<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 7, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PHYSICIANS CARE FOR CONNECTICUT, INC.
<TABLE>
<S> <C> <C>
CONNECTICUT 6324 04-1467896
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1520 HIGHLAND AVENUE
CHESHIRE, CONNECTICUT 06410
(203) 699-2400
(Address and telephone number of principal executive offices)
EDWARD J. BERNS, ESQUIRE
1520 HIGHLAND AVENUE
CHESHIRE, CONNECTICUT 06410
(203) 699-2400
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
RICHARD L. TREMBOWICZ, ESQUIRE
HUTCHINS, WHEELER & DITTMAR
A Professional Corporation
101 Federal Street
Boston, Massachusetts 02110
(617) 951-6600
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION FEE
REGISTERED REGISTERED(1)(2)(3) PER UNIT (1) PRICE (4) (4)
<S> <C> <C> <C> <C>
Class A Common Stock, no par value 3,000 $4,000 $12,000,000 $3,637
Class B Common Stock, no par value 3,000 $4,000 $12,000,000 $3,637
</TABLE>
1. Up to 3,000 shares of Class A Common Stock and 3,000 shares of Class B
Common Stock may be sold in this Offering. The Offering is subject to
receipt of Subscription Agreements prior to the expiration of the Offering
Period committing to purchases by physicians of not less than $8 million
dollars of Class A and Class B Common Stock. In the event this threshold is
not satisfied, the purchase price of both Class A and Class B shares shall
be refunded, minus $450 dollars per share, which shall be retained by the
Company in order to offset the costs associated with the Offering.
2. The Offering will terminate one hundred and eighty (180) days after the
effective date hereof, unless extended by the Company's Board of Directors,
in its discretion, for one additional sixty (60) day period (the "Offering
Period").
3. Although the Company does not expect the maximum number of shares (3,000
shares of Class A Common Stock and 3,000 shares of Class B Common Stock) to
be sold, the Company has registered such number of shares to be sold in
order to afford Eligible Purchasers the opportunity to purchase Stock.
4. Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 7, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
(LOGO)
PHYSICIANS CARE FOR CONNECTICUT, INC.
3,000 SHARES OF CLASS A COMMON STOCK
AND
3,000 SHARES OF CLASS B COMMON STOCK
---------------------
For a more detailed description of the risks associated with purchasing
stock offered in this Prospectus, see "Risk Factors" beginning on page 6 of this
Prospectus. For definitions of capitalized terms, see "Glossary" beginning on
page 45 of this Prospectus.
Physicians Care for Connecticut, Inc., a Connecticut corporation (the
"Company") is offering (the "Offering") two classes of Stock, Class A and Class
B Common Stock (the "Stock" or "Securities") to Eligible Purchasers, for a
period of one hundred and eighty (180) days, with one sixty (60) day extension
in the discretion of the Board (the "Offering Period"). Class A Common Stock and
Class B Common Stock will be sold to Eligible Purchasers at a price of $4,000
per share to Eligible Purchasers, subject to a "prompt subscription" price of
$3,000 per share for purchasers who execute and deliver to the Subscription
Agent a Subscription Agreement to purchase shares within ninety (90) days of the
commencement of the Offering. The Offering is subject to receipt of Subscription
Agreements prior to the expiration of the Offering Period committing to
purchases by physicians of not less than $8 million dollars of Class A Common
Stock and Class B Common Stock. In the event this threshold is not satisfied,
the purchase price of the Stock shall be refunded, minus $450 per share, which
shall be retained by the Company in order to offset the costs associated with
the Offering. See "Risk Factors" and "Terms of Offering--Eligibility
Requirements to Purchase Stock." Up to 3,000 shares of Class A Common Stock and
3,000 shares of Class B Common Stock may be sold in this Offering. The Stock
will be sold on a best efforts basis by a licensed broker-dealer, which will
receive a sales commission on all shares of stock sold plus reimbursement for
expenses incurred in connection with the Offering. In addition, under certain
circumstances, Stock may be sold by the Company's officers, directors and
physicians appointed to committees of the Company, none of whom will not receive
compensation in connection with any offers or sales of Stock.
The offering price has been arbitrarily determined by the Company's Board of
Directors, based upon estimates of the capital necessary to begin operations of
an Health Maintenance Organization ("HMO") and the price tolerance of potential
investors. The offering price does not necessarily bear any relationship to the
Company's asset value, net worth, or other established criteria of value and is
greater than what its redemption price is anticipated to be for at least the
first five (5) years after the Offering. The securities registered hereby are
not intended to be a liquid or quickly appreciating investment, but do provide
an opportunity to develop the Company's health care delivery system and to
provide health care services to Members insured by the Company. See "Risk
Factors." Purchasers who meet the eligibility requirements set forth in this
Prospectus may purchase the Stock regardless of where they reside, subject to
the Company's compliance with federal and state laws and regulations. See "Terms
of Offering--Eligibility Requirements to Purchase Stock."
------------------------------
THESE ARE SPECULATIVE SECURITIES WHICH INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Transfer of the Stock by investors is subject to restrictions and
limitations pursuant to the Company's Bylaws. Consequently, no market for the
Stock currently exists or will develop, and Stock offered hereby should be
purchased only by purchasers who have read and understand this Prospectus and
the benefits and risks of the investment. The terms and conditions under which
the Company is required or permitted to redeem a stockholder's Stock are set
forth in this Prospectus. See "Description of Securities--Transfer Restrictions
and Redemption Provisions."
<TABLE>
<CAPTION>
MAXIMUM
PRICE TO UNDERWRITING DISCOUNT AND MAXIMUM
PUBLIC COMMISSIONS PROCEEDS TO COMPANY
(1)(2)(4) (3) (3)(5)
<S> <C> <C> <C>
Per Class A Share............................................ $ 4,000(1) TBD TBD
Per Class B Share............................................ $ 4,000(2) TBD TBD
Total minimum................................................ $ 8,000,000(4) TBD TBD
Total maximum................................................ $ 24,000,000 TBD TBD
</TABLE>
(1) Class A Common Stock will be sold at a cost of $4,000 per share, subject to
a "prompt subscription" price of $3,000 per share for physicians who execute
and deliver to the Subscription Agent a Subscription Agreement to purchase
shares within ninety (90) days of the commencement of the Offering.
(2) Class B Common Stock will be sold at a cost of $4,000 per share, subject to
a "prompt subscription" price of $3,000 per share for physicians who execute
and deliver to the Subscription Agent a Subscription Agreement to purchase
shares within ninety (90) days of the commencement of the Offering.
(3) To be determined. See "Plan of Distribution."
(4) In the event the Company does not receive subscriptions for an aggregate of
$8 million of Class A Common Stock and Class B Common Stock, the Company
shall terminate the Offering, and will receive only $450 per share
subscribed in order to offset offering expenses.
(5) Before deducting expenses payable by the Company, estimated to be
$ .
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
FURTHER INFORMATION
The Company's fiscal year ends on December 31st. The Company will deliver
annual reports to its stockholders which will contain financial statements
audited and reported upon by the Company's independent auditors within one
hundred and eighty (180) days of year end. The Company intends to distribute
quarterly reports for the first three quarters of each year containing unaudited
interim condensed financial information and such other periodic reports as the
Company may determine to be appropriate or as may be required by law. In
addition, after this Offering, the Company will be subject to the informational
requirements of the Securities Exchange Act of 1934 and, in connection
therewith, will file reports, proxy statements, and other information with the
Securities and Exchange Commission.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- --------------------------------------------------------------------------------------- ---------
<S> <C>
Prospectus Summary..................................................................... 3
Risk Factors........................................................................... 6
How to Subscribe in this Offering...................................................... 16
Escrow Arrangements.................................................................... 17
Subscription Agent..................................................................... 17
The Company............................................................................ 18
Use of Proceeds........................................................................ 18
Capitalization......................................................................... 19
Dilution............................................................................... 19
Plan of Operation...................................................................... 20
Business............................................................................... 23
Management............................................................................. 32
Conflicts of Interest.................................................................. 37
Related Party Transactions............................................................. 37
Terms of Offering...................................................................... 38
Description of Securities.............................................................. 41
Plan of Distribution................................................................... 43
Experts................................................................................ 43
Additional Information................................................................. 44
Glossary............................................................................... 45
Index to Financial Statements.......................................................... F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information
appearing elsewhere.
THE COMPANY
Physicians Care for Connecticut, Inc. (the "Company") was incorporated in
1996 as a Connecticut business corporation under the sponsorship of private
practicing physicians to develop a statewide physician-owned and directed
insurance company licensed as a Health Maintenance Organization ("HMO") and
offering a comprehensive array of health insurance products. The Company will be
predominantly owned by physician stockholders practicing in Connecticut who are
expected to participate actively in the Company's affairs. As a condition to
investment, each physician investing in the Company must agree to provide,
pursuant to the terms of a Participation Agreement between the investing
physician and MedServ IPA, Inc. ("MedServ IPA"), medical services to individuals
who may be insured under the Company's products ("Enrollees"). The Company will
prepare and file an application for a Certificate of Authority ("COA") with the
Connecticut Department of Insurance (the "DOI") to operate as an HMO throughout
the state of Connecticut and will seek such other regulatory approvals as
necessary to offer its products should the COA be approved. The Company intends
to provide coverage for comprehensive health care services to Enrollees under
its insured products for a fixed, prepaid enrollment fee paid by or on behalf of
the Enrollees.
