
against the other(s) which might give rise to a claim based on the
indemnity contained in this Article 10, stating the nature and basis of the
claim and the amount thereof.
(b) In the event any claim, action, suit or proceeding is brought against a
party (the "Indemnified Party") with respect to which the other party (the
"Indemnifying Party") may have liability under the indemnity contained in
this Article 10, the Indemnified Party shall permit the Indemnifying Party
to assume the defense of any such claim or any litigation resulting from
such claim, provided that the Indemnified Party shall not be required to
permit the Indemnifying Party to assume the defense of any third party
claim which if not first paid, discharged, or otherwise complied with would
result in an interrup tion or cessation of the conduct of the Indemnified
Party's business or any material part thereof. Failure by the Indemnifying
Party to notify the Indemnified Party of its election to defend any such
claim or action by a third party within thirty (30) days after notice
thereof shall have been given by the Indemnified Party, shall be deemed a
waiver of any such election. If the Indemnifying Party assumes the defense
of such claim or litigation
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resulting therefrom, the obligations of the Indemnifying Party
hereunder as to such claim shall include taking all steps
reasonably necessary in the defense or settlement of such
claim or litigation resulting in the defense or settlement of
such claim or litigation resulting therefrom, including the
retention of counsel satisfactory to the Indemnified Party,
and holding the Indemnified Party harmless from and against
any and all damage resulting from, arising out of, or incurred
with respect to any settlement approved by the Indemnifying
Party or any judgment in connection with such claim or
litigation resulting therefrom. The Indemnifying Party shall
not, in the defense of such claim or litigation, consent to
the entry of any judgment (other than a judgment of dismissal
on the merits with costs) except with the written consent of
the Indemnified Party nor enter into any settlement (except
with the written consent of the Indemnified Party) which does
not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the Indemnified Party a release
from all liability in respect to such claim or litigation.
(c) If the Indemnifying Party shall not assume the defense of any such claim by
a third party or litigation resulting therefrom, the Indemnified Party may
defend against such claim or litigation in such manner as it deems
appropriate. The Indemnifying Party shall, in accordance with the
provisions hereof, promptly reimburse the Indemnified Party for the amount
of any settlement reasonably entered into by the Indemnified Party and for
all damage incurred by the Indemnified Party in connection with the defense
against or settlement of such claim or litigation.
10.5 Threshold and Limitations.
(a) No indemnified party shall be entitled to receive any indemnification
payment with respect to any Losses sustained, incurred or paid or required
to be paid by such party until the aggregate Losses for which such
indemnified party would be otherwise entitled to receive indemnification
exceed $500,000 (the "Deductible"); provided, however, that such Deductible
shall not apply to any indemnification claim that any party to this
Agreement has breached any covenant (as opposed to any representation or
warranty) in this Agreement. For purposes of applying the Deductible
hereunder, the Former BP&S Shareholders shall be treated as a single party.
(b) Notwithstanding any provision of this Agreement to the contrary, no Former
BP&S Shareholder shall be liable to ProMedCo or ProMedCo-Berkshire
hereunder for more than the product of (x) the number of shares of BP&S
Common Stock held by such Former BP&S Shareholder immediately prior to the
Closing, multiplied by (y ) $30,000; provided, however, such limitation of
liability shall not apply to fraud by the Former BP&S Shareholder in
connection with the representations and warranties in which event the
Former BP&S Shareholders shall bear liability up to the amount of the
Consideration received by them.
(c) The parties agree that, prior to submitting any claims for indemnification
hereunder, they shall use reasonable efforts to determine the amount, if
any, by which their Losses would be offset by recovery of insurance
proceeds, reduction of tax liabilities or the creation of
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a tax benefit, and to provide the indemnifying party notice of
and a description of such determination. Any liability for
indemnification under this Agreement shall be reduced to the
extent any Losses are reduced by such a recovery or reduction,
and the indemnified party shall pursue, in good faith,
recovery and reduction hereunder, including without
limitation, the submission of all such claims to applicable
insurers.
10.6 Remedies Cumulative. The remedies provided herein shall be
cumulative and shall not preclude the Indemnified Party from asserting any other
rights or seeking any other remedies against the Indemnifying Party to which the
Indemnified Party is are entitled by law.
ARTICLE 11 MISCELLANEOUS
11.1 Expenses. All expenses of the preparation of this Agreement and of
the transactions contemplated hereby, including, without limitation, counsel
fees, accounting fees, investment adviser's fees and disbursements, shall be
borne by the respective parties incurring such expense, whether or not such
transactions are consummated. BP&S, ProMedCo and ProMedCo-Berkshire acknowledge
and agree that (i) certain expenses of BP&S related to the consummation of the
transactions contemplated hereby will not be paid by BP&S prior to the Effective
Date and will continue to be liabilities of the Surviving Corporation after the
Effective Date (the "BP&S Transaction Expenses"), (ii) any such unpaid BP&S
Transaction Expenses shall be included in the liabilities of BP&S as of the
Closing Date as shown on the Definitive Closing Statement, and (iii) ProMedCo
shall cause the Surviving Corporation to pay such expenses when and as the same
are due.
11.2 Notices. All notices, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered in
person or mailed by certified mail or registered mail (postage prepaid) or sent
by reputable overnight courier service (charges prepaid):
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Prior to the Closing
To BP&S : Berkshire Physicians & Surgeons, P.C.
137 North Street
Pittsfield, MA 01201
Attention: President
After the Closing
To the BP&S Shareholder
Representative: The Former BP&S Shareholders
137 North Street
Pittsfield, MA 01201
Attention: Peter Zwerner, M.D.
with a copy to: Martin R. Leinwand, Esq.
McDermott, Will & Emery
75 State Street
Suite 1700
Boston, MA 02109
To ProMedCo and
ProMedCo-Berkshire: c/o ProMedCo Management Company
801 Cherry Street
Suite 1450
Fort Worth, TX 76102
Attention: Chief Executive Officer
with a copy to John E. Gillmor
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
Nashville, TN 38219
or to such other address as either BP&S or ProMedCo may designate by notice to
the other.
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11.3 Certain Provisions of Employment Agreements. Among other things,
the Employment Agreements referred to in ss. 2.9 shall contain provisions to the
following effect:
(a) Forfeitures by Physician Shareholders. The employment agreements shall have
a term of 5 years from the Effective Date. The employment agreements for
Former BP&S Shareholder shall require such physician to pay to BP&S, as a
Forfeiture Payment, the entire amount received by such physician pursuant
to this (net of "vested" Merger Agreement proceeds under the terms of such
physician's employment agreement) in the event such physician does not
remain in the employ of BP&S for the five-year term of the employment
agreement, except for termination of such employment resulting from a
material breach of contract by BP&S, death, permanent disability,
Retirement if two or fewer shall have Retired (as such term is defined in
the Service Agreement) during the first year of the Closing and one
additional retiree in each of the next four years on a cumulative basis,
or, if approved by the Policy Council under the Service Agreement,
Retirement (if more than such number of physicians shall have Retired) or
Relocation (as such term is defined in the Service Agreement).
(b) Payments on Termination of any Physician Shareholder Employment Agreement.
Any termination of the employment of any Former BP&S Shareholder for any
reason, other than:
(i) death,
(ii) permanent disability,
(iii) Retirement, except during the first five
years hereof, such Retirement must be
approved by the Policy Council unless two or
fewer physicians shall have Retired during
the first year of the Closing, and one
additional retiree in each of the next four
years on a cumulative basis,
(iv) Relocation, except during the first five
years hereof such Relocation must be
approved by the Policy Council, or
(v) expiration of the agreement without renewal
unless BP&S does not offer to renew the
agreement,
will result in the physician's being required to pay BP&S (vi)
a Recruitment Fee of $25,000 intended to reimburse BP&S for
the cost of finding a replacement physician and (vii) a the
portion of the applicable Residual Expense Assessment
described below, intended to reimburse BP&S for the cost to
BP&S of carrying the departing physician's practice during the
period prior to recruitment of a replacement physician:
<PAGE>
<TABLE>
<CAPTION>
Balance of Residual
Base Salary of Applicable Expense Assessment to be
Eight Share Shareholder Residual Paid from BP&S Portion of
Physician Shareholder Expense Assessment Distribution Funds
<S> <C> <C>
Up to $150,000 $75,000 $0
$150,000.01-$250,000 $100,000 $0
Above $250,000 $125,000 $0
Balance of Residual
Base Salary of Applicable Expense Assessment to be
Four Share Shareholder Residual Paid from BP&S Portion of
Physician Shareholder Expense Assessment Distribution Funds
Up to $150,000 $37,500 $37,500
$150,000.01-$250,000 $50,000 $50,000
Above $250,000 $62,500 $62,500
Balance of Residual
Base Salary of Applicable Expense Assessment to be
Two Share Shareholder Residual Paid from BP&S Portion of
Physician Shareholder Expense Assessment Distribution Funds
Up to $150,000 $25,000 $50,000
$150,000.01-$250,000 $33,333 $66,667
Above $250,000 $41,667 $83,333
Balance of Residual
Base Salary of Applicable Expense Assessment to be
One Share Shareholder Residual Paid from BP&S Portion of
Physician Shareholder Expense Assessment Distribution Funds
Up to $150,000 $18,750 $56,250
$150,000.01-$250,000 $25,000 $75,000
Above $250,000 $31,250 $93,750
</TABLE>
The balance of the Residual Expense Assessment to be paid from the BP&S portion
of Distribution Funds shall be deducted from the BP&S Distribution ratably over
three months and credited, together with the Recruitment Fee and the portion of
the Residual Expense Assessment paid by the physician, to an account to be used
by BP&S to replace the physician who leaves, to recruit additional physicians
and for such other purposes as may be approved by the Policy Council.
11.4 Entire Agreement. This Agreement and the Appendices, Exhibits,
schedules and docu ments delivered pursuant hereto constitute the entire
contract between the parties hereto pertaining to the subject matter hereof and
supersede all prior and contemporaneous agreements, understandings, negotiations
and discussions, whether written or oral, of the parties, and there are no
representations, warranties or other agreements between the parties in
connection with the subject matter hereof, except
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as specifically set forth herein. No supplement, modification or waiver of this
Agreement shall be binding unless executed in writing by the parties to be bound
thereby.
11.5 Alternative Dispute Resolution. Any dispute, disagreement, claim
or controversy arising out of or related to this Agreement (a "Disputed Matter")
involving $1,000,000 or more may, at the mutual election of the parties hereto,
be submitted to non-binding mediation before a mutually acceptable neutral
advisor, and Disputed Matters involving less than $1,000,000 shall be submitted
to non-binding mediation before a mutually acceptable neutral advisor. To the
extent the neutral advisor is compensated, the parties shall each bear half the
cost. Any Disputed Matter involving a claim of less than $1,000,000 that is not
resolved through mediation will be settled by binding arbitration in accordance
with the rules of commercial arbitration of the American Arbitration
Association, and judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Such arbitration shall occur
within Berkshire County, Massachusetts, unless the parties mutually agree to
have such proceedings in some other locale. The arbitrator(s) may in any such
proceeding award attorneys' fees and costs to the prevailing party.
11.6 Governing Law. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER
OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY JURIS DICTION OTHER THAN THE COMMONWEALTH OF
MASSACHUSETTS. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE
COMMONWEALTH OF MASSACHU SETTS SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION
OF THIS AGREEMENT, EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF LAW OR
CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD
ORDINARILY APPLY.
11.7 Time. Time is of the essence for purposes of each and every
provision of this Agreement.
11.8 Section Headings. The Section headings are for reference only and
shall not limit or control the meaning of any provision of this Agreement.
11.9 Waiver. No delay or omission on the part of any party hereto in
exercising any right hereunder shall operate as a waiver of such right or any
other right under this Agreement.
11.10 Exhibits. All Exhibits, Appendices, schedules and documents
referred to in or attached to this Agreement are integral parts of this
Agreement as if fully set forth herein and all statements appearing therein
shall be deemed to be representations. All items disclosed hereunder shall be
deemed disclosed only in connection with the specific representation to which
they are explicitly referenced.
11.11 Assignment. No party hereto shall assign this Agreement without
first obtaining the written consent of the other party, except ProMedCo and
ProMedCo-Berkshire shall have the right to assign this Agreement to an Affiliate
or any institutional lender providing financing to ProMedCo and its
subsidiaries.
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11.12 Binding on Successors and Assigns. Subject to ss. 11.11, this
Agreement shall inure to the benefit of and bind the respective heirs,
administrators, successors and assigns of the parties hereto, including, without
limitation, the Former BP&S Shareholders. Nothing expressed or referred to in
this Agreement is intended or shall be construed to give any person other than
the parties to this Agreement (including the Former BP&S Shareholders) or their
respective successors or permitted assigns any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein, it being the intention of the parties to this Agreement that this
Agreement shall be for the sole and exclusive benefit of such parties or such
successors and assigns and not for the benefit of any other person.
11.13 Parties in Interest. Nothing in this Agreement is intended to
confer any right on any person other than the parties to it (including the
Former BP&S Shareholders) and their respective successors and assigns, nor is
anything in this Agreement intended to modify or discharge the obligation or
liability of any third person to any party to this Agreement, nor shall any
provision give any third person any right of subrogation or action over against
any party to this Agreement.
11.14 Amendments. This Agreement may be amended, but only in writing,
signed by the parties hereto, at any time prior to the Closing, before or after
approval hereof by the stockholders of BP&S, with respect to any of the terms
contained herein, but after such stockholder approval, no amendment shall be
made which reduces the consideration per share paid each such stockholder
without the further approval of such stockholders.
11.15 Drafting Party. The provisions of this Agreement, and the
documents and instruments referred to herein, have been examined, negotiated,
drafted and revised by counsel for each party hereto and no implication shall be
drawn nor made against any party hereto by virtue of the drafting of this
Agreement.
11.16 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
11.17 Reproduction of Documents. This Agreement and all documents
relating thereto, including without limitation, consents, waivers and
modifications which may hereafter be executed, the Exhibits and documents
delivered at the Closing, and financial statements, certificates and other
information previously or hereafter furnished to ProMedCo-Berkshire may be
reproduced by ProMedCo-Berkshire by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and
ProMedCo-Berkshire may destroy any original documents so reproduced. BP&S agrees
and stipulates that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by
ProMedCo-Berkshire in the regular course of business) and that any en largement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evi dence.
11.18 Access to Records After Closing. BP&S will, and will cause its
counsel and certified public accountants to, afford to the representatives of
ProMedCo and ProMedCo-Berkshire, including their counsel and accountants,
reasonable access to, and copies of, any records not transferred to
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ProMedCo-Berkshire, including, but not limited to, audit and tax work papers.
ProMedCo and ProMedCo-Berkshire will afford to the representatives of BP&S
reasonable access to, and copies of, the records transferred to
ProMedCo-Berkshire at the Closing during normal business hours after the Closing
Date. Copies furnished to the party gaining such access shall be furnished at
the cost of the recipient.
11.19 Disclosure of Certain Information. BP&S grants ProMedCo
authorization to disclose aggregate financial history and financial and other
information about BP&S and about the Health Center Facility in order for
ProMedCo to comply with disclosure requirements in connection with the sale and
registration of its securities, and also to lenders, investment bankers and
other officials as deemed necessary by ProMedCo.
11.20 Press Releases. BP&S and ProMedCo shall coordinate any press
releases or other public announcements relating to this Agreement or the
transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PROMEDCO MANAGEMENT COMPANY
By
Its
Name
PROMEDCO OF BERKSHIRE, INC.
By
Its
Name
BERKSHIRE PHYSICIANS & SURGEONS, P.C.
By
Its
Name
0469551.09
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JOINDER BY SHAREHOLDERS
The undersigned Shareholders of Berkshire Physicians & Surgeons, P.C.,
a Massachusetts professional corporation, hereby join the above Agreement for
Statutory Merger for the purpose of being bound by the provisions of Sections
2.10(a) and 9.5 and Article 10 thereof.
.
Paula J. Aucoin, M.D.
Jerome M. Auerbach, M.D.
Richard M. Basile, M.D.
John A. Bellizzi, M.D.
Gordon T. Bird, M.D.
Noel A. Blagg, M.D.
Andrea M. Bodine, M.D.
John O. Buoni, M.D.
John F. Burnham, M.D.
Michael S. Cohn, M.D.
Joel L. Colker, M.D.
Frederick P. Conforti, M.D.
Eugene L. Curletti, M.D.
Joel D. Curran, M.D.
Anthony F. Faustine, M.D.
David R. Finck, M.D.
Robert B. Geehr, M.D.
Harry Hartford, M.D.
Herbert M. Kantor, M.D.
Dennis Kobylarz, M.D.
0469551.09
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Alan G. Kulberg, M.D.
Joseph A. Levine, M.D.
Fredric E. Levison, M.D.
Stuart J. Masters, M.D.
Michael R. McInerney, M.D.
David M. Markowitz, M.D.
Pamela E. Miller, M.D.
Steven A. Myers, M.D.
David T. Noyes, M.D.
Daniel W. Patel, M.D.
Larry J. Pellish, M.D.
Richard D. Perera, M.D.
Asta S. Potter, M.D.
J. David Poutasse, M.D.
Jason A. Reder, M.D.
F. Peter Rentz, M.D.
Richard S. Rosenfeld, M.D.
Parvis Sadighi, M.D.
James W. Sherwood, M.D.
Bruce J. Shickmanter, M.D.
Michael J. Shreefter, M.D.
Paul R. Silverstein, M.D.
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Desmond R. Tivy, M.D.
Christopher Trancynger, M.D.
George T. Veinoglou, M.D.
Philip S. Volastro, M.D.
Arthur H. Wasser, M.D.
Terry P. Weaver, M.D.
Robert P. Wespiser, M.D.
Peter L. Zwerner, M.D.
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- --------------------------------------------------------------------------------
SERVICE AGREEMENT
- --------------------------------------------------------------------------------
COMMONWEALTH HEALTH MANAGEMENT SERVICES, INC.
AND
BP&S, P.C.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective April 1, 1998
- --------------------------------------------------------------------------------
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Table of Contents
1. RESPONSIBILITIES OF THE PARTIES...........................................1
1.1 General Responsibilities of the Parties.........................1
1.2 BP&S's Matters..................................................1
1.3 Patient Referrals...............................................1
2. POLICY COUNCIL............................................................2
2.1 Formation and Operation of the Policy Council...................2
2.2 Duties and Responsibilities of the Policy Council...............2
3. OBLIGATIONS OF COMMONWEALTH...............................................4
3.2 Recruiting and Expansion of Health Center.......................10
3.3 Provision of Capital...........................................11
3.4 Events Excusing Performance....................................11
3.5 Compliance With Applicable Laws................................11
4. OBLIGATIONS OF BP&S......................................................11
4.1 Professional Services..........................................11
4.2 Employment Of Physician Employees..............................11
4.3 BP&S Expenses...................................................12
4.4 Medical Practice...............................................12
4.5 Cooperation....................................................12
4.6 Professional Insurance Eligibility.............................12
4.7 Employment Of Non-Physician Employees..........................12
4.8 Events Excusing Performance....................................13
4.9 Compliance With Applicable Laws................................13
4.10 BP&S Employee Benefit Plans...................................13
4.11 Physician Powers of Attorney..................................15
4.12 Spokesperson..................................................16
5. RECORDS..................................................................16
5.1 Patient Records................................................16
5.2 Other Records..................................................16
5.3 Access to Records..............................................16
6. FACILITIES TO BE PROVIDED BY COMMONWEALTH................................16
6.1 Facilities.....................................................16
6.2 Use of Facilities..............................................16
6.3 Right to Use Property..........................................16
7. FINANCIAL ARRANGEMENTS...................................................17
7.1 Payments to BP&S and Commonwealth.......................................17
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7.2 Distribution..................................................17
7.3 Health Center Expenses........................................17
7.4 Finders Fee Payments to BP&S by Commonwealth...................17
7.5 Assignment of Fees for Medical Services.......................18
8. INSURANCE AND INDEMNITY.................................................20
8.1 Insurance to be Maintained by Commonwealth....................20
8.2 Tail Insurance Coverage.......................................20
8.3 Additional Insured............................................20
8.4 Indemnification...............................................20
9. RESTRICTIVE COVENANT....................................................22
9.1 Restrictive Covenants by BP&S.................................22
10. CERTAIN PROVISIONS OF MEDICAL PROFESSIONAL EMPLOYMENT AGREEMENTS
..................................................................22
10.1 Restrictive Covenants By Medical Professionals...............23
10.2 Other Provisions to be included in all Employment
Agreements with Medical
Professionals.............................................23
10.3 Special Provisions in Employment Agreements of Certain
Physician Shareholders...................................23
10.4 Termination of Restrictive Covenants.........................25
11. TERM...................................................................26
11.1 Term and Renewal.............................................26
11.2 Termination by BP&S..........................................26
11.3 Termination by Commonwealth..................................27
11.4 Effect of Termination........................................27
11.5 Actions After Termination....................................27
12. DEFINITIONS............................................................29
GENERAL DEFINITIONS................................................29
-------------------
12.1 Affiliate ....................................................29
12.2 BP&S Employees ..............................................29
12.3 Effective Date ..............................................29
12.4 Health Center ...............................................29
12.5 Health Center Facility ......................................29
12.6 Medical Professional ........................................29
12.8 Mid-level Providers .........................................30
12.9 Person .......................................................30
12.10 Physician Employees ........................................30
12.11 Physician Shareholders .....................................30
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12.12 Primary Service Area .......................................30
12.13 ProMedCo ...................................................30
12.14 Relocation...................................................30
12.15 Retirement...................................................30
12.16 Secondary Service Area .....................................30
12.17 Technical Employees ........................................30
FINANCIAL DEFINITIONS..............................................30
12.18 Commonwealth Distribution ..................................30
12.19 BP&S Distribution...........................................31
12.20 Distribution Funds .........................................32
12.21 Health Center Expenses .....................................32
12.22 Health Center Expenses shall not include....................33
12.23 Net Health Center Revenues .................................34
12.24 Opening Balance Sheet ......................................34
12.25 ProMedCo Corporate Overhead..................................34
MANAGED CARE DEFINITIONS...........................................34
12.26 Capitated Revenues ..........................................34
12.27 BP&S Capitation Allocation ..................................35
12.28 Managed Care Surpluses ......................................35
12.29 Net Capitated Revenues ......................................35
12.30 Outside Medical Expenses ....................................35
12.31 Risk Management Expenses ....................................35
13. GENERAL PROVISIONS.....................................................35
13.1 Independent Contractor.......................................35
13.2 Proprietary Property.........................................36
13.3 Cooperation..................................................36
13.4 Licenses, Permits and Certificates...........................36
13.5 Compliance with Rules, Regulations and Laws..................37
13.6 Generally Accepted Accounting Principles (GAAP)..............37
13.7 Notices......................................................37
13.8 Severability.................................................37
13.9 Arbitration..................................................37
13.10 CONSTRUCTION OF AGREEMENT...................................37
13.11 Legal Challenges.............................................38
13.12 Enforcement.................................................38
13.13 Assignment and Delegation...................................38
13.14 Confidentiality.............................................39
13.15 Waiver......................................................39
13.16 Headings....................................................39
13.17 No Third Party Beneficiaries................................39
13.18 Time is of the Essence......................................39
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13.19 Modifications of Agreement for Prospective Legal Events......39
13.20 Whole Agreement..............................................40
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SERVICE AGREEMENT
Service Agreement ("Agreement") effective April 1, 1998 but executed as
of April __, 1998, between Commonwealth Health Services, Inc., a Massachusetts
corporation ("Commonwealth") and BP&S, P.C., a Massachusetts professional
corporation ("BP&S").
RECITALS:
Subject to the terms and conditions hereof, BP&S desires to engage
Commonwealth to provide to BP&S management services, facilities, personnel,
benefits, equipment and supplies necessary to operate the Health Center (as
defined herein) and Commonwealth desires to accept such engagement. In addition,
Commonwealth has entered into a management agreement with Commonwealth
Independent Physicians Association ("CIPA") which shall be deemed to be a part
of BP&S for the purposes of this Agreement.
The parties agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. Commonwealth shall provide
BP&S with offices, facilities, equipment, supplies, non-provider support
personnel, and management and financial services. Commonwealth shall neither
exercise control over nor interfere with the physician-patient relationship,
which shall be maintained strictly between the physicians of BP&S and their
patients.
1.2 BP&S's Matters. Except for the matters below which are shared with
the Policy Council, BP&S shall maintain sole discretion and authority over (i)
the financial matters relative to its corporate existence, (ii) the compensation
levels for BP&S Employees, and (iii) all other matters pertaining to the
operation of BP&S, including without limitation, the hiring and tenure of BP&S
Employees the benefit plans and policies for BP&S Employees, the terms of
employment of BP&S Employees, including work schedules and hours of Health
Center operation, the types of medical services and procedures performed by BP&S
Employees, the determination as to when and if a Physician Employee qualifies as
a Physician Shareholder, the retirement age for BP&S Employees, and the drug
formularies and protocols to be used by BP&S.
1.3 Patient Referrals. The parties agree that the benefits to BP&S do
not require, are not payment for, and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by Commonwealth to any of BP&S's patients in any facility or
laboratory controlled, managed or operated by Commonwealth.
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2. POLICY COUNCIL
2.1 Formation and Operation of the Policy Council. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the Health Center. The Policy Council shall
meet monthly or as often as mutually agreed by the parties. Meetings shall be
held in Berkshire county or at such other places as may be mutually agreeable to
the parties. The Policy Council shall neither exercise control over nor
interfere with the physician-patient relationship, which shall be maintained
strictly between the physicians of BP&S and their patients. The Policy Council
shall consist of six members. Commonwealth shall designate, at its sole
discretion, three members of the Policy Council who may attend via telephone
conference call. Members of the Policy Council designated by Commonwealth shall
be entitled to attend and vote by proxy at any meetings of the Policy Council so
long as at least one such representative is present in person and the most
senior member of the group of designees of Commonwealth present at a meeting
shall be deemed to hold the proxy of any designee of Commonwealth who is absent
from the meeting. BP&S at its sole discretion shall designate three members of
the Policy Council. Members of the Policy Council designated by BP&S shall be
entitled to attend and vote by proxy at any meeting of the Policy Council so
long as at least one such BP&S representative is present in person, and the most
senior member of the group of BP&S designees present at a meeting (with
seniority determined on the basis of a person's status as an officer of BP&S, or
if no officer is present, the longest service on the Board of Directors of BP&S)
shall be deemed to hold the proxy of any designee of BP&S who is absent from the
meeting. Except as may otherwise be provided, the act of a majority of all six
of the members of the Policy Council shall be the act of the Policy Council.
2.2 Duties and Responsibilities of the Policy Council. During the term
of this Agreement, the Policy Council shall have the following duties and
responsibilities subject in all cases to any legal limitation on the delegation
by BP&S to any other party of any authority regarding BP&S's practice of
medicine:
(a) Annual Budgets. All annual capital and operating budgets prepared by
Commonwealth, as set forth in Section 3 and employing Commonwealth's
financial expertise, shall be subject to the review and approval of the
Policy Council.
(b) Administrator. The selection of the Administrator pursuant to Section 3.1
shall be subject to approval of the Policy Council. If BP&S is dissatisfied
with the services provided by the Administrator, BP&S shall refer the
matter to the Policy Council. Commonwealth and Policy Council shall in good
faith determine whether the performance of the Administrator could be
brought to acceptable levels through counsel and assistance, or whether the
Administrator should be terminated. Commonwealth shall have the ultimate
authority to terminate the Administrator. In any event, Commonwealth shall
have the right to terminate the Administrator. Prior
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to any such termination a senior officer of ProMedCo shall
notify the president of BP&S either face-to-face or via
telephone.