For a more comprehensive description of the Company's contemplated business
operations, see "Business."
THE COMPANY'S MANAGEMENT
The Company intends to enter into a Management Agreement (the "Management
Agreement") with MedServ of Connecticut, Inc. ("MedServ"), which is the sole
holder of the Company's Class C Common Stock. MedServ was organized in 1995 as a
joint venture between the Hartford and New Haven Connecticut County Medical
Associations. MedServ is a for-profit business corporation performing
administrative functions for both county medical associations and intends to
operate a Central Verification Organization ("CVO") to provide credentialing
services which are intended to meet National Commission for Quality Assurance
("NCQA") credentialing standards. Key members of the MedServ management team
will provide management services to the Company. The Management Agreement is
expected to have a minimum term of ten (10) years and is automatically renewable
for an additional ten (10) year period, unless terminated on one (1) year's
prior notice by either party. MedServ and the Company's management will conduct
the day to day operations of the Company.
Under the Management Agreement, MedServ will exclusively provide management
and administrative services in connection with the development, licensing,
marketing, and operations of the Company. MedServ will be permitted to contract
with third party independent contractors under subcontracts to provide some or
all of the services required to be delivered under the terms of the Management
Agreement.
The Company intends to enter into a Provider Network Agreement ("Network
Agreement") with MedServ IPA under which MedServ IPA will arrange for the
availability of a network of qualified physicians throughout the state to
provide medical services to Enrollees. MedServ IPA (formerly known as ProCare
IPA, Inc.) is a Connecticut corporation, organized in October 1985 and formed
specifically for the purpose of developing a network of physicians to provide
services to health plan enrollees.
3
<PAGE>
PHYSICIAN FINANCING OF SUBSCRIPTION PRICE
In order to facilitate physician subscriptions, the Company has developed
with Fleet National Bank ("Bank") a loan program through which a physician who
meets lending criteria shall be eligible to borrow the amount of the Purchase
Price pursuant to agreed terms set forth in the Loan Documents. The Company will
not guarantee the payment of any borrowings under this program, nor will it
declare any dividends on its capital stock in order to provide assurances for
repayment.
STOCK TRANSFER RESTRICTIONS AND REDEMPTION
Upon failure by a Class A Common Stockholder or, where a Group is a Class A
Common Stockholder, the failure of a Group Physician, to maintain the necessary
qualifications for status as an Eligible Purchaser, the Class A Common
Stockholder shall immediately surrender the number of shares of Class A Common
Stock corresponding to the number of such Physicians who no longer meet such
qualifications, and the Company will cancel such shares and issue an equal
number of shares of Class B Common Stock to such Stockholder. Any attempted
transfer by a Class A Common Stockholder to a party which does not meet the
requirements for status as an Eligible Purchaser shall be void and of no effect.
If at any time a Stockholder receives a bona fide offer to transfer shares
of Stock to an Eligible Purchaser, the Stockholder must offer to the Company in
writing (the "Transfer Notice") a right of first opportunity to purchase such
shares at an amount equal to the bona fide offer (the "Bona Fide Redemption
Price"). The Company shall notify the Stockholder in writing (the "Election
Notice") of its election to purchase such shares within thirty (30) days of
receipt of the Transfer Notice (the "Election Period"). If the Company elects to
purchase such shares, it may, at its election, make payment of the Purchase
Price in cash or by delivery of a promissory note to the selling Stockholder in
the principal amount of the Bona Fide Redemption Price, such note to have a term
of not greater than two (2) years and providing equal quarterly payments of
principal and accrued interest thereon, with interest at the prime rate as
reported in the "Money Rates" section of the WALL STREET JOURNAL on the first
day of the month preceding the notice of sale or transfer. The transfer shall
occur within sixty (60) days of the Election Notice at the offices of the
Company on the date and at the time set forth in the Election Notice. If the
Company does not elect to purchase such shares, the Stockholder may sell such
shares to the individual or entity identified in the Transfer Notice, for the
Bona Fide Redemption Price specified in the Transfer Notice; provided that the
closing of such sale occurs within sixty (60) days following the expiration of
the Election Period. If a Stockholder otherwise wishes to sell his or her Stock
to the Company, the Company, in its sole discretion, may redeem such
Stockholder's Stock (optional redemption) for book value, or for such other
amount and on such other terms agreeable to the Company and the Stockholder.
At any time after the fifth anniversary of the issuance date of a Class A
Common Stockholder's shares of Stock, the Company shall redeem all shares of
stock (including Class A and Class B Common Stock shares) of a Class A Common
Stockholder wishing to sell or transfer his/her shares upon the occurrence of
one of the following events (termed an "Involuntary Transfer"): (i) the death or
permanent disability of the physician; or (ii) the cessation of the physician's
provision of medical services in Connecticut (I.E., retirement or relocation),
provided, however, that Physicians who acquire shares of stock through this
Offering and are 55 years of age or older on the date of receipt of an executed
Subscription Agreement shall be eligible to redeem their stock at any time after
the third anniversary of the issuance date of such stock. The Company shall
purchase such shares of Stock at the "Involuntary Redemption Price" which shall
equal the greater of (i) the then current net book value of such shares
determined pursuant to Generally Accepted Accounting Principles ("GAAP") as of
the most recently completed fiscal quarter of the Company, or (ii) the original
issuance price of such shares. At the election of the Company, the Company may
make payment in cash or by delivery of a promissory note to the selling
Stockholder in the principal amount of the Involuntary Redemption Price, such
note to have a term of not greater than five (5) years and providing equal
quarterly payments of principal and accrued interest thereon, with interest at
4
<PAGE>
the prime rate as reported in the "Money Rates" section of the WALL STREET
JOURNAL on the first day of the month preceding the notice of sale or transfer.
Any obligation of the Company to redeem shares is subject to the condition
that the Company not be insolvent, or by reason of such redemption, not (i) be
rendered insolvent, (ii) violate a regulatory capital reserve requirement
related to the conduct of the business of insurance, (iii) violate any contract
to which the Company is a party, or (iv) results in a material impairment of the
ability of the Company to conduct its affairs as determined by the Board of
Directors in its reasonable judgment. The determination made by the Board of
Directors from time to time as to whether the redemption of shares would
materially impair the ability of the Company to conduct its affairs will depend
upon a number of factors, including but not limited to (i) the amount of net
proceeds received from this Offering or subsequent financings, if any; (ii) the
income from operations earned and anticipated to be earned in connection with
the Company's business in relation to the Company's budget and capital
requirements; (iii) the amount of prior redemptions of Stock by the Company; and
(iv) the amount needed to meet statutory surplus requirements. As a result of
the foregoing restrictions, a Stockholder of the Company should be prepared to
hold his or her Stock indefinitely.
The Board of Directors of the Company may adopt annually by resolution a
limitation on the amount of funds available each fiscal year for the redemption
of shares, which resolution shall set forth the priority of payments to
Stockholders, and/or the proportionate amount of Stock to be redeemed from
Stockholders, in the event the aggregate Purchase Price of shares for which
redemption is otherwise required exceeds the limitation duly adopted.
The Company's address is 1520 Highland Avenue, Cheshire, Connecticut 06410
and its telephone number is (203) 699-2400.
5
<PAGE>
RISK FACTORS
The Stock offered hereby involves a high degree of risk. Accordingly, the
Stock should be purchased only by persons who can afford to lose their entire
investment. Each prospective investor should, prior to purchasing Stock,
carefully consider the following risk factors, as well as all other information
set forth in this Prospectus.
1. DEVELOPMENT STAGE COMPANY: NO OPERATING HISTORY. The Company was
incorporated on November 12, 1996. The Company is in the development stage and
has no operating history and has generated no operating revenues. As such, the
Company is subject to all of the risks inherent in a new enterprise, including,
but not limited to the items discussed below. The Company has not completed the
design of the benefit plans or the financial, operational and administrative
plans of the Company's HMO and PPO, nor has it completed the drafting of
contract documents, utilization management/quality assurance standards and
systems, or payment levels and methodologies. The application for a COA which
will enable the Company to operate as an HMO in the State of Connecticut will be
filed after commencement of this Offering. The Company expects to begin
generating operating revenues approximately six (6) months after the issuance of
the COA.
Investors should be aware of the difficulties typically encountered by a new
enterprise and of the difficulty which the Company or MedServ may have in
recruiting and retaining senior management personnel for an enterprise of the
type to be undertaken by the Company. There can be no assurance that the
Company's development will be successful or that its services or products will
be successfully marketed, or that enough physicians will be willing to provide
services to the Enrollees of the Company to enable it to operate an HMO or
successfully market its products. Further, there can be no assurance that other
health care providers (e.g., hospitals, ancillary providers, podiatrists,
psychologists, etc.) essential for the successful operation of the HMO will
enter into agreements with the Company to provide services to its Enrollees.
2. RETENTION OF PROCEEDS. The Company will retain a portion of the proceeds
of each subscription in order to offset costs associated with this Offering,
even if this Offering is not consummated due to insufficient subscriptions to
satisfy the $8 million threshold required for consummation. Expenses associated
with the Offering are estimated to be approximately $ . The Company
intends to access and use proceeds of subscriptions to pay expenses prior to the
closing of this Offering. There can be no guarantee the Company will receive
sufficient subscriptions to consummate this Offering, and, accordingly,
subscribers may lose a part of their investments without receiving any shares.
3. ANTICIPATED LOSSES FOR FIRST SEVERAL YEARS. It is anticipated that the
Company will incur such losses and will have a substantial operating deficit for
approximately thirty-one (31) months following the effective date of enrollment
of Enrollees, and will have a cumulative operating deficit for approximately
thirty-one months. There can be no assurance, however, that the Company will
begin operating with positive cash flow within the estimated time frame
described above, or that its actual deficits or number of Enrollees will be as
estimated; it may take a significantly longer amount of time to achieve positive
cash flow, if ever, and the Company's deficits may be significantly greater. The
size of the deficit will depend upon, among other matters, the health status of
Enrollees, the ability of management, the accuracy of actuarial projections, the
per capita amount of premiums collected, the ability to market the Company's
products successfully and to obtain Enrollees, the effectiveness of its
utilization management programs in controlling unnecessary utilization of health
services, the avoidance of epidemic or unexpected medical catastrophes, the
length of time necessary to obtain regulatory approvals and any conditions
attached to such approvals, and other factors not subject to precise estimation.
If the Company fails to achieve positive cash flow within approximately
thirty-one (31) months of the date on which it first enrolls Enrollees, or if
the proceeds of the Offering are otherwise inadequate to fund the Company's
operations until such time as the Company ceases to incur deficits, then
additional financing may be required to cover losses incurred, which financing
may not be available on terms acceptable to the Company, in which event a
liquidation proceeding under the supervision of the Connecticut DOI might be
instituted against the Company. The
6
<PAGE>
rules and regulations of Connecticut will determine how the assets of the
Company would be distributed to creditors and Stockholders under such
circumstances.
4. GOVERNMENT APPROVALS AS A PREREQUISITE TO OPERATIONS. The Company will
file an application for COA as an HMO with the Connecticut DOI. Such COA is
essential to the operation of an HMO as proposed by the Company and, as a
result, failure to receive approval from the DOI would have a significant
adverse impact on the Company. If permitted by federal legislation, the Company
intends to file an application to become a Competitive Medical Plan ("CMP") with
the United States Health Care Financing Administration ("HCFA") to serve
Medicare beneficiaries. In order for the Company to become a CMP, the Company
must obtain HCFA's approval. The Company will expend substantial sums from the
proceeds of the Offering towards the development of a CMP. If HCFA denies the
Company status as a CMP, the Company would be unable to offer insurance to the
state's elderly population competitively, which would have a significant adverse
impact on the Company.
5. GOVERNMENT REGULATION. HMOs are subject to extensive state and federal
governmental regulation. Among the areas regulated are the scope of benefits
required to be made available to Enrollees, minimum capital required to be
maintained, the manner in which premium rates are structured, procedures for
review of quality assurance programs, enrollment disclosures and requirements,
the relationship between the Company and its health care providers and the
financial condition of the Company. Failure of the Company to comply with such
regulations could result in the loss of its COA in Connecticut or federal
authority to operate a CMP or an HMO, if such federal authority is obtained. In
lieu of specified plans required to be offered per state regulation, federally
qualified HMOs are permitted to offer plans approved in accordance with laws
governing a federally qualified HMO. In the future, the Company will assess the
advantages and disadvantages of obtaining federal HMO qualification. Until and
unless federal HMO qualification is obtained, the Company will be required to
offer the plans required by Connecticut law. See "Business."
It is anticipated that there may be extensive additional changes to state
and federal regulation of health care providers, insurers and HMOs over the next
several years. Connecticut has begun to deregulate some aspects of hospital
rates. However, Connecticut still oversees and regulates the rates that
hospitals charge for services rendered. As a result, the Company may be limited
in its ability to negotiate favorable rates from hospitals. To the extent
Connecticut further deregulates hospital rates, hospitals may have an incentive
to compete with one another for business which may enhance the Company's ability
to negotiate favorable rates with participating hospitals. However, increased
competition may have a negative impact upon the financial viability of certain
hospitals with which the Company contracts.
In addition, it is impossible to predict whether reforms which may be
considered by the federal government will be adopted, or to forecast the impact
that federal legislation, if enacted, may have on the health care delivery
system and the Company's business. See "Business--Industry Analysis--Government
Regulation."
Federal law prohibits physicians from paying or receiving any remuneration,
directly or indirectly, for the referral of a patient. In addition, federal law,
under certain defined circumstances, prohibits referral by a physician to a
health care entity in which the physician or his immediate family has a
financial interest.
Under the Medicare and Medicaid Fraud and Abuse Law, also known as the
Anti-kickback Statute, a physician is prohibited from: (A) soliciting or
receiving any remuneration in return for referring a patient to another health
care provider; and (B) offering or paying any remuneration to induce the
referral of patients to the physician.
Based upon the Company's plan of operation, and subject to receipt of all
necessary governmental approvals, the Company believes that neither the Company
nor its physician Stockholders will be in violation of either federal or
Connecticut law as a result of the operation of, or participation in, the
Company as an HMO or the offering of other insurance products. To the extent
that physicians refer patients to other physicians, they will receive no
remuneration from such referral. Moreover, the Company will not require nor
encourage physicians to refer patients to entities in which they have a
financial
7
<PAGE>
relationship. For a discussion of federal and state anti-kickback and
anti-referral laws, see "Business-- Industry Analysis--Government
Regulation--Federal Anti-kickback and Anti-referral Laws."
If the Company becomes a CMP, it must comply with certain requirements and
restrictions imposed by the federal government relating to risk-sharing
arrangements with Physicians. These requirements and restrictions may adversely
affect the Company's ability to incent physicians to manage medical risk
effectively.
6. RISKS OF INADEQUATE WORKING CAPITAL AND TERMINATION OF AGREEMENTS WITH
PROVIDERS. If premiums from Enrollees enrolled in the Company are not
sufficient to cover payments to providers and other operating expenses, the
Company will operate at a loss which, if substantial, could have a material
adverse impact on the Company's working capital. If the Company is unable to
make payments to physicians and other health care providers, such providers
could terminate their agreements with the Company. The termination of a
significant number of provider Participation Agreements could result in too few
physicians and other health care providers to service Enrollees, thereby
diminishing the attractiveness of the Company's products, resulting in reduced
Enrollee growth and further reducing working capital resulting in the possible
loss of a COA to operate an HMO, if obtained. See "Use of Proceeds" and "Risk
Factors-- Anticipated Losses for First Several Years."
Given the potential need to obtain additional capital, depending upon
unpredictable market conditions, the Company will continue to explore
opportunities for strategic partnerships which improve the Company's capital
position and contribute expertise beneficial to the conduct of the Company's
business. To date, the Company has not explored any such strategic partnerships.
7. RESTRICTIONS ON TRANSFERABILITY OF STOCK AND THE ABSENCE OF A PUBLIC OR
OTHER TRADING MARKET FOR STOCK. Stock of the Company cannot be transferred by a
Stockholder to any person or entity other than to an Eligible Purchaser. As a
result, there will be no public market for the Stock of the Company. The Company
must redeem shares under certain circumstances, and may redeem shares otherwise.
See "Description of Securities--Transfer Restrictions and Redemption
Provisions." In the event that redemption of shares would result in the Company
becoming insolvent, violating any capital reserve requirement, or violating any
contract to which the Company is party, such redemption shall not be made, and
the parties requesting redemption shall receive no other compensation for the
shares sought to be redeemed. In addition, the Company may adopt limitations on
the amount of funds available each year for the redemption of shares. The Board
of Directors of the Company may, in its sole discretion, determine the amount of
funds available each year for the redemption of shares, as well as the priority
of payments to Stockholders. As a result of the foregoing restrictions, a
Stockholder of the Company should be prepared to hold his or her Stock
indefinitely.
8. NEED FOR AGREEMENTS WITH A SUFFICIENT NUMBER OF PARTICIPATING HEALTH CARE
PROVIDERS. The Company has contracted with MedServ IPA to arrange for the
availability of a physician network. Pursuant to the terms of the Network
Agreement, MedServ IPA exclusively arranges for the provision of sufficient
numbers of physicians throughout the State to provide physician services to
Enrollees enrolled with the Company. The contract with MedServ IPA may be
terminated if the Company, in its sole discretion, believes that MedServ IPA
does not have contracts with a sufficient number of physicians necessary for the
Company to market its products effectively.
The Company has not started the process of entering into provider agreements
with hospitals and other health care providers. There can be no assurance that
MedServ IPA will have a sufficient number of physicians or that the Company will
contract with enough other health care providers to provide adequate access to
medical services for Enrollees. In such case, the Company may not be able to
sell its products or services statewide. The inability of MedServ IPA to
maintain a sufficient number of physicians in its network could reduce the
Company's ability to compete with other HMOs in Connecticut and may have an
adverse effect upon the financial condition of the Company. If MedServ IPA's
Participation Agreements are terminated by physicians, or other health care
providers terminate their contracts with the Company, the Company's ability to
continue to market its products or services would be adversely affected.
8
<PAGE>
9. NO ASSURANCE OF BENEFIT AS A PARTICIPATING PHYSICIAN. The Company
believes that one benefit related to ownership of Stock is the opportunity to
form a physician-directed HMO. The Company will require that all physicians
executing a Participation Agreement with MedServ IPA be Stockholders of the
Company. This requirement may diminish the number of physicians willing to
execute Participation Agreements and to provide services to the Company's
Enrollees. Furthermore, the Company, in its sole discretion, retains the
authority to eliminate the requirement that physicians wishing to execute
Participation Agreements also be Stockholders. There is no assurance that the
benefits of participation will be available only to Stockholders of the Company.