(c) Advertising. All proposed advertising, marketing, and public relations
initiatives shall be subject to the prior review and approval of the Policy
Council, in compliance with applicable laws and regulations governing
professional advertising and in accordance with the standards and medical
ethics of the American Medical Association and the Massachusetts Medical
Association.
(d) Ancillary Services. The Policy Council shall approve any changes in
existing Health Center provided ancillary services and any new Health
Center provided ancillary services, based upon the pricing, access to and
quality of such services.
(e) Capital Improvements and Expansion. The Policy Council shall determine the
priority for any renovation, expansion plans and major equipment
expenditures with respect to the Health Center of in excess $10,000 based
upon economic feasibility, physician support, productivity and market
conditions. Any proposed capital expenditure in excess of $10,000 shall
first be reviewed by ProMedCo in a timely manner pursuant to its internal
capital expenditure approval process. If ProMedCo approves the proposed
capital expenditure the Policy Council shall consider the proposed capital
expenditure using the same criteria set forth above. If the Policy Council
subsequently approves such capital expenditure, no further approval shall
be necessary and ProMedCo and Commonwealth shall cause such capital
expenditure to be fully funded.
(f) Exceptions to Inclusion in the Net Revenue Calculation. The exclusion of
any revenue from Net Health Center Revenues (i.e., not already excluded
from the definition of Net Health Center Revenue in Section 12.23), whether
now or in the future, shall be subject to the approval of the Policy
Council.
(g) Grievance Issues. Subject to the provisions of Section 1.2 of this
Agreement, the Policy Council shall consider and make final decisions
regarding grievances pertaining to matters not specifically addressed in
this Agreement as referred to it by BP&S's Board or Commonwealth.
(h) Patient Fees. In consultation with BP&S and Commonwealth, the Policy
Council shall review and adopt the fee schedule or capitation arrangement
for all physician and ancillary services rendered by the Health Center.
(i) Physician and Mid-level Provider Hiring. The Policy Council, with
information and analysis provided by Commonwealth or others, shall
determine the number and
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type of physicians and Mid-level Providers required for the
efficient operation of the Health Center and BP&S shall
determine the individual physicians and Mid-level Providers to
be hired to fill such positions. The approval of Commonwealth
shall be required for any variations to the restrictive
covenants in any physician or Mid-level Provider employment
contract.
(j) Provider and Payor Relationships. The Policy Council shall make the
decisions regarding the establishment and maintenance of relationships with
institutional health care providers and payors excluding clinical program
relationships. The Policy Council shall be responsible for approving the
allocation of capitation risk pools between the professional and
institutional components of these pools to the extent applicable under a
payor agreement. Commonwealth and BP&S shall use actuarial data from a
nationally recognized actuarial firm as agreed to by both parties for the
purposes of allocating capitation funds for any professional, ancillary or
other services provided directly by BP&S.
(k) Strategic Planning. The Policy Council, with the assistance of
Commonwealth, shall develop long-term strategic planning objectives.
(l) Approval of PMPM Charges. The Policy Council shall review and approve the
pmpm rate charged to BP&S for capitation risk management services pursuant
to Section 12.31.
(m) Approval of Substitute and Additional Health Center Facilities. The Policy
Council shall review and approve any substitute or additional facility
where BP&S Employees provide medical services, whether within or without
the Primary Service Area.
3. OBLIGATIONS OF COMMONWEALTH
3.1 Management and Administration. During the term of this Agreement,
BP&S hereby appoints Commonwealth as the sole and exclusive manager and
administrator of all non-medical functions and services related to BP&S's
services at the Health Center. Commonwealth shall timely provide or arrange for
the services set forth in this Section 3, the cost of all of which shall be
included in Health Center Expenses, unless explicitly excluded therefrom under
Section 12.22. Commonwealth is hereby expressly authorized to perform its
services in whatever manner it deems reasonably appropriate, in accordance with
policies and budgets approved by the Policy Council, and including without
limitation, incurring obligations in the name of Commonwealth to be paid by
Commonwealth as Health Center Expenses, unless explicitly excluded therefrom
under Section 12.22, and the performance of some functions at locations other
than the Health Center Facility so long as performing such functions elsewhere
does not result in a material adverse effect on the
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effective operation of the Health Center or the services or functions provided
by BP&S (Commonwealth acknowledges that it is the objective of BP&S to maintain
and foster additional employment opportunities in Berkshire County related to
the operation and management of the Health Center and Health Center Facility to
the extent feasible under the then prevailing circumstances, subject in all
cases to the right of Commonwealth to determine the places where it performs its
management obligations hereunder). BP&S will cooperate with Commonwealth to
enable it to manage the Health Center Facility operations in an efficient
manner. Commonwealth will not provide any medical services. Commonwealth will
have no authority, directly or indirectly, to perform, and will not perform, any
medical function. Commonwealth may, however, advise BP&S as to the relationship
between its performance of medical functions and the overall administrative and
business functioning of the Health Center. Without limiting the generality of
the foregoing, Commonwealth shall provide the following administrative,
management and marketing services as may be required in conjunction with BP&S's
services at the Health Center:
3.1.1 Administrator. Commonwealth shall hire and supervise an
Administrator, subject to approval of the Policy Council, to manage and
administer all of the day-to-day business functions of Commonwealth.
Commonwealth shall determine the salary and fringe benefits of the
Administrator. At the direction, supervision and control of
Commonwealth, the Administrator, subject to the terms of this
Agreement, shall implement the policies established by the Policy
Council.
3.1.2 Financial Planning and Preparation of Annual Budgets.
Annually, no later than 30 days after commencement of each fiscal year,
Commonwealth shall prepare and deliver to BP&S capital and operating
budgets reflecting in reasonable detail anticipated revenues and
expenses, sources and uses of capital to maintain and enhance BP&S's
medical practice and Health Center services. Until such time as
proposed annual budgets (or proposed revisions to existing budgets) are
approved by the Policy Council, the most recent annual budget approved
by the Policy Council shall be treated as the applicable annual budget
(with such adjustments to rents, interest, taxes and other
nondiscretionary income and expense items included therein as changed
automatically or accrue over time).
3.1.3 Financial Statements. Commonwealth shall prepare monthly
and fiscal year unaudited financial statements containing a balance
sheet and a statement of income for Health Center operations, which
shall be delivered to BP&S within thirty (30) days after the close of
each calendar month. The fiscal year statement may be examined by a
certified public accountant as selected by Commonwealth in connection
with the audit of the financial statements of ProMedCo, the cost of
which shall be a Health Center Expense. BP&S shall at all times have
reasonable access to review the books and records of Commonwealth
related to the Health Center operations and to audit such books and
records. If BP&S desires an audit in addition to the audit provided by
Commonwealth, such an audit would be at BP&S's expense.
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3.1.4 Non-Physician Personnel. Commonwealth will provide all
non-physician personnel reasonably necessary for the effective
operation of the Health Center with the exception of Mid-level
Providers and Technical Employees. Commonwealth shall determine and
cause to be paid the salaries, fringe benefits and any sums withheld
for income taxes, unemployment insurance, social security taxes
required to be withheld or any other withholding amounts required by
applicable law or governmental authority, of all such personnel. Such
personnel shall be under the direction, supervision and control of
Commonwealth, with those personnel performing patient care services
subject to the professional supervision of BP&S. If BP&S is
dissatisfied with the services of any person, BP&S shall consult with
Commonwealth. Commonwealth shall in good faith determine whether the
performance of that employee could be brought to acceptable levels
through counsel and assistance, or whether such employee should be
terminated. All of Commonwealth's obligations regarding staff, and in
particular, all personnel involved in direct patient care services,
shall be governed by the overriding principle and goal of providing
high quality medical care.
3.1.5 Quality Assurance. Commonwealth will assist BP&S in
fulfilling its obligation to its patients to maintain high quality
medical and professional services, including patient satisfaction
programs, employee education, outcomes management and analysis, product
line analysis, efficiency reviews, preparation and analysis of
production and financial reports, clinical protocol development and
implementation of a risk management and medical management program.
3.1.6 Maintenance of Facilities and Equipment. Commonwealth
will ensure the proper cleanliness of the premises and the maintenance
and cleanliness of the equipment, furniture and furnishings located on
the premises.
3.1.7 Inventory Control and Purchasing Supplies. Commonwealth
shall order and purchase inventory and supplies, and such other
ordinary, necessary or appropriate materials which are reasonably
sufficient to meet the day-to-day requirements of the Health Center and
to deliver quality Health Center services in a cost effective manner.
3.1.8 Managed Care Contracting. Commonwealth will be
responsible for marketing, negotiation, and administering all managed
care contracts, subject to the provisions of Section 2.2(j); provided,
however, no contract or arrangement regarding the provision of clinical
services shall be entered into without BP&S's prior consent. In
negotiating managed care contracts on behalf of BP&S, ProMedCo will not
act in violation of federal or state antitrust or unfair competition
laws or other applicable legal requirements. The parties agree that in
the event the Policy Council determines to pursue the formation of an
IPA, other physician organization or hospital network, or enter into
risk assumption contractual arrangements, the parties will structure
the IPA, hospital network or such
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arrangements in the manner in which the Policy Council determines
unless otherwise specifically addressed in this Agreement. Neither
party will participate in, own, or modify any existing relationship
with, any IPA or similar organization without Policy Council approval.
Commonwealth acknowledges and approves of participation by BP&S in CIPA
and Greater Springfield IPA on the terms in effect on the Effective
Date.
3.1.9 Billing and Collections. To the extent permitted under
applicable law, and subject to the terms of any applicable payor
contracts, Commonwealth shall bill patients and collect all fees for
services performed inside or outside the Health Center Facility or
arrange for such billing and collection. To the extent permitted under
applicable law, and subject to the terms of any applicable payor
contracts, BP&S hereby appoints Commonwealth for the term hereof, to be
its true and lawful attorney-in-fact for the following purposes (i) to
bill patients in BP&S's name and on its behalf, (ii) to collect
accounts receivable resulting from such billing in BP&S's name and on
its behalf, (iii) to receive payments of accounts receivable including,
but not limited to, payments from patients, Blue Cross and Blue Shield,
health plans and all other third party payors; (iv) to receive the cash
proceeds of any accounts receivable; (v) to take possession of and
endorse in the name of BP&S (and/or in the name of an individual
physician, such payment intended for purpose of payment of a
physician's bill) any notes, checks, money orders, insurance payments
and other instruments received in payment of accounts receivable; and
(vi) in accordance with policies adopted by the Policy Council, to
initiate legal proceedings in the name of BP&S to collect any accounts
and monies owed to the Health Center, to enforce the rights of BP&S as
creditors under any contract or in connection with the rendering of any
service, and to contest adjustments and denials by governmental
agencies (or its fiscal intermediaries) as third-party payors. All
adjustments made for uncollectible accounts, professional courtesies
and other activities that do not generate a collectible fee shall be
done in a reasonable and consistent manner acceptable to Commonwealth's
independent certified public accountants.
3.1.10 Deposit of Net Health Center Revenues. During the term
of this Agreement, Net Health Center Revenues collected resulting from
the operations of the Health Center shall be deposited directly into a
bank account of which BP&S shall be the owner ("Account"). Commonwealth
and BP&S shall maintain their accounting records in such a way as to
clearly segregate Net Health Center Revenues from other funds of
Commonwealth or BP&S. BP&S hereby appoints Commonwealth as its true and
lawful attorney-in-fact to deposit in the Account all revenues
collected. BP&S covenants, and shall cause all BP&S Employees to
covenant, to forward any payments received with respect to Net Health
Center Revenues for services provided by BP&S and BP&S Employees to
Commonwealth for deposit. BP&S shall execute a revocable standing
transfer order ("Transfer Order") under which the bank maintaining the
Account shall periodically transfer the entire balance of the Account
to a separate bank account owned solely by Commonwealth ("Commonwealth
Account"). BP&S and Commonwealth hereby agree to
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execute from time to time such documents and instructions as shall be
required by the bank maintaining the Account and mutually agreed upon
to effectuate the foregoing provisions and to extend or amend such
documents and instructions. Any action by BP&S that interferes with the
operation of this Section, including, but not limited to, any failure
to deposit or have Commonwealth deposit any Net Health Center Revenues
into the Account, any withdrawal of any funds from the Account not
authorized by the express terms of this Agreement, or any revocation of
or attempt to revoke the Transfer Order (otherwise than upon expiration
or termination of this Agreement), will constitute a breach of this
Agreement and will entitle Commonwealth, in addition to any other
remedies that it may have at law or in equity, to seek a court ordered
assignment of the following rights:
(a) To collect accounts receivable resulting from the
provision of services to patients of BP&S and
the BP&S Employees;
(b) To receive payments from patients, third party payor
plans, insurance companies, Medicare, Medicaid and
all other payors with respect to services rendered by
BP&S and its BP&S Employees;
(c) To take possession of and endorse any notes, checks,
money orders, insurance payments and any other
instruments received as payment of such accounts
receivable; and
(d) To collect all Net Health Center Revenues.
3.1.11 Management Information Systems/Computer Systems.
Commonwealth shall supervise and provide information systems that are
necessary and appropriate for the effective operation of the Health
Center.
3.1.12 Legal and Accounting and other Services. Commonwealth
shall arrange for or render to BP&S such business, legal and financial
management consultation and advice as may be reasonably required or
requested by BP&S and directly related to the operations of the Health
Center; such services must be approved in advance by the Administrator.
Attorneys' fees and other costs of enforcing any Physician Shareholder
contract containing restrictive covenants shall not be Health Center
Expenses; attorneys' fees and other costs and expenses of litigation,
arbitration or other proceeding for malpractice suits against the
Health Center and the BP&S Employees shall be Health Center Expenses,
including costs of judgements or settlements and other liabilities
customarily covered by malpractice insurance, including deductibles and
amounts in excess of the limits of coverage. Commonwealth shall not be
responsible for rendering any legal or tax advice or services or
personal financial services to BP&S or any employee or agent of BP&S.