There is no assurance that the patient care revenues received by
Participating Physicians for services rendered by them will be sufficient to
cover a physician's costs of providing services or to cause physicians to
maintain Participation Agreements with MedServ IPA. The benefits from
participation as a participating physician, if any, may not compensate for a
potential loss on the investment made in this Offering.
10. OVERABUNDANCE OF PARTICIPATING PHYSICIANS. The Company may have greater
than an appropriate number of Participating Physicians in certain specialties
within certain geographic areas for its HMO and other insurance products. To the
extent that there are too many Participating Physicians in certain specialties
within a geographic area, the revenue realized by any physician in that
specialty for services rendered to the Company's Enrollees may not be as great
as anticipated. There is also a risk that if a large number of physicians become
Participating Physicians of the Company and providers to the HMO, each
Participating Physician will have fewer patients and less income attributable to
the Company's HMO. See "Risk Factors--Method of Reimbursement for Physician
Services."
11. LIMITATION ON CAPITAL--ELIGIBILITY OF PURCHASERS. There are certain
eligibility criteria in order to purchase Class A Common Stock of the Company.
To be an Eligible Purchaser of Class A Common Stock, an individual must: (i) be
a physician licensed in the state in which the physician practices; (ii) be a
member of his or her County and State Medical Societies, if available; and (iii)
have a Participation Agreement with MedServ IPA in effect. Class A Common Stock
may also be held by a professional corporation, partnership, limited liability
corporation, business trust, trust, IPA or PHO owned and controlled by a
majority of physicians who provide physician services on behalf of the entity,
provided that the physicians meet the foregoing requirements. To be an Eligible
Purchaser of Class B Common Stock, the purchaser may be a physician who owns one
share of Class A Common Stock, or a hospital or other investor approved by the
Company, in its discretion. Accordingly, the number of potential Eligible
Purchasers is limited which, in turn, restricts the potential capital that the
Company may raise in this Offering, or thereafter, if the Company needs
additional capital.
12. CONTROL BY CURRENT STOCKHOLDER. MedServ, as the sole holder of the
Company's Class C Common Stock, has the right to designate greater than a
majority of the Board of Directors of the Company. In addition, greater than
two-thirds of the MedServ directors must approve certain extraordinary corporate
actions such as (i) a sale of liquidation of the Company; (ii) the appointment
of management personnel; (iii) a merger or consolidation involving the Company;
(iv) the incurrence of in excess of one million dollars of debt; (v) an
amendment to the Company's Certificate of Incorporation or Bylaws; and (vi) any
matter required by law to be submitted to the stockholders for a vote.
Accordingly, MedServ will be able to determine the outcome of all corporate
actions requiring approval by the Board of Directors or stockholders and to
control the business affairs of the Company.
13. POTENTIAL FOR UNNECESSARY UTILIZATION OF HEALTHCARE SERVICES. The
Company intends to utilize a "Care Manager" system for providing physician
services. This system will require each Enrollee to select a Primary Care
Physician (i.e., Internist, Family Practitioner, General Practitioner,
Pediatrician or physician satisfying other criteria established from time to
time by the Company) to coordinate delivery of all medical services. In
addition, females may select an Obstetrician/Gynecologist to provide
gynecological exams or care related to pregnancy and any primary or preventive
obstetric and gynecologic services as defined by the Company. Each Enrollee will
be required, except in an emergency, to obtain a referral from his or her Care
Manager in order to obtain services covered by the Company from any provider
other than
9
<PAGE>
the Care Manager. Although this system seeks to limit unnecessary utilization of
medical services without compromising the Company's goal of providing the
highest quality of medical care possible, there is still a risk that there will
be unnecessary utilization of medical services. Furthermore, Enrollees may find
the requirement to obtain a Care Manager's authorization for referral to be
burdensome, which may lead to Enrollee disenrollment.
If the Company employs a Fee For Service ("FFS") payment arrangement, the
Company's reimbursement methodology may encourage unnecessary utilization of
health care services, causing the Company to incur higher than anticipated
costs. Notwithstanding the use of a Care Manager system and the use of other
efforts to control unnecessary utilization, the Company may suffer serious
adverse financial consequences as a result of unnecessary utilization of health
care services. "Business--Quality Assurance Program" and "Business--Utilization
Management Program."
14. SUBSTANTIAL COMPETITION. The Company will compete with other prepaid
health plans and with traditional health insurers in its geographic area, as
well as with self-insured programs and other managed care companies offering a
range of health insurance products. Moreover, a number of traditional indemnity
insurers have begun to market aggressively HMO or managed care products of their
own. Other programs or entities, including Physicians Health Services, Inc.,
Blue Cross & Blue Shield of Connecticut, Inc., ConnectiCare, Inc., M.D. Health
Plan, Inc., Oxford Health Plans, Inc., Medspan, Inc., Cigna Corporation, and
Aetna Health Plans of Southern New England, Inc. have greater operating
experience and are substantially better capitalized than the Company, making
them better able to compete in the marketplace. Under proposed changes to
federal laws, groups of health care providers may seek to contract directly with
employers or other purchasers of health insurance products, thereby eliminating
or reducing the need for HMOs. Furthermore, employer purchasing coalitions are
seeking to bypass the Company and its competitors when purchasing health care
services for employees and dependents by contracting directly with health care
providers. The Company expects substantial competition for its services. See
"Business--Industry Analysis--Competition."
15. NET WORTH REQUIREMENTS. In order to fulfill the HMO application, the
Company must have to satisfy statutory minimum net worth requirements as
interpreted by the Connecticut DOI. In order to comply with the minimum net
worth requirements, the Company must maintain a regulatory minimum net worth of
$1,500,000 ($3,000,000 if the Company elects to offer a point of service
product) with anticipated need for no less than an estimated $4,000,000 net
worth. The DOI retains discretionary authority to modify these amounts in order
to protect the interests of Enrollees. The DOI also requires HMOs to maintain a
minimum annual net income from operations. There is no assurance that the
Company will generate sufficient earnings to meet the DOI reserve and net income
requirements after the Company commences operation as an HMO. Failure to meet
these requirements could result in suspension of operation of the Company as an
HMO and the revocation of the Company's COA to operate an HMO. Further, there is
no assurance that minimum regulatory reserve on earnings levels will not be
increased in the future, which increases may adversely affect the Company. See
"Business--Industry Analysis--Government Regulation."
16. METHOD OF REIMBURSEMENT FOR PHYSICIAN SERVICES. Since the Company
cannot initially predict the behavior of its Participating Physicians with
respect to their adherence to established practice guidelines affecting
utilization of resources, profitability in the initial years of operations
cannot be assured. If, however, profits do accrue, it is intended that they be
used to increase the Company's capital, to reduce premiums, to re-invest in the
Company's operations, to support information system infrastructure development
by Participating Physicians, and to increase participating provider
reimbursement. It is currently intended that physicians will be reimbursed the
lesser of (a) their usual and customary fees, (b) the fee set forth on a fee
schedule adopted by the Company, or (c) a negotiated rate (in each case, less
any applicable copayments, coinsurance, or deductibles). For most services, the
maximum fee schedule may be based on the Resource Based Relative Value Scale
("RBRVS") for Connecticut (with the Company, in its discretion, possibly
implementing geographic adjustments which may be phased out over time). The
maximum fee for
10
<PAGE>
services which are not included in RBRVS will be established by the Company upon
the advice of its consultants based on a similar methodology. As such,
Participating Physicians may be dissatisfied with their level of reimbursement
and terminate their Participation Agreements and may request a redemption of
their Stock. In addition, the Company may not be able effectively to negotiate
payment rates to providers, leading to increased costs for the Company. See
"Risk Factors--Need For Agreements With a Sufficient Number of Participating
Health care Providers" and "Description of Securities--Transfer Restrictions and
Redemption Provisions."
17. POTENTIAL LIMITATION ON OUT-OF-STATE SERVICES. The Company intends to
develop its provider network and customer base within Connecticut. Since many
individuals residing in Connecticut commute to employers located in New York,
Massachusetts and Rhode Island, the Company may need to establish arrangements
with out-of-state providers and may, in the future, need to become licensed as
an HMO or insurance company in some or all of these states in order to attract
regional employer accounts. Failure to be licensed to sell products or services
in neighboring states could adversely affect the Company's ability to market its
services to multistate businesses and Connecticut businesses having a
significant number of employees located or residing outside Connecticut, thereby
limiting the market for the Company's products, and Enrollees who commute over
state lines may encounter difficulties in obtaining convenient access to the
Company's provider network. Additionally, to the extent Enrollees require
medical services outside of the area covered by the Company's network, the
Company's ability effectively to manage the costs of those services may be
greatly reduced.
18. CONFLICTS OF INTEREST. The Company intends to market its HMO to
employers and individuals throughout Connecticut, including physicians and
hospitals which are Stockholders and directors of the Company. Accordingly, some
of the Enrollees of the Company's HMO may be Stockholders or employees of
Stockholders. Further, the Company's Stockholders may own shares and/or
participate in competing organizations, such as other HMOs, hospitals and other
providers. The Company's Stockholders may also have an interest in free-standing
facilities or other providers with which the Company has contracted. In
addition, there may be a conflict between a Stockholder's interest in the
profitability of the Company and the desire to maximize compensation received
for performing medical services for Enrollees under the terms of Participating
Agreements. MedServ stands in a similar position in that it will attempt to
maximize the profitability of the Company and also seeks to profit from
providing management services. This conflict is complicated by MedServ's
ownership of all of the Class C stock, which grants MedServ effective veto power
over certain of the Company's actions and decisions. In addition, those
companies with which MedServ may subcontract may experience conflicts of
interest. See "Conflicts of Interest and "Related Party Transactions."