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3.1.13 Additional Services. Commonwealth shall arrange for, as
a Health Center Expense, necessary clerical, accounting, accounts
receivable and payable processing, bookkeeping, printing, postage and
duplication services, medical transcribing services, laundry, cleaning
and any other ordinary and appropriate service for the operation of the
Health Center.
3.1.14 Negotiation and Payment of Premiums For All Insurance
Products Held By BP&S. Commonwealth shall negotiate for and cause
premiums to be paid with respect to the insurance provided for in
Section 8. Premiums and deductibles with respect to such policies shall
be a Health Center Expense.
3.1.15 Supervision of Ancillary Services. Commonwealth shall
manage and supervise the ancillary services provided by BP&S as of the
date hereof and such other ancillary services as are subsequently
approved by the Policy Council.
3.1.16 Strategic Planning Assistance. Commonwealth shall
assist with and implement the strategic plan as approved by the Policy
Council.
3.1.17 Advertising and Public Relations. From time to time
Commonwealth shall recommend to the Policy Council various advertising
and public relations initiatives which shall not be implemented without
Policy Council approval. Such initiatives shall place appropriate
emphasis on public awareness of the availability of services at the
Health Center. Advertising and public relations programs shall be
conducted as a Health Center Expense and in compliance with applicable
laws and regulations governing advertising by the medical profession.
3.1.18 Files and Records. Commonwealth shall supervise the
maintenance of all files and records relating to the operation of the
Health Center, including but not limited to accounting, billing,
patient medical records, and collection records. Patient medical
records shall at all times be and remain the property of BP&S and shall
be located at Health Center facilities so that they are readily
accessible for patient care. The management of all files and records
shall comply with applicable state and federal statutes. Commonwealth
shall use its best efforts to preserve the confidentiality of patients'
medical records and use information contained in such records only for
the limited purpose necessary to perform the services set forth herein,
provided, however, in no event shall a breach of said confidentiality
be deemed a default under this Agreement. Nevertheless, in the event of
any breach of confidentiality, Commonwealth shall take prompt action to
remediate the breach.
3.1.19 Management of CIPA. Commonwealth shall manage CIPA on
behalf of CHMS pursuant to the provisions of the management agreement
between CHMS and CIPA.
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3.1.20 Facilities Consultation. If requested by the Policy
Council, Commonwealth shall provide BP&S with, or arrange for, facility
architectural, design and construction management services.
3.2 Recruiting and Expansion of Health Center.
(a) Recruiting. Commonwealth shall assist BP&S in recruiting additional
physicians and Mid-level Providers, carrying out such administrative
functions as may be appropriate such as advertising for and identifying
potential candidates, checking credentials, and arranging interviews;
provided, however, BP&S shall interview and make the ultimate decision as
to the suitability of any physician or Mid-level Provider to become
associated with the Health Center. All physicians and Mid-level Providers
recruited by Commonwealth and accepted by BP&S shall be the sole employees
of BP&S to the extent such physicians and Mid-level Providers are hired as
employees.
(b) Health Center Expansion. Commonwealth will pursue various programs to
increase revenue and profitability including assisting BP&S in adding
additional office based procedures, ancillary services and adding
additional satellite office(s) as determined by the Policy Council to be
beneficial to the Health Center. Commonwealth will also assist in
recruiting new physicians and developing relationships and affiliations
with other physicians, hospitals, networks, HMOs, etc.; provided that
Commonwealth shall not attempt to change existing relationships and
affiliations without the prior approval of the Policy Council. To assist in
the continued growth and development of the Health Center, Commonwealth may
affiliate with other physician practices; provided however, that unless
BP&S approves otherwise, BP&S shall be the only medical group or practice
managed by ProMedCo or any Affiliate of ProMedCo in the Primary Service
Area. BP&S will cooperate with Commonwealth in such expansion efforts and
use its reasonable efforts to assist Commonwealth with respect thereto.
Without limiting the generality of the foregoing, BP&S will not enter into
any agreements with respect to any such matter set forth in this Section
3.2(b) other than with regard to clinical, non-business relationships,
without the prior consent of Commonwealth.
Commonwealth funding of new physician practices, either existing
practices ("hot start") or newly recruited physicians ("cold starts"),
will be subject to Policy Council approval. In a "cold start",
Commonwealth will provide or arrange for the capital, in the form of a
loan to BP&S necessary for recruiting and relocating the physician,
including without limitation, funds for any income guarantee required
under the circumstances. Once a "cold start" physician becomes
profitable (i.e., revenues attributable to such physician, less
expenses, less Commonwealth management fees relating to the physician
and less the income guarantee,
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if any), the profits derived from the physician will be used to retire
the loan and interest accrued thereon before being applied to the
benefit of BP&S. In a "hot start" Commonwealth will provide or arrange
for the capital necessary to purchase the "hot start" physician's
furniture, fixtures and equipment, accounts receivable and goodwill.
Once acquired, such furniture, fixtures and equipment will be
depreciated as Health Center Expenses over the life of the assets and,
if the "hot start" is implemented after the 5th anniversary of the
Effective Date and relates to a practice located in the Primary Service
Area, then 50% of goodwill will be amortized as a Health Center Expense
over the remainder of the Term of this Agreement.
3.3 Provision of Capital. Commonwealth shall provide the capital
necessary to expand BP&S, subject to approval by the Policy Council.
3.4 Events Excusing Performance. Commonwealth shall not be liable to
BP&S for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, or
other events over which Commonwealth has no control for so long as such events
continue, and for a reasonable amount of time thereafter.
3.5 Compliance With Applicable Laws. Commonwealth shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement. Commonwealth shall provide BP&S
with copies of any notice from any governmental authority alleging any violation
of applicable laws within ten days of receipt thereof.
4. OBLIGATIONS OF BP&S
4.1 Professional Services. BP&S shall provide professional services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the medical profession. BP&S shall also ensure that each physician
associated with BP&S is licensed by the Commonwealth of Massachusetts, or if
their practice is conducted in another states, then in such state. In the event
that any disciplinary actions or medical malpractice actions are initiated
against any such physician, BP&S shall immediately inform the Administrator of
such action and the underlying facts and circumstances. BP&S shall carry out a
program to monitor the quality of medical care practiced, with Commonwealth's
assistance. BP&S will cooperate with Commonwealth in taking steps to resolve any
utilization review or quality assurance issues which may arise in connection
with the Health Center.
4.2 Employment Of Physician Employees. BP&S shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of its Physician Shareholders and Physician Employees, although at
the request of BP&S, Commonwealth shall consult with BP&S regarding such
matters. BP&S shall enforce formal employee agreements from each of its
Physician Shareholders and Physician Employees, hired or contracted with
provisions
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consistent with the requirements of Article 10 hereof. BP&S shall be responsible
from the BP&S Distribution for the payment of such Physician Shareholders' and
Physician Employees' salaries and wages, benefits, payroll taxes and all other
taxes and charges now or hereafter applicable to them. BP&S shall only employ
and contract with licensed physicians meeting applicable credentialing
guidelines established by BP&S.
4.3 BP&S Expenses. BP&S shall be solely responsible for the payment of
all costs and expenses incurred by BP&S in connection with BP&S (as opposed to
Health Center) operations (except for those expenses which are explicitly
included in Health Center Expenses in Section 12.21), including, but not limited
to, accounting and other professional services fees, salaries and benefits,
retirement plan contributions, health, disability and life insurance premiums,
payroll taxes, membership in professional associations, continuing medical
education, and licensing and board certification fees for its Physicians
Employees and Mid-level Providers.
4.4 Medical Practice. BP&S shall use and occupy the Health Center
Facility exclusively for the practice of medicine and the provision of ancillary
services and for any purpose incident thereto, and, in compliance with all
applicable local rules, ordinances and all standards of medical care, unless
such non-compliance is caused by matters outside the control of BP&S. It is
expressly acknowledged by the parties that the medical practice or practices
conducted at the Health Center Facility shall be conducted solely by physicians
and other practitioners associated with BP&S, and no other physician or medical
practitioner shall be permitted to use or occupy the Health Center Facility
without the prior written consent of the Policy Council except the arrangement
existing on the date hereof with Dr. Thomas Vaughan who occupies space in the
Dalton, MA facility.
4.5 Cooperation. BP&S shall, and shall cause the BP&S Employees to,
exercise diligence in assisting Commonwealth in keeping costs and expenses of
the Health Center within approved budgeted limits without sacrificing
professional standards or high quality patient care. BP&S shall exercise due
care to ensure that, when being used by Employees, medical equipment of the
Health Center is being used in a safe and efficient manner, and shall timely
report any unsafe or unsatisfactory medical equipment of which BP&S, or any of
the BP&S Employees, is aware. BP&S acknowledges and agrees that on execution of
this Agreement, Commonwealth will implement its own policies and procedures,
including, but not limited to, polices and procedures regarding cash management
and internal controls. These policies and procedures will be implemented as soon
as reasonably practicable after execution of this Agreement and may be revised
or amended by Commonwealth from time to time thereafter during the term of this
Agreement. BP&S agrees to cooperate with any such implementation, revision, or
amendment of Commonwealth's policies and procedures. BP&S also agrees to
cooperate with, and participate in, any patient satisfaction surveys and/or
programs instituted or implemented by Commonwealth.
4.6 Professional Insurance Eligibility. BP&S shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Shareholders and Physician
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Employees are insurable, and participating in an ongoing risk management
program.
4.7 Employment Of Non-Physician Employees. There will be certain
Technical Employees that perform technical functions for BP&S. These Technical
Employees will remain in the employ of BP&S. As provided in Section 3.1.4,
Commonwealth will provide payroll and administrative services for such Technical
Employees which shall be a Health Center Expense. In the alternative,
Commonwealth, at its option, shall employ the Technical Employees and lease such
employees to BP&S under the terms of an employee leasing agreement that will
allow the services of the Technical Employees to be billed as "incident to" the
services of the Physician Employees and the Physician Shareholders for
reimbursement purposes. Such employee leasing agreement shall be consistent with
the terms of Section 2050.1 of the Medicare Carriers Manual.
4.8 Events Excusing Performance. BP&S shall not be liable to
Commonwealth for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies, or other events over which BP&S has no control for so long as such
events continue, and for a reasonable amount of time thereafter.
4.9 Compliance With Applicable Laws. BP&S shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement. BP&S shall provide Commonwealth
with copies of any notice from any governmental authority alleging any violation
of applicable laws within ten days of receipt thereof.
4.10 BP&S Employee Benefit Plans.
(a) BP&S shall establish a profit sharing plan (the "Minor Plan") intended to
qualify under Section 401(a) of the Code providing, effective as of the
Closing, (i) for the preservation of all benefits accrued under the
Berkshire Physicians & Surgeons, P.C. 401(a) and Retirement Plan (the
"Existing Plan") prior to the Closing by Existing Plan participants who
will be employed by BP&S immediately after the Closing, and (ii) for the
accrual of future benefits for individuals employed by BP&S on and after
the Closing on terms substantially identical to the terms of the Existing
Plan in effect as of the Closing Date; provided, that nothing herein, and
no language in the Existing Plan, shall prevent BP&S from modifying or
terminating the Mirror Plan at any time in any respect after the Closing,
subject to the notification requirement in paragraph (d) below. The Mirror
Plan shall recognize service under the Prior Plan for the purposes of
determining eligibility, contributions and vesting.
(b) BP&S shall provide to Commonwealth a copy of the profit sharing plan it
intends to adopt as the Mirror Plan. In connection with adopting the Mirror
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Plan,BP&S shall reasonably cooperate with Commonwealth to provide plan language
excluding individuals employed by Commonwealth from participating in the
Mirror Plan. Nothing herein, and no language in the Existing Plan, shall
prohibit BP&S and the Mirror Plan from recognizing, solely for tax
compliance purposes, contributions made by Commonwealth to the Existing
Plan, as it may be amended from time to time, on behalf of individuals
determined to be "leased employees" (as defined in Section 414(n) of the
Code) of BP&S.
(c) As soon as reasonably practicable, but not later than twenty business days
after the Mirror Plan has been established, Commonwealth shall cause to be
transferred from the Existing Plan to the Mirror Plan the vested and
unvested account balances (including participant loans) of each participant
in the Existing Plan who will be employed by BP&S effective as of the
Closing. The transferred amount with respect to each such participant shall
include all 401(k) contributions withheld from pay prior to the Closing but
actually contributed to the Existing Plan after the Closing. The transfer
of assets allocated to these account balances shall be made in kind,
including all outstanding participant loans. Effective upon the transfer of
account balances and their related assets, BP&S shall retain or assume, and
shall relieve Commonwealth from, all liabilities with respect to
participants whose account balances are so transferred.
(d) Except as otherwise required by law, BP&S shall not materially amend,
freeze or terminate or merge any "employee benefit plan" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended) without giving prior written notice to Commonwealth,
(e) ProMedCo intends to file a request for a favorable determination letter
with the Internal Revenue Service addressing employee aggregation matters
which may affect BP&S. ProMedCo shall provide to BP&S a copy of its
determination letter request at least 10 business days prior to its filing,
it being understood that ProMedCo shall retain the ultimate authority to
determine the contents of its determination letter request. ProMedCo shall
inform BP&S of any developments that may reasonably be found to affect the
Mirror Plan, including any IRS proposal to decline ruling on the
determination letter request.
(f) BP&S intends to file a request for a favorable determination letter with
the Internal Revenue Service with respect to the Mirror Plan following
ProMedCo's determination letter filing. BP&S shall provide to ProMedCo
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a copy of its determination letter request at least 10 business days prior to
its filing, it being understood that BP&S shall retain the ultimate
authority to determine the contents of its determination letter request.
BP&S shall inform ProMedCo of any developments that may reasonably be found
to affect the Existing Plan, including any IRS proposal to decline ruling
on the determination letter request.