19. NEED FOR POINT OF SERVICE PLAN. HMOs against which the Company is
expected to compete have the present capability of offering Point of Service
("POS") plans to their Enrollees. A POS plan permits Enrollees to utilize the
services of physicians who do not maintain Participating Agreements with MedServ
IPA, and in some cases, other non-participating providers, each at an additional
charge. Under current Connecticut regulations, HMOs have the option of providing
a POS plan by (i) obtaining an indemnity insurance license, (ii) complying with
specific statutory and regulatory requirements issued by the Connecticut DOI
which include increased reserve requirements, or (iii) entering into a
contractual arrangement with a health indemnity insurance company to provide a
POS plan to Enrollees. The Company has not satisfied the requirements to offer a
POS plan. If the Company does not have a competitive POS plan to offer
Enrollees, the Company may not be competitive with other HMOs operating in
Connecticut. This could have a potentially adverse effect upon the financial
condition of the Company.
20. REINSURANCE, INSOLVENCY, AND PROFESSIONAL LIABILITY COVERAGE. To insure
against catastrophic losses, the Company intends to obtain reinsurance with a
qualified reinsurer with a retention limit of $100,000 per Enrollee per year and
the Company intends to increase this limit to $250,000 per Enrollee per year
during subsequent years as the Company's financial resources allow and the
number of Enrollees increase. Reinsurance does not legally discharge the Company
from its primary liability to the insured for the full
11
<PAGE>
amount of the policy, but it does make the reinsurer liable to the Company to
the extent of the reinsured portion of any loss ultimately incurred.
The Company will obtain insolvency coverage, as required by Connecticut law,
to provide for certain payments to physicians and other health care providers
for coverage of its insureds in the event of an inability by the Company to make
such payments. The Company may become subject to claims for which it may not be
fully insured, including claims for failure to provide medical coverage, for
wrongful termination of coverage, and for malpractice in the provision of
services. Although the Company does not directly provide medical care to
Enrollees, care will be rendered to the Enrollees of the HMO in accordance with
guidelines and protocols established by the Company, its Board and its
committees. Therefore, it is possible that the Company may be held liable for
medical malpractice claims against one or more of its Participating Providers.
The Company will obtain insurance from an A.M. Best A+ (Superior) rated carrier
to protect itself from such claims and losses. This policy is expected to have
limits of $1 million dollars per incident with an aggregate limit of $10 million
dollars in any given policy year. Additionally, the Company currently intends to
obtain an umbrella policy with limits consistent with industry practice for a
similar sized operator of an HMO to protect itself from these and other
liability claims against the Company.
Although the Company believes it will be adequately insured against such
claims and losses, a claim or series of claims against the Company could exceed
policy limits and adversely affect the Company's financial condition. In
addition, there can be no assurance that in the future such coverages will be
available to the Company at a commercially reasonable rate.
21. EXPERIENCE OF BOARD: RELIANCE ON MEDSERV. No member of the Board of
Directors devotes full-time to managing the Company's affairs. Moreover, no
member of the Company's Board of Directors has substantial experience in the
creation and management of an HMO.
The Company has entered into a Management Agreement with MedServ to assist
the Company in developing its business and operations and in obtaining a COA to
operate an HMO on a statewide basis. As a result, the Company has been and will
continue to be substantially dependent upon MedServ, under the direction of the
Company's Board of Directors, to manage the Company's activities. Although
MedServ is staffed with employees and consultants who have substantial
experience in the health care and insurance industries, MedServ is a management
firm that itself has not previously been involved in HMO development projects.
Loss of the services of MedServ could have a material adverse effect on the
Company.
The Company's success will be substantially dependent upon the senior
management team supplied by MedServ from time to time. In the event of a
termination of the Management Agreement, MedServ's then current operating
management personnel providing services to the Company may elect to remain in
the employ of MedServ or its parents. In such event the Company, during the
notice period prior to termination, would have to seek to hire senior management
personnel to replace those persons supplied by MedServ. Thus, although the
Company retains the right to terminate the MedServ contract, it might suffer
adverse consequences as a result of a termination of the Management Agreement.
The Company also has entered into a Network Agreement with MedServ IPA,
under which MedServ IPA shall make available a network of qualified physicians
throughout the state to provide medical services to the Company's Enrollees. To
the extent that MedServ IPA is not able to deliver a network of physicians in
any portion of the state, the Company is free to establish its own network in
that portion of the state and/or to terminate the Network Agreement with MedServ
IPA. The Company's success will be substantially dependent upon the physician
network provided by MedServ IPA. See "Management."
22. ANTITRUST CONSIDERATIONS. Federal and state laws may limit the scope of
the Company's activities. The Company will not require Participating Physicians
or other health care providers to contract exclusively with the Company, and it
will not preclude Participating Physicians from providing services to Enrollees
of other HMOs. The Company may seek preferred or exclusive vendor relations with
some providers of healthcare services whereby the Company will purchase services
only from designated
12
<PAGE>
vendors. The Company will address antitrust issues on a case-by-case basis.
Whenever physicians or other health care providers join together to form
ventures for the delivery of health care services, antitrust issues may be
present. Issues primarily concern possible conspiracies, combinations and
agreements in restraint of competition, price fixing, boycotts, exclusive
dealing arrangements, and concerted refusals to deal. The Company has attempted
to minimize its antitrust risk. Nevertheless, the law in this area is unsettled
and very fact specific. There can be no assurance that there will not be a
challenge to the Company's operations on the basis of antitrust violations at
some time in the future. If antitrust investigations were initiated or legal
actions were to be filed against the Company, it would be forced to incur
substantial legal expenses. Moreover, if any antitrust challenge were to be
successful, the Company could suffer additional material adverse consequences,
including cease and desist orders with respect to certain business practices and
monetary damages.
23. POTENTIAL NEGLIGENCE CLAIMS AGAINST HMOS. There is a possibility that
the Company could be held liable for medical malpractice committed by a
physician with whom it contracts to provide medical services to its Enrollees.
There is also a possibility that the Company could be found liable for damages
due to its determination that certain services are not medically necessary, its
failure to refer a patient outside of its provider network, its failure to cover
certain medical procedures, or other policies that may affect the level and/or
quality of medical services provided to its Enrollees. Case law in this area is
undergoing continued development at this time and it is difficult to determine
the extent of the Company's liability, if any, for any such claims in the
future.
Although the Company has purchased professional liability coverage, such
policy may not cover the above described potential claims or be sufficient in
amount to satisfy specific claims, which could adversely affect the financial
condition of the Company. See "Risk Factors--Reinsurance, Insolvency and
Professional Liability Coverage."
24. DETERMINATION OF THE OFFERING PRICE. The offering price per share for
the Company's Stock has been arbitrarily determined by the Board of Directors,
based upon estimates of the capital necessary to begin operations of an HMO and
the price tolerance of potential investors. Accordingly, the offering price does
not necessarily bear any relationship to the present or future assets, earnings,
book value or net worth or other established criteria of value of the Company.
The offering price should not be considered to be an indication of the present
or future value of the Company's Stock.
25. BROAD DISCRETION OF MANAGEMENT FOR USE OF PROCEEDS. The proposed Use of
Proceeds is based upon Management's best estimate given their knowledge of facts
and circumstances existing as of the date of this Prospectus. The Company's
management will have broad discretion as to the application of such proceeds,
particularly if a substantial number of shares are sold in this Offering. See
"Use of Proceeds."
26. ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation
and Bylaws contain provisions that might diminish the likelihood that a
potential acquiror would make an offer for the Common Stock, impede a
transaction favorable in the interests of the stockholders or increase the
difficulty of removing members of the Board of Directors or management. MedServ,
as the sole stockholder of the Class C Common Stock, has the right to designate
greater than a majority of the Board of Directors. Furthermore, elections for
members of the Board of Directors will be held on a staggered basis limiting the
stockholders' ability to change the composition of the Board of Directors. In
addition, greater than two-thirds of the directors appointed by the Class C
Common stockholder must approve any of the following actions: (i) a sale or
liquidation of the Company; (ii) the appointment of management personnel; (iii)
a merger or consolidation involving the Company; (iv) the incurrence of in
excess of one million dollars of debt; (v) an amendment to the Company's
Certificate of Incorporation or Bylaws; and (vi) any matter required by law to
be submitted to the stockholders for a vote.
27. DILUTION. Prospective investors should be aware that the net tangible
book value of the Company's stock immediately following completion of this
Offering will be less than the Offering Price. This is because various expenses
in connection with the Offering will be paid from such funds, and the Company
13
<PAGE>
has already incurred significant expenses in connection with the preparation of
its COA application and the development of its business and operations. See
"Dilution."
28. HMOS' POTENTIAL INELIGIBILITY FOR FEDERAL BANKRUPTCY PROTECTION. A
domestic insurer is ineligible to pursue a reorganization or liquidation under
any chapter of the United States Bankruptcy Code as presently enacted. The law
is unclear as to whether an HMO organized and operating in Connecticut would be
classified as a domestic insurer and found ineligible to pursue a liquidation or
reorganization under Federal bankruptcy laws. In light of this uncertainty, one
should assume that a reorganization or liquidation of the Company would have to
be conducted under the Connecticut insurance insolvency laws. Under either the
Federal bankruptcy laws or the Connecticut insurance insolvency laws,
Stockholders of the Company will be afforded the lowest priority upon
liquidation, and will receive a return of their investments only if all of the
Company's subscribers, providers and trade creditors have been paid in full.
29. LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS. The Company's
Certificate of Incorporation provides that, except as prohibited by law,
officers and directors of the Company will not be personally liable to the
Company or its Stockholders for monetary damages resulting from breaches of any
duty owed to the Company or its Stockholders. The Company has obtained
Directors' and Officers' liability insurance which, under certain conditions and
circumstances, covers the types of liabilities described in this paragraph.
30. CERTAIN TAX CONSIDERATIONS. For federal income tax purposes, an HMO may
be treated as a tax-exempt entity under Section 501(c)(3) of the Internal
Revenue Code (the "Code"), a taxable insurance company under Subchapter L of the
Code, or a taxable corporation under Subchapter C of the Code, among other
options, depending on the facts and method of operation. Whether a taxable HMO
will be taxed as an insurance company under Subchapter L of Code remains
uncertain at this time because of certain positions and actions taken by the
Internal Revenue Service (the "IRS"). To meet the U.S. Department of the
Treasury regulatory definition of an "insurance company," an HMO's predominant
business must consist of the issuance of insurance contracts. For an HMO
contract to be considered an insurance contract, it must involve genuine
shifting and distributing of risk to the HMO. To be considered an insurance
company, the HMO must retain the insurance risk rather than transferring it to a
provider or its contracting subscribers. In a recent nonbinding ruling, the IRS
held that a particular IPA model HMO, which contracts with outside physicians on
a fee-for-service basis, is an insurance company because it acts as an
indemnifier and retains the ultimate insurance risk. The Company intends to
contract initially with physicians on a fee-for service basis, which may permit
the Company to qualify as an insurance company for income tax purposes. The
Company, however, may enter into risk sharing arrangements with participating
providers in the future, which arrangements may shift all or a substantial
portion of the risk of the cost of medical services to such providers. Such
arrangements may disqualify the Company from obtaining insurance company status
under IRS regulations.
The Company is currently consulting with its accounting and tax advisors to
assess the viability of various reporting positions and benefits to be derived
therefrom. Ultimately, there can be no assurance that the IRS will not challenge
the reporting position selected by the Company. To the extent the Company is
treated as an insurance company, it will be eligible to take reporting positions
which provide certain advantages to and impose certain restrictions on, the
Company. Specifically, estimated reserves for future claim payments will be
deductible (on a discounted basis) in the current taxable year. Conversely,
qualification as an insurance company may limit the Company's flexibility to
structure innovative risk sharing compensation arrangements with participating
providers, which arrangements create incentives to manage medical risks more
effectively. At this early stage of the Company's development, it is not
feasible to make a decision regarding tax status at this time.
In addition, prospective investors may be subject to risks regarding the tax
effect of this investment. Such risks are not, nor are they intended to be,
addressed in this Prospectus and each prospective investor should consult a tax
advisor prior to making an investment.
14
<PAGE>
HOW TO SUBSCRIBE IN THIS OFFERING
GENERAL
Accompanying this Prospectus are the following documents:
(1) A Subscription Agreement;
(2) Materials for applying for a loan from Fleet National Bank, which
include:
(i) A loan application page, which contains limited financial
information and assignment of proceeds of loan to the Company; and
(ii) A promissory note to the Bank (collectively the "Loan
Documents");
(3) A MedServ IPA Participation Agreement and the attached Physicians
Care Primary Care Physician or Physicians Care Specialist Physician
Attachment;
(4) An envelope for returning completed subscriptions through the U.S.
Postal Service; and
(5) A pamphlet which, in question and answer format, addresses the
questions likely to arise in the subscription process (the "Physicians Care
For Connecticut Offering--Questions & Answers").
To be eligible to subscribe for a share of Class A Common Stock and Class B
Common Stock in the Offering, the subscriber should return the enclosed postage
paid envelope with (i) a check or money order payable to Physicians Care for
Connecticut, Inc. in the amount of the Purchase Price, (ii) a Subscription
Agreement, properly completed and signed, (iii) the executed MedServ IPA
Participation Agreement, including a check to cover the $200 administration fee
relating thereto, and the Physicians Care Primary Care Physician or Physicians
Care Specialist Physician Attachment, as applicable; and (iv) if a loan is
requested by the prospective subscriber, the executed Loan Documents. No other
documents are required to or should be included in the return envelope. The
check or money order, the executed Subscription Agreement, the executed MedServ
IPA Participation Agreement and Physicians Care Primary Care Physician or
Physicians Care Specialist Physician Attachment and, if requested, the Loan
Documents are referred to as the "Subscription Documents." Since subscriptions
may be limited and will be accepted on a first come first served basis,
prospective subscribers are advised to send their check or money order in good
funds along with their properly completed and signed Subscription Agreement as
soon as possible following receipt of this Prospectus, and the Subscription
Documents must be received by the Escrow Agent or postmarked no later than the
last day of the Offering Period (the "Expiration Time").
Copies of the "Physicians Care for Connecticut Offering--Questions &
Answers," and Subscription Agreement are also included in the back of this
Prospectus as Exhibits A and B respectively. Each prospective subscriber should
review this Prospectus and these documents carefully.
QUESTIONS
Due to regulatory considerations none of the Company, the Subscription Agent
or the Escrow Agent (as defined below under--"Completion and Mailing of
Subscription Agreements") will be able to answer verbally the questions of
potential subscribers relating to this Offering. Accordingly, subscribers should
not call the Company, the Subscription Agent or the Escrow Agent with any
questions regarding the Offering or the information contained herein, including
how to subscribe. Subscribers should refer to the "Physicians Care for
Connecticut Offering--Questions and Answers," included in the back of this
Prospectus as Exhibit A beginning on page A-1, which the Company believes should
answer most questions subscribers to the Offering may have.
COMPLETION AND MAILING OF SUBSCRIPTION AGREEMENTS
A subscription will be rejected by the Company unless the Subscription
Agreement is (i) fully and properly completed, signed and received by MedServ
IPA, the Company's Subscription Agent, and (ii) the Subscription Agent has
received a check or money order for good funds in the amount of the Purchase
Price payable to "Physicians Care for Connecticut, Inc.," prior to the
Expiration Time at:
15
<PAGE>
Physicians Care for Connecticut, Inc.
c/o MedServ IPA, Inc.
1520 Highland Avenue
Cheshire, Connecticut 06410
Attn: Stock Subscription
The Subscription Agent will promptly forward all checks and money orders for
subscriptions that have not been rejected to Fleet National Bank (the "Escrow
Agent") for deposit into an escrow account (the "Escrow Account") maintained
with the Escrow Agent. See "Escrow Arrangements."
Subscriptions will be rejected by the Subscription Agent and returned to the
subscriber if (i) the Subscription Agreement is improperly completed or
unsigned, (ii) the Subscription Agreement is sent without accompanying check or
money order in good funds in the amount of the Purchase Price, (iii) the
Subscription Agreement accompanied by a check or money order for the Purchase
Price in good funds is not received by the Subscription Agent by the Expiration
Time, (iv) the Subscription Agreement is accompanied by a check or money order
for the Purchase Price not in good funds, (v) the proposed subscriber does not
meet the qualification of an Eligible Purchaser, (vi) all shares of Class A
Common Stock offered in the Offering have been fully subscribed, or (vii) the
Offering has been terminated as described below under--"Termination of
Offering".
METHOD OF PAYMENT
Only checks and money orders will be accepted as payment. Cash, credit card
numbers and other forms of payment should not be sent and will not be accepted.
The check or money order must be payable in U.S. dollars and drawn on a bank in
the United States. The check must be honored upon initial deposit; no attempt
will be made to redeposit any dishonored check.
DUE TO LEGAL AND OTHER RESTRICTIONS, THE COMPANY AND ITS AGENTS WILL NOT
ACCEPT FUNDS DRAWN ON INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"), KEOUGH ACCOUNTS,
MUTUAL FUND ACCOUNTS, CASH MANAGEMENT ACCOUNTS OR OTHER TYPES OF RETIREMENT OR
INVESTMENT ACCOUNTS.
ACCEPTED SUBSCRIPTIONS
Unless the Offering is terminated, subscriptions meeting the subscription
requirements discussed above which are received by the Subscription Agent will
be accepted by the Company, subject to qualification of the Subscriber as an
Eligible Purchaser. The Company will cause the Subscription Agent to forward to
each subscriber whose subscription has been accepted promptly following the
closing of the Offering a certificate representing the number of shares of Class
A Common Stock and, if applicable, Class B Common Stock subscribed and for which
payment has been made.
No Subscription Agreement will be formally accepted by the Company until the
Purchase Price of all subscribed Class A Common Stock and Class B Common Stock
from physicians exceeds $8 million. Therefore, subscribers will not be notified
that their Subscription Agreements have been accepted, and should not expect to
receive certificates representing their shares of Class A Common Stock or Class
B Common Stock, until sometime after the Expiration Time. Pending the Initial
Closing of the Offering, all monies, less $450 per subscribed share, will be
held in the Escrow Account maintained with the Escrow Agent. See "Escrow
Arrangements" below. Thereafter, subscriptions will be accepted by the Company
and additional Closings will occur upon receipt by the Company of subscriptions
in increments of $500,000, with a final Closing to occur 180 days after the date
of this Prospectus, subject to a 90 day extension at the discretion of the Board
of Directors.