(g) If (i) BP&S amends the Mirror Plan after the Closing to provide its
participants greater benefits than the benefits available under the
Existing Plan, as amended as of the Closing, or (ii) Commonwealth or
ProMedCo amends the Existing Plan after 1999 to provide its participants
less benefits than the benefits available under the Mirror Plan, as
established immediately following the Closing, and a claim is made that
Commonwealth or ProMed Co must provide its employees then participating in
the Existing Plan the same right to accrue benefits as provided at that
time by BP&S under the Mirror Plan, then BP&S shall indemnify Commonwealth
and ProMedCo for any judgement and for reasonable costs and expenses they
may incur to defend any civil action by an individual employed by
Commonwealth regarding any such amendment or to respond to any audit
request by a governmental agency specifically targeted to investigate any
such amendment.
(h) BP&S, Commonwealth and ProMedCo shall comply with reasonable information
requests from one another (or their designees) in order to fulfill their
respective duties and obligations under this Section and under applicable
law.
(i) Commonwealth shall have the sole and exclusive authority to adopt, amend,
or terminate any employee benefit plan for the benefit of its employees.
Commonwealth shall have the sole and exclusive authority to appoint the
trustee, custodian, and administrator of any such plan.
(j) Expenses incurred in connection with any other employee benefit plan
maintained by Commonwealth for the benefit of its employees pursuant to
Section 3.1.4, including without limitation the compensation of counsel,
accountants, corporate trustees and other agents shall be Health Center
Expenses.
(k) The contribution and administration expenses for Medical Professionals
shall be an expense of BP&S. Commonwealth shall make contributions or
payments with respect to any employee benefit plan, as a Health Center
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Expense, on behalf of eligible Technical Employees
and employees of Commonwealth.
4.11 Physician Powers of Attorney. BP&S shall require all Medical
Professionals to execute and deliver to Commonwealth powers of attorney,
satisfactory in form and substance to Commonwealth and BP&S, appointing
Commonwealth as attorney-in-fact for each for the purposes set forth in Sections
3.1.9 and 3.1.10, which powers of attorney shall immediately terminate upon
termination of this Agreement.
4.12 Spokesperson. BP&S shall serve as spokesperson for Commonwealth
and ProMedCo in Health Center, Commonwealth and ProMedCo development activities.
The parties agree that Drs. Peter Zwerner and Arthur H. Wasser, or such other
Physician Shareholder as the Policy Council shall appoint, shall serve in this
capacity on behalf of BP&S.
5. RECORDS
5.1 Patient Records. Upon termination of this Agreement, BP&S shall
retain all patient medical records maintained by BP&S or Commonwealth in the
name of BP&S. BP&S shall, at its option, be entitled to retain copies of
financial and accounting records relating to all services performed by BP&S.
5.2 Other Records. All records relating in any way to the operation of
the Health Center which are not the property of BP&S under the provisions of
Section 5.1 above, shall at all times be the property of Commonwealth.
5.3 Access to Records. During the term of this Agreement, and
thereafter, BP&S or its designee shall upon 24 hours' notice have reasonable
access during normal business hours to BP&S's and Commonwealth's financial
records, including, but not limited to, records of collections, expenses and
disbursements as kept by Commonwealth in performing Commonwealth's obligations
under this Agreement, and BP&S may copy any or all such records.
6. FACILITIES TO BE PROVIDED BY COMMONWEALTH
6.1 Facilities. Commonwealth hereby agrees to provide or arrange as a
Health Center Expense the offices and facilities for Health Center operations,
including but not limited to, the Health Center Facility and those items of
furniture, fixtures and equipment necessary and appropriate for the effective
operation of the Health Center, and all costs of repairs, maintenance and
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, related real or personal property lease cost payments and
expenses, taxes and insurance, refuse disposal and all other costs and expenses
reasonably incurred in conducting operations in the Health Center Facility
during the term of this Agreement.
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6.2 Use of Facilities. Commonwealth and BP&S agree that BP&S, as an
independent contractor, is a separate organization that retains the authority to
direct the medical, professional, and ethical aspects of its medical practice.
If a Physician Shareholder or a Physician Employee performs abortion procedures
in any facility, Commonwealth shall not receive any Commonwealth Distribution
from the revenue generated from such procedures.
6.3 Right to Use Property. Commonwealth shall have access to the
foregoing facilities and premises of BP&S during the term of this Agreement, or
with respect to property leased by BP&S, during the term of any lease or
sublease of such premises and any additional premises leased, subleased or
acquired by BP&S during the term of this Agreement. BP&S shall not enter into
any new leases or subleases or agree to amend any currently existing lease or
sublease without the prior approval of the Policy Council. The right to have
access to the premises shall not constitute a lease or sublease of the premises,
shall not constitute an assignment of any of BP&S's rights under existing
leases, and shall not be construed as an assignment or other transfer of any
rights of BP&S to its owned property or any rights of its lessors under any
existing leases.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to BP&S and Commonwealth. BP&S and Commonwealth agree that
the compensation set forth herein is being paid to Commonwealth in consideration
of a substantial commitment made by Commonwealth hereunder and that such fees
are fair and reasonable. As payment for its services rendered to BP&S, each
month of the term hereof, Commonwealth shall be paid the amount of all Health
Center Expenses and the Commonwealth Distribution. All Net Health Center
Revenues and Managed Care Surpluses, after deduction of Health Center Expenses,
and the Commonwealth Distribution, hereunder shall be referred to as the "BP&S
Distribution."
7.2 Distribution. The amounts to be paid to Commonwealth under this
Section 7.2 shall be payable monthly. Commonwealth shall pay to BP&S, in
accordance with the provisions of Section 7.1, the BP&S Distribution amounts on
or about the 15th day of such following month. Some amounts may need to be
estimated, with adjustments made as necessary the following month. Any audit
adjustments would be made after completion of the fiscal year audit. Copies of
all calculations which were made to estimate amounts due hereunder and/or to
make audit adjustments hereunder shall be provided by Commonwealth to BP&S, and
if requested by BP&S, shall be reviewed by the Policy Council.
7.3 Health Center Expenses. Commencing on the Effective Date,
Commonwealth shall pay all Health Center Expenses as they fall due (including
without limitation any Non-Physician Personnel carried on the books of BP&S
pursuant to Section 3.1.4), provided, however, that Commonwealth may, in the
name of and on behalf of BP&S, contest in good faith any claimed Health Center
Expenses as to which there is any dispute regarding the nature, existence or
validity of such claimed Health Center Expenses. Commonwealth hereby agrees to
indemnify and hold
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BP&S harmless from and against any liability, loss, damages, claims, causes of
action and reasonable expenses of BP&S resulting from the contest of any Health
Center Expenses or any other failure to pay Health Center Expenses as they fall
due.
7.4 Finders Fee Payments to BP&S by Commonwealth. Commonwealth shall
pay BP&S a one time finders fee for each physician who enters into an employment
agreement with BP&S or a management arrangement with Commonwealth in the Primary
or Secondary Service Areas as a result of the acquisition of such physician's
practice or his or her recruitment by BP&S. Such payment shall be $25,000 for
each new BP&S physician; for each Commonwealth management arrangement the
payment shall be the $25,000 less (i) the amount obtained by multiplying $25,000
by a fraction, the numerator of which five less the number of years of the term
of the Commonwealth management arrangement, up to a maximum of five and the
denominator of which is five, and less (ii) the amount obtained by multiplying
$25,000 by a fraction the numerator of which is 17 less the percentage
(expressed as a whole number) of Commonwealth's Distribution Funds thereunder or
equivalent, up to a maximum of 17, and the denominator of which is 17. The
payment shall be made in cash within 120 days following the later of the date of
the acquisition or the date the employment agreement is entered into; provided
however, in the case of a "cold start" recruitment, the fee shall be paid within
90 days after the date that the "cold start" loan described in Section 3.2 has
been repaid. Notwithstanding the foregoing, no finders fee shall be paid with
respect to any physician other than a primary care physician unless at least 60%
of all physicians then employed by BP&S are engaged in primary care (for the
purpose of calculating such 60%, each full-time Mid-level Provider engaged in
primary care shall be deemed to be 0.65 of a physician).
7.5 Assignment of Fees for Medical Services.
(a) The parties acknowledge and agree that the compensation and benefits
payable to BP&S pursuant to Section 7.1 are intended to be in lieu of
charges which BP&S or the BP&S Employees would otherwise earn for the
provision of medical services to patients of their medical practice and
which BP&S or the BP&S Employees would otherwise bill and retain for their
own account. Accordingly, to the extent permitted by law, BP&S hereby
assigns, sells, transfers, conveys and sets over to Commonwealth all
"Pre-Termination Accounts Receivable." The term "Pre- Termination Accounts
Receivable," as used herein, shall mean all BP&S accounts (as defined in
the Uniform Commercial Code as adopted in Massachusetts) arising from, and
all rights to receive payment for, medical services rendered by BP&S or the
BP&S Employees, prior to the effective date of any expiration or
termination of this Agreement, all proceeds of the foregoing, all payments
made in respect of, and all rights related to, the foregoing, and all
amounts on deposit in the Account (as defined in Section 3.1.10 hereof) or
any other deposit account from time to time. BP&S shall obtain a like
assignment from all BP&S Employees.
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(b) BP&S acknowledges that it is the intent of Commonwealth and ProMedCo to
grant a security interest in the Pre-Termination Accounts Receivable to the
lender(s) under its working capital credit facility (whether one or more,
"Credit Facility Lender"), as in effect from time to time. BP&S agrees that
such security interest of the Credit Facility Lender is intended to be a
first priority security interest and is superior to any right, title or
interest which may be asserted by BP&S or any BP&S Employee with respect to
Pre-Termination Accounts Receivable. To the extent permitted by law, BP&S
further agrees, and shall cause each BP&S Employee to agree, that, upon the
occurrence of an event which, under the terms of such working capital
credit facility, would allow the Credit Facility Lender to exercise its
rights with respect to the Pre- Termination Accounts Receivable, the Credit
Facility Lender will succeed to all rights and powers of Commonwealth under
this Agreement including, but not limited to, the powers of attorney
granted hereunder as if such Credit Facility Lender had been named as the
attorney-in-fact therein.
(c) It is the intention of Commonwealth and BP&S that the assignment of the
Pre- Termination Accounts Receivable contained in Section 7.5(a) hereof
constitute a true sale and outright assignment. In the event, however, that
a court of competent jurisdiction were to hold that such assignment does
not constitute a true sale or outright assignment or is ineffective for any
reason, then BP&S shall, effective as of the date of this Agreement, be
deemed to have granted (and BP&S does hereby grant) to Commonwealth a first
priority lien on, and security interest in and to, any and all interests of
BP&S in all Pre-Termination Accounts Receivable. Such security interest
shall secure the payment to Commonwealth of the Health Center Expenses, the
Commonwealth Distribution and all other amounts now or hereafter owing to
Commonwealth and/or ProMedCo under this or any other agreement.
(d) BP&S shall execute and deliver the Professional Service Provider Agreement
in the form attached hereto as Appendix 7.5A, UCC-1 Financing Statement
with an Exhibit A in the form attached hereto as Appendix 7.5B, Perfection
Certificate in the form attached hereto as Appendix 7.5C, and Closing
Certificate of Service Provider in the form attached hereto as Appendix
7.5D. Further, to the extent permitted by law, BP&S shall (and shall cause
each BP&S Employee), from time to time, to promptly execute and deliver all
further instruments and documents, and take such other actions as may be
necessary or appropriate to protect, perfect or more fully to evidence the
transfer of ownership of the Pre-Termination Accounts Receivable or to
enable Commonwealth to exercise or enforce any of its rights hereunder.
Without limiting the generality of the foregoing, BP&S shall (and shall
cause each BP&S Employee) to execute and deliver, all such financing
statements continuation statements and amendments thereto or assignments
thereof as Commonwealth may request.
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(e) To the extent required under applicable law, BP&S shall retain all rights
of collection with respect to the Pre-Termination Accounts Receivable. All
payments and collections in respect to the Pre-Termination Accounts
Receivable shall be deposited in the Account (as defined in Section 3.1.10
hereof) or such other deposit account as Commonwealth shall designate. To
the extent BP&S or BP&S Employee comes into possession of any payment(s) in
respect of the Pre-Termination Accounts Receivable, BP&S or such BP&S
Employee shall direct such payments to Commonwealth for deposit in the
Account or such other deposit account as Commonwealth shall designate
provided it is owned by BP&S.
(f) BP&S shall not assign, grant, create or suffer to exist any "Adverse Claim"
upon, or with respect to, the Pre-Termination Accounts Receivable. The term
"Adverse Claim," as used herein, shall mean any claim or ownership or any
lien, security interest or any or other charge or encumbrance.
8. INSURANCE AND INDEMNITY
8.1 Insurance to be Maintained by Commonwealth. Throughout the term of
this Agreement, Commonwealth will use reasonable efforts to provide and
maintain, as a Health Center Expense, comprehensive professional liability
insurance for all physicians of Commonwealth and BP&S with limits of not less
than $1,000,000 per claim and with aggregate policy limits of not less than
$3,000,000 per physician, or such other limits as the Policy Council from time
to time determines appropriate, with a separate limit for BP&S and such limits
with respect to Medical Professionals who are not physicians as the Policy
Council deems appropriate under the circumstances. Commonwealth shall provide
such insurance through its national program and will have the right to select
the carrier for such insurance with the approval of the Policy Council, which
approval shall not be unreasonably withheld. Commonwealth shall also provide and
maintain, as a Health Center Expense, comprehensive general liability insurance
and property insurance covering the Health Center Facility and operations.
8.2 Tail Insurance Coverage. BP&S will cause each individual physician
associated with the Health Center to enter into an agreement with BP&S that upon
termination of such physician's relationship with BP&S, for any reason, tail
insurance coverage will be purchased by the individual physician or the
individual physician will reimburse the BP&S for the cost of such coverage which
shall reimburse Commonwealth if Commonwealth obtained the coverage at its cost;
provided however, if BP&S determines that the cost of tail insurance should be
borne solely by BP&S, and if BP&S does in fact bear such cost, the physician
need not reimburse BP&S for the cost thereof, but BP&S shall nonetheless be
obligated to reimburse Commonwealth if Commonwealth obtained such tail coverage
at its cost. Such provisions shall be contained in employment agreements,
restrictive covenant agreements or other agreements entered into by BP&S and the
individual physicians, and BP&S hereby covenants with Commonwealth to enforce
such provisions relating
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to the tail insurance coverage or to provide such coverage at the expense of
BP&S; provided however, if the insurance coverage applicable to the physician is
written on an "occurrence basis" no tail coverage will be required.