TERMINATION OF OFFERING
The Offering may be terminated by the Company at any time in its absolute
discretion. If the Offering is terminated, all amounts received from subscribers
whose subscriptions were not rejected by the Subscription Agent and whose funds
were deposited into the Escrow Account will be promptly refunded
16
<PAGE>
with interest less $450 per subscribed share no later than thirty (30) days
after the later of the date of termination of the Offering or the Expiration
Time. Interest on such funds will be paid as described below under "Escrow
Arrangements".
RETURNED SUBSCRIPTIONS
If a subscription is rejected by the Subscription Agent because (i) the
Subscription Agreement was improperly completed or unsigned, (ii) the
Subscription Agreement was sent without an accompanying check or money order in
good funds in the amount of the Purchase Price, (iii) the Subscription Agreement
accompanied by a check or money order in good funds in the amount of the
Purchase Price was not received by the Subscription Agent by the Expiration
Time, (iv) the Subscription Agreement was accompanied by a check or money order
not in good funds, (v) the proposed purchaser does not meet the qualifications
of an Eligible Purchaser, or (vi) the Offering has been fully subscribed, then
the Subscription Agent will promptly return to each subscriber the accompanying
check or money order. No interest will be paid on checks or money orders that
have not been deposited into the Escrow Account or that have been deposited, but
are not in good funds.
ESCROW ARRANGEMENTS
All amounts received from subscribers whose subscriptions are not rejected
will be promptly forwarded by the Subscription Agent to the Escrow Agent (Fleet
National Bank, 777 Main Street, Hartford, Connecticut 06115), shall be cashed by
the Escrow Agent, and the Purchase Price less $450 per subscribed share (the
"Subscription Fee") shall be deposited into the Escrow Account, until the first
to occur of (i) a Closing applicable to the applicable subscription, or (ii) the
termination of the Offering. The first closing of the Offering will occur five
(5) days after receipt of accepted subscriptions from physicians in the amount
of $8 million of Class A and Class B Common Stock with a subsequent closing
occurring five (5) days after the receipt thereafter by the Company of
subscriptions in incremental amounts of $500,000. All Subscription Fees shall be
deposited by the Escrow Agent into the account of the Company.
Amounts deposited with the Escrow Agent will be invested by the Escrow Agent
in short-term securities issued or guaranteed by the U.S. Government. Neither
the Company nor the Escrow Agent will have any liability or responsibility with
respect to subscription amounts invested in accordance with the Escrow
Agreement.
Upon a Closing, investors whose subscriptions have been accepted by the
Company will not be entitled to any interest, including any interest on any
amounts refunded. No interest will be paid on funds held in escrow unless the
Offering is terminated by the Company without a Closing. In either case, the
Subscription Agent will promptly remit to each prospective subscriber an amount
equal to the Purchase Price less $450 per subscribed share plus his or her pro
rata amount of the interest accrued on all the funds held in escrow.
SUBSCRIPTION AGENT
MedServ IPA has been engaged by the Company to assist it in effecting the
Offering by serving as Subscription Agent. The Subscription Agent will cause
copies of this Prospectus and subscription materials to be forwarded to
prospective subscribers upon request. Following receipt of Subscription
Agreements from prospective subscribers, the Subscription Agent will verify that
(i) the submitted checks and money orders are for good funds, (ii) the
Subscription Agreement has been fully and properly completed and signed, and
(iii) the subscriber meets the qualifications of an Eligible Purchaser. All
subscriptions which the Subscription Agent is not able to verify will be
rejected and returned to the prospective subscriber.
Upon the closing of the Offering, the Subscription Agent will cause stock
certificates to be sent to those subscribers whose subscriptions have been
accepted by the Company. Each of the foregoing will be sent by the Subscription
Agent via first class mail promptly following the closing of the Offering. See
"How to Subscribe in this Offering."
17
<PAGE>
THE COMPANY
Physicians Care for Connecticut, Inc. was incorporated on November 12, 1996,
as a Connecticut business corporation under the sponsorship of private
practicing physicians to develop a statewide physician-owned and directed
insurance company licensed as an HMO and offering a comprehensive array of
health insurance products. The Company will be predominantly owned by physician
stockholders practicing in Connecticut who are expected to participate actively
in the Company's affairs. Each physician investing in the Company agrees to
provide medical services to Enrollees pursuant to the terms of a Participation
Agreement. The Company will prepare and file an application for a COA with the
DOI to operate as an HMO throughout the state of Connecticut and will seek such
other regulatory approvals as necessary to offer its products. The Company
intends to provide coverage for comprehensive health care services to Enrollees
under its insured products for a fixed, prepaid enrollment fee paid by or on
behalf of the Enrollees.
The Company's principal place of business is 1520 Highland Avenue, Cheshire,
Connecticut 06410 and its telephone number is (203) 699-2400.
USE OF PROCEEDS
In the event that the Offering of the Class A Common Stock and Class B
Common Stock fails to raise more than $8 million dollars in purchases by
physicians, the Purchase Price of both Class A Common Stock and Class B Common
Stock will be refunded, minus $450 per share, which shall be retained to offset
the cost of the Offering. The proceeds of this Offering will be placed in an
Escrow Account until the Company has determined whether the Offering has raised
$8 million dollars from the sale to physicians of Class A and Class B shares. A
portion of the net proceeds of this Offering will be used to retire the
outstanding balance under a Credit Facility, dated as of December 3, 1996, with
Fleet National Bank, which outstanding balance of principal and interest was
approximately $350,000 as of January 25, 1997. Borrowings under this Credit
Facility must be repaid no later than December 1997, accrue interest payable
monthly at the Company's option, at the lower of (i) Fleet National Bank's prime
rate, or (ii) the London Interbank Offered Rate ("LIBOR"). The remainder of the
net proceeds of this Offering, if any, will be used for working capital purposes
including product development, marketing and development of management
information systems. Pending use, the Company intends to invest the net proceeds
of this offering in short-term, interest-bearing investment grade securities.
The Company will contract with an investment manager to invest its funds
(see "Plan of Operation"). The Company will only invest in commercial paper,
repurchase agreements, treasury bonds or bills, U.S. Government agencies,
certificates of deposit, and money market funds of the highest quality. All
assets and related collateral must have the highest credit ratings as assigned
by Standard & Poor's (AAA) or Moody's (AAA; P-1), respectively.
The Company believes that its existing resources, together with any proceeds
of this Offering, will be adequate to satisfy its capital needs at least through
the end of the year ending December 31, 1998. However, if the Company's
operational expenses exceed expectations, and the Company does not raise
sufficient funds in this Offering to fund them, it will require additional
financing in order to carry out its business plans. There can be no assurance
that such funds will be available to the Company on acceptable terms.
DIVIDENDS
The Company has never paid any dividends and does not intend to pay
dividends for the foreseeable future. Earnings, if any, will be retained for use
in the operation and expansion of the Company's business.
18
<PAGE>
CAPITALIZATION
The following chart shows the Company's actual capitalization as of December
31, 1996 and the capitalization as adjusted to give effect to the minimum and
maximum sale of the Class A and Class B Common Stock offered by the Company
hereby after estimated expenses and the repayment of the borrowings under the
line of credit. This table should be read in conjunction with the financial
statements and notes thereto, included towards the end of this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------------------
<S> <C> <C> <C>
AS ADJUSTED
--------------------------
ACTUAL MINIMUM(2) MAXIMUM(3)
----------- ------------ ------------
Borrowings under line of credit....................... $ 400,000 $ -- $ --
Stockholders' equity (deficit):
Class A, no par value, 10,000 shares authorized.....
Class B, no par value, 10,000 shares authorized.....
Class C, no par value, 10,000 shares
authorized(1)..................................... 12,000 12,000 12,000
Accumulated deficit................................. (715,764) (715,764) (715,764)
----------- ------------ ------------
Total stockholders' (deficit)..................... (703,764)
----------- ------------ ------------
Total capitalization.............................. $ (303,764)
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
- ------------------------
(1) Reflects 3 shares issued and outstanding.
(2) Reflects the sale of shares of Class A and shares of Class B at
an offering price of $3,000 per share less underwriting discounts and
commissions and estimated expenses of $ .
(3) Reflects the sale of shares of Class A and shares of Class B at
an offering price of $4,000 per share less underwriting discounts and
commissions and estimated expenses of $ .
DILUTION
Prospective investors should be aware that the net tangible book value of
the Company's stock immediately following completion of this Offering will be
less than the offering price. This is because various expenses in connection
with the Offering will be paid from funds raised in the Offering, and the
Company has already incurred significant expenses in connection with the
preparation of its COA application and the development of its business and
operations.
The following table illustrates dilution to prospective investors upon the
completion of the minimum and maximum offering:
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
----------- -----------
<S> <C> <C>
Offering price per share................................................ $ 3,000 $ 4,000
Pro-forma net tangible book value per share after the offering..........
----------- -----------
Dilution to prospective investors.......................................