8.3 Additional Insured. BP&S and Commonwealth agree to use their
reasonable efforts to have each other named as an additional insured on the
other's respective professional liability insurance programs with the cost, if
any, of having the party named as an additional insured being a Health Center
Expense.
8.4 Indemnification.
(a) BP&S shall indemnify, hold harmless and defend Commonwealth, its officers,
directors and employees, from and against any and all liability, loss,
damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result
intentional acts or negligent acts or omissions (other than claims of
medical malpractice) by BP&S and/or its shareholders, agents, employees
and/or subcontractors (other than Commonwealth) during the term hereof,
including any claim against Commonwealth by a BP&S Employee, which claim
arises out of such BP&S Employees' employment relationship with BP&S or as
a result of services performed by such BP&S Employee, and which claim would
typically be covered by worker's compensation. Commonwealth shall have the
right of offset against any amounts otherwise payable to BP&S for any
amounts due to Commonwealth as a result of the indemnification set forth in
this Section 8.4 provided (A) the Policy Committee shall have approved of
the amount and schedule of payments thereof or (B) a court of competent
jurisdiction or arbitration panel shall have made a non- appealable award
to Commonwealth with respect thereto.
(b) Commonwealth shall indemnify, hold harmless and defend BP&S, its officers,
directors and employees, from and against any and all liability, loss,
damage, claim, causes of action, and expenses (including reasonable
attorneys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of
the performance of any intentional acts, negligent acts or omissions by
Commonwealth and/or its shareholders, agents, employees and/or
subcontractors (other than BP&S) during the term of this Agreement (other
than claims of medical malpractice).
(c) Each party agrees to give prompt notice to the other(s) of any claim
against the other(s) which might give rise to a claim based on the
indemnity contained in this Section 8.4 , stating the nature and basis of
the claim and the amount thereof.
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(d) In the event any claim, action, suit or proceeding is brought against a
party (the "Indemnified Party") with respect to which the other party (the
"Indemnifying Party") may have liability under the indemnity contained in
this Section 8.4 , the Indemnified Party shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
from such claim, provided that the Indemnified Party shall not be required
to permit the Indemnifying Party to assume the defense of any third party
claim which if not first paid, discharged, or otherwise complied with would
result in an interruption or cessation of the conduct of the Indemnified
Party's business or any material part thereof. Failure by the Indemnifying
Party to notify the Indemnified Party of its election to defend any such
claim or action by a third party within thirty (30) days after notice
thereof shall have been given by the Indemnified Party, shall be deemed a
waiver of any such election. If the Indemnifying Party assumes the defense
of such claim or litigation resulting therefrom, the obligations of the
Indemnifying Party hereunder as to such claim shall include taking all
steps reasonably necessary in the defense or settlement of such claim or
litigation resulting in the defense or settlement of such claim or
litigation resulting therefrom, including the retention of counsel
satisfactory to the Indemnified Party, and holding the Indemnified Party
harmless from and against any and all damage resulting from, arising out
of, or incurred with respect to any settlement approved by the Indemni
fying Party or any judgment in connection with such claim or litigation
resulting therefrom. The Indemnifying Party shall not, in the defense of
such claim or litigation, consent to the entry of any judgment (other than
a judgment of dismissal on the merits with costs) except with the written
consent of the Indemnified Party nor enter into any settlement (except with
the written consent of the Indemnified Party) which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to
the Indemnified Party a release from all liability in respect to such claim
or litigation.
(e) If the Indemnifying Party shall not assume the defense of any such claim by
a third party or litigation resulting therefrom, the Indemnified Party may
defend against such claim or litigation in such manner as it deems
appropriate. The Indemnifying Party shall, in accordance with the
provisions hereof, promptly reimburse the Indemnified Party for the amount
of any settlement reasonably entered into by the Indemnified Party and for
all damage incurred by the Indemnified Party in connection with the defense
against or settlement of such claim or litigation.
9. RESTRICTIVE COVENANT
The parties recognize that the services to be provided by Commonwealth
shall be feasible only if BP&S operates an active medical practice to which the
physicians associated with BP&S
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devote their full time and attention. To that end:
9.1 Restrictive Covenants by BP&S. During the term of this Agreement,
BP&S shall not establish, operate or provide physician services at any medical
office, Health Center or other health care facility (other than the Health
Center Facility) providing services substantially similar to those provided by
BP&S pursuant to this Agreement anywhere within the Primary or Secondary Service
Area. In addition, BP&S shall not enter into any ownership or management
relationship under a managed care or risk assumption program other than as
contemplated hereby.
10. CERTAIN PROVISIONS OF MEDICAL PROFESSIONAL EMPLOYMENT
AGREEMENTS
The parties recognize that the services to be provided by Commonwealth
shall be feasible only if BP&S operates an active medical practice to which the
physicians associated with BP&S devote their full time and attention. To that
end:
10.1 Restrictive Covenants By Medical Professionals. BP&S shall obtain
and enforce formal employment agreements from each of its current and future
Medical Professionals pursuant to which each such Medical Professional agrees
that during the term of such Medical Professional's employment agreement, and
for a period of one year after any termination of employment with BP&S (other
than termination due to a prior material breach of the Employment Agreement by
BP&S), such Medical Professional shall not join, affiliate or contract with, or
sell their services or practice to, any competing physician, group network or
practice which is managed by any state wide or multi-state management services
organization or physician practice management company that competes with
ProMedCo, BP&S or any other practice managed by ProMedCo in the Primary Service
Area.
10.2 Other Provisions to be included in all Employment Agreements with
Medical Professionals. All employment agreements with Medical Professionals will
contain provisions reasonably satisfactory to Commonwealth relating to the
following matters: (i) outside compensation; (ii) exclusivity of services; (iii)
term and termination; and (iv) authorization of Commonwealth to collect the
Medical Professional's fees.
10.3 Special Provisions in Employment Agreements of Certain Physician
Shareholders. The employment agreements between BP&S and its Physician
Shareholders as of the date hereof shall contain the following provisions:
(a) Forfeitures by Physician Shareholders. The employment agreements entered
into by the BP&S physicians who were formerly shareholders of Berkshire
Physicians & Surgeons, P. C. will have a term of 5 years from the Effective
Date. The employment
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agreements for the BP&S physicians who were formerly shareholders of Berkshire
Physicians & Surgeons, P. C. will require a physician to pay to BP&S, as a
Forfeiture Payment, the entire amount received by such physician pursuant
to the Merger Agreement (net of "vested" Merger Agreement proceeds under
the terms of such physician's employment agreement) in the event such
physician does not remain in the employ of BP&S for the five-year term of
the employment agreement, except for termination of such employment
resulting from a material breach of contract by BP&S, death, permanent
disability, Retirement if two or fewer physicians shall have Retired during
the first year of the Closing and one additional retiree in each of the
next four years on a cumulative basis, or, if approved by the Policy
Council, Retirement (of more than such number physicians shall have
Retired) or Relocation.
(b) Payments on Termination of any Physician Shareholder Employment Agreement.
Any termination of the employment of any Physician Shareholder as of the
date hereof, and for any future Physician Shareholder unless the Policy
Council agrees to a form of employment agreement which provides otherwise,
for any reason, other than:
(i) death,
(ii) permanent disability,
(iii) Retirement, except during the first five
years hereof, such Retirement must be
approved by the Policy Council unless two or
fewer physicians shall have Retired during
the first year of the Closing, and one
additional retiree in each of the next four
years on a cumulative basis,
(iv) Relocation, except during the first five
years hereof such Relocation must be
approved by the Policy Council, or
(v) expiration of the agreement without renewal
unless BP&S offers to renew the agreement,
will result in the physician's being required to pay BP&S (x)
a Recruitment Fee of $25,000 intended to reimburse BP&S for
the cost of finding a replacement physician and (y) a the
portion of the applicable Residual Expense Assessment
described below, intended to reimburse BP&S for the cost to
BP&S of carrying the departing physician's practice during the
period prior to recruitment of a replacement physician:
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<TABLE>
<CAPTION>
Balance of Residual
Base Salary of Applicable Expense Assessment to be
Eight Share Shareholder Residual Paid from BP&S Portion of
Physician Shareholder Expense Assessment Distribution Funds
<S> <C> <C>
Up to $150,000 $75,000 $0
$150,000.01-$250,000 $100,000 $0
Above $250,000 $125,000 $0
Balance of Residual
Base Salary of Applicable Expense Assessment to be
Four Share Shareholder Residual Paid from BP&S Portion of
Physician Shareholder Expense Assessment Distribution Funds
Up to $150,000 $37,500 $37,500
$150,000.01-$250,000 $50,000 $50,000
Above $250,000 $62,500 $62,500
Balance of Residual
Base Salary of Applicable Expense Assessment to be
Two Share Shareholder Residual Paid from BP&S Portion of
Physician Shareholder Expense Assessment Distribution Funds
Up to $150,000 $25,000 $50,000
$150,000.01-$250,000 $33,333 $66,667
Above $250,000 $41,667 $83,333
Balance of Residual
Base Salary of Applicable Expense Assessment to be
One Share Shareholder Residual Paid from BP&S Portion of
Physician Shareholder Expense Assessment Distribution Funds
Up to $150,000 $18,750 $56,250
$150,000.01-$250,000 $25,000 $75,000
Above $250,000 $31,250 $93,750
</TABLE>
The balance of the Residual Expense Assessment to be paid from the BP&S portion
of Distribution Funds shall be deducted from the BP&S Distribution ratably over
three months and credited, together with the Recruitment Fee and the portion of
the Residual Expense Assessment paid by the physician, to an account to be used
by BP&S to replace the physician who leaves, to recruit additional physicians,
to pay for the startup costs of additional physicians, and for such other
purposes as may be approved by the Policy Council.
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10.4 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 11.2 herein, the employment agreement terms contained in this Article
Section 10 shall be null and void and of no force or effect.
11. TERM RENEWAL; TERMINATION
11.1 Term and Renewal. The term of this Agreement shall commence on the
Effective Date hereof and shall continue for 40 years, after which it shall
automatically renew for five-year terms unless either party provides the other
party with at least 12 months but not more than 13 months written notice prior
to any renewal date.
11.2 Termination by BP&S. BP&S may terminate this Agreement as follows:
(i) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by ProMedCo or Commonwealth, or upon
other action taken or suffered, voluntarily or involuntarily, under any federal
or state law for the benefit of debtors by ProMedCo or Commonwealth, except for
the filing of a petition in involuntary bankruptcy against ProMedCo or
Commonwealth which is dismissed within 30 days thereafter, BP&S may give notice
of the immediate termination of this Agreement.
(ii) In the event
(A) ProMedCo or Commonwealth shall materially
default in the performance of any duty or
obligation imposed upon it by this Agreement
and such default shall continue for a period
of 90 days after written notice thereof has
been given to Commonwealth and NationsCredit
by BP&S; or
(B) ProMedCo or Commonwealth shall fail to remit
the payments due to BP&S as provided in
Section 7.2 hereof and such failure to remit
shall continue for a period of 30 days after
written notice thereof to Commonwealth and
NationsCredit; or
(C) ProMedCo shall materially default in its
post-closing obligations under the Merger
Agreement for a period of 90 days following
written notice of such failure to
Commonwealth and NationsCredit;
BP&S may terminate this Agreement under this clause
(ii) provided (I) such termination shall have been
approved by the affirmative vote of 75 % of the
Physician Shareholders; (II) BP&S shall also have
given simultaneous notice to NationsCredit, 201 Broad
Street, One Canterberry Green, Stanford,
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CT 06901, Attention: ProMedCo Loan Officer, cc
NationsCredit, 1050 Crown Point Parkway, Atlanta, GA
30338, Attention: Jim Babcock or to such other bank
or financial institution as may be designated by
Commonwealth, which shall have a separate right to
cure the default by making the delinquent payment
within the cure period set forth above.
11.3 Termination by Commonwealth. Commonwealth may give notice of the
immediate termination of this Agreement in the event:
(i) Of a the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by
BP&S, or upon other action taken or suffered,
voluntarily or involuntarily, under any federal or
state law for the benefit of debtors by BP&S, except
for the filing of a petition in involuntary
bankruptcy against BP&S which is dismissed within 30
days thereafter,
(ii) BP&S shall materially default in the performance of
any duty or obligation imposed upon it by this
Agreement or in the event a majority of the
Physicians Shareholders shall materially default in
the performance of any duty or obligation imposed
upon them by this Agreement or by their employment
agreements with BP&S, and such default shall continue
for a period of 90 days after written notice thereof
has been given to BP&S and such Physician
Shareholders by Commonwealth;
(iii) The number of physicians employed by BP&S declines to
fewer than 70, and continues for six months; or
(iv) The number of physicians employed by BP&S declines to fewer
than 65.
11.4 Effect of Termination. In the event that this Agreement shall be
terminated, the BP&S Distribution and the Commonwealth Distribution shall be
paid through the date of termination. In addition, the various rights and
remedies herein granted to the aggrieved party shall be cumulative and in
addition to any others such party may be entitled to by law. The exercise of one
or more rights or remedies shall not impair the right of the aggrieved party to
exercise any other right or remedy, at law. Notwithstanding such termination,
BP&S shall be obligated to carry out the provisions of Section 11.5 hereof, and
until such obligations have been discharged, the provisions of Article 9 hereof
shall continue in full force and effect.
11.5 Actions After Termination. Upon termination of this Agreement,
BP&S shall:
11.5.1 Asset Repurchase. Purchase from Commonwealth at book
value the
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intangible assets set forth on the Opening Balance Sheet, as adjusted
through the last day of the month most recently ended prior to the date
of such termination in accordance with GAAP to reflect amortization or
depreciation of the intangible assets, which amortization shall be for
a period not in excess of 40 years.
11.5.2 Real Estate. Purchase from Commonwealth all real
estate, if any, associated with the Health Center and owned by
Commonwealth at the greater of (i) the appraised fair market value
thereof, or (ii) the then book value thereof.
11.5.3 Improvements. Purchase all improvements, additions or
leasehold improvements which have been made by Commonwealth as
reflected on Commonwealth's books as of the last day of this Agreement
and which relate solely to the performance of its obligations under
this Agreement or the properties subleased by Commonwealth, if any.
11.5.4 Debts. Assume all ordinary and necessary debt,
contracts, payables and leases which are obligations of Commonwealth
and which relate principally to the performance of its obligations
under this Agreement or the properties subleased by Commonwealth, if
any.
11.5.5 Equipment; Inventories; Accounts Receivable; etc.
Purchase from Commonwealth at book value as reflected on Commonwealth's
books as of the last day of this Agreement prior to termination as
adjusted to reflect the operations of the Health Center, including
physician practice acquisitions:
(i) Equipment. All of the equipment acquired by Commonwealth pursuant to the
Merger Agreement, including all replacements and additions thereto made by
Commonwealth with the approval of the Policy Council pursuant to the
performance of its obligations under this Agreement;
(ii) Inventory. All stock, including inventory and supplies, tangibles and
intangibles of Commonwealth relating to BP&S operations;
(iii)Accounts Receivable. All uncollected accounts receivable theretofore
purchased by Commonwealth pursuant to Section 7.5 hereof at the book value
thereof on Commonwealth's books; and
(iv) Other Assets. All other assets of Commonwealth relating to the operations
of BP&S.
11.5.6 Closing of Repurchase. BP&S shall pay cash for the
repurchased assets. The amount of the purchase price shall be reduced
by the amount of debt and liabilities of
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Commonwealth assumed by BP&S and shall be reduced by any payment
Commonwealth has failed to make under this Agreement. BP&S shall
execute such documents as may be required to assume the liabilities set
forth in Section 11.5.4 and to remove Commonwealth from any liability
with respect to such repurchased assets and with respect to any
property leased or subleased by Commonwealth. The closing date for the
repurchase shall be determined by BP&S, but shall in no event occur
later than 180 days from the date of the notice of termination. The
termination of this Agreement shall become effective upon the closing
of the sale of the assets and BP&S shall be released from the
Restrictive Covenants provided for in Section 9 on the closing date.
From and after any termination, each party shall provide the other
party with reasonable access to books and records then owned by it to
permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
12. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
GENERAL DEFINITIONS
12.1 Affiliate shall mean with respect to any Party, any entity which
controls, is controlled by, or is under common control with such party all as
more fully set forth in the rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, as amended. In no event shall
Commonwealth be deemed to be an Affiliate of BP&S.
12.2 BP&S Employees shall mean all Physician Shareholders, Physician
Employees, Mid-level Providers and Technical Employees at the relevant dates.
12.3 Effective Date shall mean 12:01 a.m. on April 1, 1998.
12.4 Health Center shall mean the medical care services, including, but
not limited to the practice of medicine, and all related health care services
provided by BP&S and the BP&S Employees, utilizing the management services of
Commonwealth and the Health Center Facility, regardless of the location where
such services are rendered.
12.5 Health Center Facility shall mean the Health Center facilities
where BP&S Employees provide medical services located at (i) 137 North Street,
Pittsfield, MA 01201; (ii) 99 West Street, Pittsfield, MA 01201; (iii) 777 North
Street, Pittsfield, MA 01201; (iv) 212 South Street, Pittsfield, MA 01201; (v)
44 Housatonic Street, Lenox, MA 01240; (vi) 27 Lewis Avenue, Great Barrington,
MA 01230; (vii) 140 West Avenue, Great Barrington, MA 01230; (viii) 38 Mahaiwe
Street, Great Barrington, MA 01230; (ix) 21 Taconic Avenue, Great Barrington, MA
01230; (x) Stockbridge Road, Lee, MA 01238; (xi) Salisbury Road, Sheffield, MA
01257; (xii) 33 North Street, Dalton, MA 01226; (xiii) Main Street, Canaan, CT
06018; (xiv) 125 Liberty Street, Springfield, MA
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01103; (xv) 29 Cottage Street, Amherst, MA 01002; and (xvi) any substitute
facility or additional facility location, whether within or without the Primary
Service Area, as approved by the Policy Council.
12.6 Medical Professional shall mean Physician Shareholders, Physician
Employees and Mid-level Providers.
12.7 Merger Agreement shall mean the Agreement for Statutory Merger
dated as of April 14, 1998 among Berkshire Physicians & Surgeons, P.C. ProMedCo
and Commonwealth.
12.8 Mid-level Providers shall mean all non-physician professional
employees who provide direct patient care for which a billed charge is
generated.
12.9 Person shall mean any firm, entity, corporation or individual.
12.10 Physician Employees shall mean any physician employed by BP&S and
providing medical services to patients on behalf of BP&S, who are not Physician
Shareholders.
12.11 Physician Shareholders shall mean any physician who is a
shareholder of BP&S, both as of the date of this Agreement and at any future
point in time.
12.12 Primary Service Area shall mean Berkshire County, Massachusetts.
12.13 ProMedCo shall all counties in Massachusetts, Connecticut, New
York (including Dutchess County) and Vermont contiguous to Berkshire County,
Massachusetts.
12.14 Relocation shall mean a permanent relocation of the household of
a Physician Shareholder or Physician Employee from the geographic area served by
BP&S after providing BP&S with at least a one year notice.
12.15 Retirement shall mean the permanent termination of provision of
medical services for compensation by a Physician Shareholder or Physician
Employee, after providing BP&S with at least a one year notice.
12.16 Secondary Service Area shall mean all counties in Massachusetts,
Connecticut, New York (including Dutchess County) and Vermont contiguous to
Berkshire County, Massachusetts.
12.17 Technical Employees shall mean technicians who provide services
in the diagnostic areas of BP&S's practice under the supervision of BP&S
Physicians, such as technicians working at the Health Center laboratory,
radiology technicians and cardiology technicians. All Technical Employees shall
be BP&S employees.
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FINANCIAL DEFINITIONS
12.18 Commonwealth Distribution shall mean the percentages of
Distribution Funds for the periods set forth below:
Period %
Effective Date through January 31, 1999 21%
Thereafter and through January 31, 2000 19%
Thereafter 17%
plus, for additional, up front management services provided by Commonwealth
during the first one to two years of this Agreement, payments made out of the
BP&S Distribution of $66,116 per month for the 60 months commencing May 1, 1998,
plus or minus, as the case may be, (i) 50% of Managed Care Surpluses relating to
physicians who are members of CIPA or managed by CHMS in the Secondary Service
Area but are not employees of BP&S after deducting amounts shared with such CIPA
or CHMS managed physicians, as approved by the Policy Council and (ii) (A)
during the first two years of the term hereof, 25% of the Managed Care
Surpluses, if positive (and 0% if negative), relating to all Physician Employees
and Physician Shareholders, and (B) thereafter, subject to the equalization
provisions set forth below, Commonwealth shall receive positive Managed Care
Surpluses and repay negative Managed Care Surpluses relating to all Physician
Employees and Physician Shareholders on the basis of the percentages of
Capitated Revenues represented by Managed Care Surpluses (i.e, Managed Care
Surpluses divided by Capitated Revenues) set forth below:
Percentage Commonwealth
Of Capitated Revenues Percentage of
Represented by Managed Managed Care
Care Surpluses Surplus/Deficit
0-2% 25%
2.1%-3.5% 30%
3.6%-5.0% 35%
5.1%-6.5% 40%
6.6%-8.0% 45%
8.1%+ 50%
If the percentage rate of change in the BP&S Distribution in any calendar year
in relation to the BP&S Distribution in the previous calendar year is smaller
than the percentage rate of change in the Commonwealth Distribution over the
same period, then Commonwealth's percentage of the Managed Care Surpluses shall
be reduced to the extent necessary to equalize its growth rate with the growth
rate of BP&S; provided however, in no event shall Commonwealth's share of
Managed Care Surpluses be less than 17% of Managed Care Surpluses. For the
purposes of this calculation, for the
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period from February 1, 1998 through December 31, 1998, the BP&S and
Commonwealth Distributions shall be compared to 91.7% of the BP&S and
Commonwealth Distributions for the year ended December 31, 1997 as if the
Management Services Agreement had been in effect on January 1, 1997, net of any
implementation or supplementary management fees.
12.19 BP&S Distribution is defined in Section 7.1 hereof.
12.20 Distribution Funds shall mean those amounts remaining after
Health Center Expenses have been deducted from Net Health Center Revenue.
12.21 Health Center Expenses shall mean the amount of all expenses
incurred in the operation of the Health Center including, without
limitation:
(i) Salaries, benefits (including contributions under any ProMedCo benefit
plan), and other direct costs of all employees of Commonwealth and
Technical Employees attributable to BP&S;
(ii) Direct costs (but not ProMedCo Corporate Overhead), including benefits, of
all employees or consultants of ProMedCo or Affiliates of Commonwealth who,
with prior approval of the Policy Council, provide services at or in
connection with BP&S projects required for improved performance, such as
work management, purchasing, information systems, charge and coding
analysis, financial analysis, and business office consultation; provided,
however, only that portion of such employee's or consultant's costs without
mark-up by ProMedCo that is allocable to Health Center will be a Health
Center Expense;
(iii)Obligations of Commonwealth or ProMedCo under leases or subleases related
to Health Center operations;
(iv) Interest Expense (at ProMedCo's blended borrowing rate in effect from time
to time) on funds provided to Commonwealth by ProMedCo or any outside
source to finance or refinance any of Commonwealth's obligations hereunder
or services provided hereunder, but only to the extent the principal of
such indebtedness exceeds 50% of Commonwealth's cumulative Distribution
Funds since the Effective Date net of taxes which are deemed to be imposed
at the average aggregate state and federal tax rate imposed on ProMedCo
during the period from the Effective Date through the most recent tax
return filed by ProMedCo prior to the date with respect to which the
calculation is being made.
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(v) Personal property and intangible taxes assessed against Commonwealth's
assets used in connection with the operation of Health Center commencing on
the date of this Agreement;
(vi) Malpractice insurance premium expenses for Commonwealth's operations and
for the BP&S Employees, as well as any deductibles but not non-insured
losses arising from malpractice claims.
(vii)Depreciation of assets associated with the operations of BP&S using the
same depreciation schedule used in SEC reporting by ProMedCo.
(viii) Other direct expenses (but not ProMedCo Corporate Overhead) incurred by
Commonwealth in carrying out its obligations under the Management Service
Agreement, without markup by ProMedCo.
(ix) After the 5th anniversary of the Effective Date, 50% of the amortization of
intangible asset value resulting from the employment of, merger with, or
other acquisition of additional physicians into BP&S within the Primary
Service Area.
Provided however, if Commonwealth enters into arrangements similar to this
Agreement with medical groups other than BP&S, the allocation of costs described
above which are common to B&S and the other medical group(s) shall be determined
by the Policy Council and any costs which are specific to BP&S or the other
medical group(s) shall be allocated to BP&S or the other medical group(s), as
the case may be.
12.22 Health Center Expenses shall not include:
(i) ProMedCo Corporate Overhead except as permitted under the definition of
Health Center Expenses above;
(ii) Any federal or state income taxes;
(iii)Any expenses or responsibilities of BP&S and/or BP&S Employees, including
(A) related accounting and other professional fees relating to BP&S except
as otherwise explicitly provided in this Agreement; (B) related salaries
and benefits; (C) retirement plan contributions; (D) health, disability and
life insurance premiums; (E) payroll taxes; (F) continuing medical
education; (G) membership in professional associations; (H) licensing and
board certification fees; and (I) cellular phones and other personal
business items. Notwithstanding the above, expenses incurred by BP&S for
Technical
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Employees shall be a Health Center Expense;
(iv) Any amortization expense resulting from the amortization of expenses
incurred as shown on ProMedCo's financial statements, in connection with
the acquisition and execution of the Merger Agreement and the execution of
this Agreement; and
(v) Interest expense on indebtedness incurred by Commonwealth or ProMedCo to
finance the consideration paid under the Merger Agreement.
(vi) Outside Medical Expenses.
(vii) Risk Management Expenses.
(viii) 100% of amortization of the intangible asset value resulting from the
employment of, merger with, or any future acquisition of physicians by BP&S
in the Primary Service Area prior to the fifth anniversary of the Effective
Date and 50% of such amortization resulting from such events on or after
the 5th anniversary of the Effective Date.
12.23 Net Health Center Revenues shall mean BP&S's gross billings,
including pharmacy revenues, ancillary revenues (including the technical and/or
professional billings attributable to Commonwealth and its affiliates for health
care related services and items provided (i) in the Primary Market and (ii) in
the Secondary Market with respect to physicians managed by CHMS), medical
directors' fees, and any other revenues that have historically been recorded by
BP&S as well as non-real estate revenues historically recorded by BP&S and the
BP&S Capitation Allocation, less any adjustments such as uncollectible accounts,
discounts, contractual adjustments, Medicare allowances, Medicaid allowances,
and professional courtesies ("adjustments"). This specifically excludes Net
Capitated Revenues, interest income and investment income.
12.24 Opening Balance Sheet shall mean the balance sheet of
Commonwealth as of the Effective Date (as defined in the Merger Agreement),
prepared in accordance with GAAP (except for the absence of certain note
information), and substantially in the form of the attached Exhibit B subject to
adjustments in the Consideration (as defined in the Merger Agreement).
12.25 ProMedCo Corporate Overhead shall mean the cost of any ProMedCo
corporate office personnel or ProMedCo consultants and any other ProMedCo
corporate office capital or operating costs incurred by ProMedCo in providing or
arranging for any services which ProMedCo is obligated to provide or provides to
or on behalf of BP&S under this Agreement. Risk Management Expenses shall not
constitute ProMedCo Corporate Overhead.
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MANAGED CARE DEFINITIONS
12.26 Capitated Revenues shall mean payments, credits or revenues
accrued to BP&S by an HMO or other payor in return for the provision of health
care services to enrollees or subscribers of the HMO or other payor regardless
of whether or not the services are provided directly by BP&S providers. Such
payments, credits or revenues may be for primary care services only in the form
of a primary care capitation amount, or a global budget capitation covering a
full range of services such as hospital and pharmaceutical costs. Any IPA risk
management fees or managed care expense reimbursements are also included in
Capitated Revenues. Fee-for-services payments to BP&S will not be included as
Capitated Revenues unless the fees generated therefrom are associated with a
capitated arrangement where a non-covered service is provided and billed
separately. Managed care patient co-payments are not included as Capitated
Revenues.
12.27 BP&S Capitation Allocation shall mean payments made to BP&S for
the provision of health care services delivered by BP&S Employees directly.
12.28 Managed Care Surpluses shall mean Net Capitated Revenues less (i)
Outside Medical Expenses and (ii) Risk Management Expenses, which amount may be
positive or negative.
12.29 Net Capitated Revenues shall mean Capitated Revenues less the
BP&S Capitation Allocation.
12.30 Outside Medical Expenses shall mean health care costs for
services not provided by BP&S directly.
12.31 Risk Management Expenses shall mean ProMedCo's expenses
associated with the management of capitation risk including contracting,
utilization management, information systems, quality measurements, medical
director fees, reporting and similar expenses, any or all of which may be
provided on or off site by PMC Medical Management, Inc., a subsidiary of
ProMedCo. Services provided by PMC Medical Management, Inc. will be charged to
BP&S on a per-member-per-month basis at rates established by using regional
averages for costs of similar services performed by HMOs and other managed care
organizations without markup and as approved by the Policy Council. In the event
the Policy Council cannot agree on this per-member-per-month rate, then the
Policy council shall designate an independent actuarial firm to determine the
rate, using regional cost and expense data from HMOs and other managed care
organizations.
13. GENERAL PROVISIONS
13.1 Independent Contractor. It is acknowledged and agreed that BP&S
and Commonwealth are at all times acting and performing hereunder as independent
contractors. Commonwealth shall neither have nor exercise any control or
direction over the methods by which
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BP&S or the BP&S Employees practice medicine. The sole function of Commonwealth
hereunder is to provide all management services in a competent, efficient and
satisfactory manner. Commonwealth shall not, by entering into and performing its
obligations under this Agreement, become liable for any of the existing
obligations, liabilities or debts of BP&S unless otherwise specifically provided
for under the terms of this Agreement. Neither party shall have any liability
whatsoever for damages suffered on account of the willful misconduct or
negligence of any employee, agent or independent contractor of the other party.
Each party shall be solely responsible for compliance with all state and federal
laws pertaining to employment taxes, income withholding, unemployment
compensation contributions and other employment related statutes regarding their
respective employees, agents and servants. The parties acknowledge that
Commonwealth is not authorized or qualified to engage in any activity which may
be construed or deemed to constitute the practice of medicine. To the extent
that any act or service herein required of Commonwealth should be construed or
deemed to constitute the practice of medicine, the performance of said act or
service by Commonwealth shall be deemed waived and forever unenforceable.
13.2 Proprietary Property.
13.2.1 Each party agrees that the other party's proprietary
property shall not be possessed, used or disclosed otherwise than may
be necessary for the performance of this Agreement. Each party
acknowledges that its violation of this Agreement would cause the other
party irreparable harm, and may (without limiting the other party's
remedies for such breach) be enjoined at the instance of the other
party. Each party agrees that upon termination of this Agreement for
any reason, absent the prior written consent of the other party, it
shall have no right to and shall cease all use of the other party's
proprietary property, and shall return all such proprietary property of
the other party in its possession to the other party.
13.2.2 Commonwealth shall be the sole owner and holder of all
right, title and interest, to all intellectual property furnished by it
under this Agreement, including, but not limited to the trade name
"ProMedCo," all computer software, copyright, services mark and
trademark right to any material or documents acquired, prepared,
purchased or furnished by Commonwealth pursuant to this Agreement. BP&S
shall have no right, title or interest in or to such material and shall
not, in any manner, distribute or use the same without the prior
written authorization of Commonwealth, provided, however, that the
foregoing shall not restrict BP&S from distributing managed care
information brochures and materials without the prior written approval
of Commonwealth provided no Proprietary Property of Commonwealth is
contained therein. Notwithstanding the preceding, however, Commonwealth
agrees that BP&S shall be entitled to use on an exclusive but
nontransferable basis for the term of this Agreement the name
"Berkshire Physicians & Surgeons" as may be necessary or appropriate in
the performance of BP&S's services and obligations hereunder.
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13.3 Cooperation. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement, including transition at the termination or
expiration of this Agreement, including reasonable use of software, systems,
service marks and trade names during such transition provided the other party is
in compliance with its obligations, including, without limitation, those set
forth in Section 11.5.
13.4 Licenses, Permits and Certificates. Commonwealth and BP&S shall
each obtain and maintain in effect, during the term of this Agreement, all
licenses, permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
13.5 Compliance with Rules, Regulations and Laws. Commonwealth and BP&S
shall comply with all federal and state laws and regulations in performance of
their duties and obligations hereunder. Neither party, nor their employees or
agents, shall take any action that would jeopardize the other party's
participation, if applicable, in any federal or state health program including
Medicare and Medicaid. Commonwealth and BP&S shall take particular care to
ensure that no employee or agent of either party takes any action intended to
violate Section 1128B of the Social Security Act with respect to soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe,
or rebate) directly or indirectly, overtly or covertly, in cash or in kind in
return for referring an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment may be made in whole
or in part under Title XVIII or XIX of the Social Security Act, or for
purchasing, leasing, ordering, or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part under Title XVIII or XIX of the Social Security Act.
13.6 Generally Accepted Accounting Principles (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
13.7 Notices. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this Section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
13.8 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing regulations to be invalid, void or unenforceable, the remaining
provisions will nevertheless continue in full force and effect.
13.9 Arbitration. Any controversy or claim arising out of or relating
to this Agreement or
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the breach thereof may, at the mutual election of both parties, be settled by
binding arbitration in accordance with the rules of commercial arbitration of
the American Arbitration Association, and judgment upon the award rendered by
the arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur within Berkshire County, Massachusetts, unless the
parties mutually agree to have such proceedings in some other locale. The
arbitrator(s) may in any such proceeding award attorneys' fees and costs to the
prevailing party.
13.10 CONSTRUCTION OF AGREEMENT. THE VALIDITY AND CONSTRUCTION OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY OTHER JURISDICTION) THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
COMMONWEALTH OF MASSACHUSETTS. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW
OF THE COMMONWEALTH OF MASSACHUSETTS SHALL CONTROL THE INTERPRETATION AND
CONSTRUCTION OF THIS AGREEMENT, EVEN THOUGH UNDER THAT JURISDICTION'S CHOICE OF
LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION
WOULD ORDI NARILY APPLY.
13.11 Legal Challenges. If the legality of any portion of the
arrangements embodied in this Agreement are challenged by any governmental
agency the parties shall bear the legal costs of defending this Agreement on a
50-50 basis.
13.12 Enforcement. Commonwealth and BP&S acknowledge and agree that
since a remedy at law for any breach or attempted breach of the provisions of
Sections 9 or 10 shall be inadequate, either party shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of any
bond in connection with the obtaining of any such injunctive or other equitable
relief. If any provision of Section 9 or 10 relating to territory, time or
amount described therein shall be declared by a court of competent jurisdiction
to exceed the maximum time period, scope of activity, restricted or geographical
area such court deems reasonable and enforceable under applicable law, the time
period, scope of activity, restricted and/or area of restriction and/or amount
deemed to be reasonable and enforceable by the court shall thereafter be the
time period, scope of activity, restricted and/or area of restriction applicable
to the restrictive covenant provisions in Section 9 or the payment provisions of
Section 10. The invalidity of non-enforceability of Section 9 and/or Section 10
in any respect shall not affect the validity of enforceability of the remainder
of such Section or of any other provisions of this Agreement unless the invalid
or non-enforceable provisions materially affect the benefits either party would
otherwise be entitled to receive under such Section or any other provision of
this Agreement.
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13.13 Assignment and Delegation. Commonwealth shall have the right to
assign its rights hereunder to any person, firm or corporation controlling
(i.e., owns a majority of the voting stock), controlled by or under common
control with Commonwealth and to any lending institution, for security purposes
or as collateral, from which Commonwealth or ProMedCo obtains financing for
itself and as agent; provided that any such assignment shall not affect the
guaranty by ProMedCo of the obligations of Commonwealth hereunder. Except as set
forth above, neither Commonwealth nor BP&S shall have the right to assign their
respective rights and obligations hereunder without the written consent of the
other party. BP&S may not delegate any of BP&S's duties hereunder, except as
expressly contemplated herein; however, Commonwealth may delegate some or all of
Commonwealth's duties hereunder to the extent it concludes, in its sole
discretion, that such delegation is in the mutual interest of the parties
hereto; provided Commonwealth shall remain responsible for the provision of such
services; and provided further that Commonwealth shall afford BP&S with at least
one opportunity to consult with a senior officer of ProMedCo by telephone or in
person, before delegating any of its major duties under this Agreement, although
Commonwealth shall retain the absolute right to make such delegation
irrespective of objection thereto by BP&S.
13.14 Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law.
13.15 Waiver. The waiver of any provision, or of the breach of any
provision of this Agreement must be set forth specifically in writing and signed
by the waiving party. Any such waiver shall not operate or be deemed to be a
waiver of any prior or future breach of such provision or of any other
provision.
13.16 Headings. The subject headings of the articles and sections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
13.17 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and all
of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
13.18 Time is of the Essence. Time is hereby expressly declared to be
of the essence in this Agreement.
13.19 Modifications of Agreement for Prospective Legal Events. In the event
any state or federal laws or regulations, now existing or enacted or promulgated
after the effective date of this
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Agreement, are interpreted by judicial decision, a regulatory agency or legal
counsel for both parties in such a manner as to indicate that the structure of
this Agreement may be in violation of such laws or regulations, or in the event
the Massachusetts State Board of Registration in Medicine or other authority
with legal jurisdiction shall, solely by virtue of this Agreement, initiate an
action to revoke, suspend, or restrict the license of any physician retained by
BP&S to practice medicine in the Commonwealth of Massachusetts, BP&S and
Commonwealth shall amend this Agreement as necessary. In addition, in the event
the Securities and Exchange Commission or AICPA determines that companies such
as ProMedCo may not report "top line" revenues, the parties will endeavor to
amend this Agreement to result in the most advantageous accounting result for
ProMedCo and Commonwealth. No such amendment shall change in any material
respect the underlying economic and financial arrangements between BP&S and
Commonwealth or change the role, duties and responsibilities of the Policy
Council or interfere with the right of the physicians associated with BP&S to
make medical decisions. In the event it is not possible to so amend this
Agreement, this Agreement may be terminated by written notice by either party
within 90 days from date of such interpretation or action, termination to be
effective no sooner than the earlier of 180 days from the date notice of
termination is given or the latest possible date specified for such termination
in any regulatory order or notice. Termination pursuant to this Section 13.19 by
BP&S shall require the affirmative vote of a majority of Physician Shareholders.
13.20 Whole Agreement Modification. The rights and obligations of the
parties hereto shall be determined solely from written agreements. Documents and
instruments, and any prior oral agreements between the parties are superseded by
and merged into such writings. This Agreement (as amended in writing from time
to time), the exhibits, and the schedules delivered pursuant hereto represent
the final agreement between the parties hereto and may not be contradicted by
evidence of prior, contemporaneous, or subsequent oral agreements by the
parties. There are no unwritten oral agreements between the parties.
0469558.02
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<PAGE>
-41-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
COMMONWEALTH HEALTH MANAGEMENT SERVICES,
INC.
By:
Name:
Title:
Address: 801 Cherry Street
Suite 1450
Fort Worth, TX 76102
BP&S, P.C.
By:
Name:
Title:
Address:
0469558.02
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<PAGE>
-42-
GUARANTY
To induce BP&S to execute and deliver this Agreement, ProMedCo
Management Company. a Delaware corporation (the "Company") hereby absolutely and
unconditionally guarantees the full, prompt and faithful performance by
Commonwealth of all covenants and obligations to be performed by Commonwealth
under this Agreement, including, but not limited to, the payment of all sums
stipulated to be paid by Commonwealth pursuant to this Agreement. If
Commonwealth fails to fully perform all such covenants and obligations in
accordance with their terms or pay all or any part of such sums when due, the
Company will perform all such covenants and obligations in accordance with their
terms or immediately pay to BP&S (or such other payee as may be provided in any
such agreement) the amount due and unpaid by Commonwealth, it being understood
that each such covenant or obligation and each obligation to pay any such amount
constitutes the direct and primary obligation of the Company. The Company hereby
waives presentment, demand of payment, protest, dishonor, notice of protest or
dishonor, and notice of acceptance of this guaranty and all rights to require
BP&S to proceed against Commonwealth, or to pursue any other remedy it may have
against Commonwealth in the event of a breach by Commonwealth of any obligation
or covenant contained in this Agreement. If Commonwealth is not liable to
perform any such obligation or covenant because the act creating such obligation
or covenant is ultra vires or unauthorized, and for such reason such obligation
or covenant cannot be enforced against Commonwealth, such fact shall not affect
the Company's liability under this guaranty. In the event of termination,
liquidation or dissolution of Commonwealth, this unconditional guaranty shall
continue in full force and effect.
PROMEDCO MANAGEMENT COMPANY
By
Its
Name
0469558.02
080020-024 4/24/98(1)