----------- -----------
----------- -----------
</TABLE>
19
<PAGE>
PLAN OF OPERATION
The Company was incorporated on November 12, 1996, under the sponsorship of
private practicing physicians for the purpose of developing a statewide,
physician owned and directed HMO. The Company intends to submit an application
with the DOI for a license to operate an HMO in all Connecticut Counties. The
Company will not be permitted to solicit business until the DOI has approved the
Company's licensure application.
The Company will commence an Offering for the purpose of raising capital
necessary to fund its operations. The Company will offer shares of Class A and
Class B Common Stock at a price of $4,000 per share, with Primary Care
Physicians required to purchase one (1) share of Class A Common Stock and
Specialty Physicians required to buy a minimum of two shares of Common Stock
(one Class A Common and one Class B Common). There is no limitation on the
number of shares of Class B Common Stock which may be purchased. During the
first ninety (90) days of the Offering, physicians will be offered a "prompt
subscription" price of $3,000 per share. The Company has set forth a goal of
raising up to $24,000,000 of capital to commence HMO operations.
Over the next year, the Company will devote substantial efforts to
developing and credentialing its health care delivery network. The success of
the Company will be dependent upon, among other things, the Company's ability to
contract with physicians and other health care providers at competitively
favorable rates and terms. The Company intends to contract with MedServ IPA to
arrange for the availability of a network of physicians throughout the State of
Connecticut. MedServ IPA currently has a network of approximately 1,700
physicians. MedServ IPA's Participation Agreements with physicians are for an
initial term of one (1) year and are automatically renewable for successive one
(1) year terms. Following termination of the Participation Agreements by MedServ
IPA, a physician is required to continue to furnish health care services to
Enrollees until an orderly transfer of a Enrollee to another Participating
Physician can be undertaken or until completion of treatment, whichever occurs
first.
The Company is currently devoting substantial efforts to contracting with
hospitals, ancillary service providers and other providers for the provision of
acute, institutional and home care services. The Company will contract with
acute care institutions to provide services at a negotiated rate or at a
fee-for-service discount. The Company's agreements with these providers will
prohibit providers from billing Enrollees for any services covered by the HMO,
except for any applicable copayments, coinsurance, or deductibles. The Company,
at least initially, intends to reimburse Participating Physicians at a pre-
established fee schedule. Physicians will also be prohibited from billing
Enrollees for services covered by the HMO, except for any applicable copayments,
coinsurance, or deductibles.
The Company is developing comprehensive utilization management protocols and
quality assurance standards. These protocols and standards will be used to
monitor the care provided to Enrollees. Through a combination of effective
utilization management and quality assurance standards, management hope to
contain medical expenses sufficiently to achieve targeted medical claims cost
levels. The anticipated utilization management system will require each Enrollee
to select a Care Manager (i.e., Internist, Family Practitioner, General
Practitioner, Pediatrician, or physician satisfying other criteria established
from time to time by the Company) who will coordinate delivery of all medical
services, except in case of emergency, and authorize referral to other providers
of care. In addition, female Enrollees may also select an
Obstetrician/Gynecologist to provide certain gynecological services or care
related to pregnancy without prior authorization of the Care Manager. Each
Enrollee will be required, except in an emergency or where otherwise permitted
by the Company (e.g. selected obstetrical/gynecological services), to obtain a
referral from his or her Care Manager in order to obtain services covered by the
Company from a provider other than the Care Manager. Management believes that
such physician-to-physician consulting will result in a high quality of care for
its Enrollees, while eliminating unnecessary services of marginal clinical
benefit.
To insure against catastrophic medical losses, the Company will obtain
reinsurance with a qualified reinsurer with initial limits of $100,000 per
Enrollee per year.
20
<PAGE>
DEVELOPMENT STAGE ACTIVITIES
The Company is in the developmental state and has not yet commenced its
business activities. Through this Offering, the Company is attempting to raise
capital necessary to fund the operations of the Company.
In March 1996, the Company retained Medical Alliances (MA) and legal counsel
to prepare and submit an application for an HMO license with the Connecticut
DOI. The application is being prepared and will be submitted as soon as is
practicable.
The Company will commence sales of the Stock promptly after receipt of all
regulatory approvals. The proceeds from the Offering, if any, and any interest
earned thereon will be utilized for general working capital to repay outstanding
indebtedness of the Company and to offset projected operating deficits until the
Company is licensed and begins operating at a profit. The Company intends to
expend substantial funds in continuing development of its infrastructure and
provider network. The Company expects to spend a substantial portion of the
proceeds of the Offering before the Company begins operating at a profit.
Following the initial capitalization and approval of the COA by the
Connecticut DOI, marketing of the HMO to the public will commence. The Company
intends to market its HMO to employers and individuals throughout Connecticut.
Once eligible, the Company will attempt to operate and market a Medicare CMP as
well.
The Company intends to enhance management and quality of care by improving
information flows to participating providers, allowing providers, in particular
physicians, to make better medical decisions. As a result, development of the
Company's information systems capabilities is likely to play a critical role in
the Company's success. The Company has begun soliciting information from various
comprehensive management information systems vendors. A request for proposal has
been sent out to selected vendors. Final selection of an information systems
vendor could be completed during the spring of 1997, with full implementation
approximately six (6) to twelve (12) months thereafter.
Based on a review by management of regulatory filings submitted by a number
of HMOs to DOI, it is typical for a start-up HMO to experience substantial
operating losses for its first several years, and it is anticipated that the
Company will incur such losses and will have an operating deficit for at least
thirty (30) months after commencing of operations. There can be no assurances
that the Company will begin operating with positive cash flow within the
estimated time-frame, or that its actual deficits or Enrollees will be as
estimated; it may take longer to achieve positive cash flow and the Company's
deficits may exceed estimates of management.
The Company's deficits will depend upon, among other factors, the health
status of the enrolled population, the management of the Company, the accuracy
of actuarial projections, the Company's ability to market its products
successfully, the effectiveness of its utilization management programs in
controlling unnecessary utilization of health services, the avoidance of
epidemic or unexpected medical catastrophes, and other factors not subject to
precise estimation. If the Company fails to achieve positive cash flow within
approximately thirty-one (31) months after obtaining its license to operate an
HMO, or if the proceeds from this Offering are otherwise inadequate to fund the
Company's operations until such time as the Company ceases to incur deficits,
then additional financing may be required to cover losses incurred which may not
be available on terms acceptable to the Company, in which event a liquidation
proceeding under the supervision of the Connecticut DOI might be instituted
against the Company. The rules and regulations of the state of Connecticut will
determine how the assets of the Company would be distributed to the Company's
creditors and stockholders under such circumstances.
Since the Company cannot initially predict the behavior of its
physician-owners with respect to their adherence to established medical practice
guidelines or utilization of resources, profitability in the initial years of
operation cannot be assured. If, however, profits do accrue, the Company
currently intends that
21
<PAGE>
they be used to increase the Company's capital, to reduce premiums to obtain
competitive advantage for Enrollee growth, to invest in the Company's product,
to support information system infrastructure development, and for additional
provider reimbursement, at the discretion of the Company. It is currently
intended that the physicians will be reimbursed the lesser of (a) their usual
and customary fees, or (b) the fee set forth on a fee schedule adopted by the
Company. Reimbursement is subject to plan design and is projected to include
some capitation and discounted fee for service.
For federal income tax purposes, an HMO can be treated as a tax-exempt
entity, an insurance company or as a taxable non-insurance company, depending on
the facts and method of operation. The tax status of the Company cannot be
ascertained at this time because the Company has not made a final decision on
all matters which could affect tax status.
The Company intends to market its HMO to employers and individuals
throughout Connecticut, including physicians and hospitals who are stockholders
and directors of the Company. Accordingly, some of the Enrollees of the
Company's HMO may be Company stockholders or employees of such stockholders.
Further, the Company's stockholders may own shares and/or participate in
competing organizations. The Company's stockholders may also have an interest in
freestanding facilities with which the Company has contracted. In addition,
there is an inherent conflict of interest between a Stockholder's interest in
the profitability of the Company and his or her desire to maximize compensation
to be received for performing medical services for Enrollees as a participating
physician. See "Conflicts of Interest."
The Company currently intends to invest only in investment grade securities
with short and mid-term maturities. However, in the future the Company may
invest in other types of investment-grade securities. The Company will manage
its total investments such that there is designated at all times income
producing securities which are adequate in amount and duration to support the
cash requirements of current operations and the liquidity to fund the Company's
development phase.
In accordance with the above, the Company will select an investment advisor
to manage investments and, through the advisor, will only invest in commercial
paper, repurchase agreements, Treasury notes and bills, U.S. Government
Agencies, certificates of deposit, and money market funds of the highest quality
to provide income, liquidity for expense payments, and preservation of the
account's principal value. All assets and collateral which secure certain
investments must have the highest credit ratings as assigned by Standard &
Poor's (AAA) or Moody's, respectively.
The Company is required by the Connecticut DOI to maintain a minimum
statutory net worth at the time of application of $1,500,000, ($3,000,000 if the
Company intends to offer a point of service product) although the DOI has
discretion to increase the amount of the Company's reserves, depending upon the
number, product design, cost, and anticipated premiums of the Company's
products. Start-up capital requirements are estimated to be at approximately $4
million, as minimum financial reserves for the application to be considered.
Currently, the Company does not have sufficient capital to meet these
requirements, and the proceeds from the Offering will be used, among other
things, to meet these requirements.
22
<PAGE>
BUSINESS
Physicians Care for Connecticut, Inc. was incorporated in 1996 as a
Connecticut business corporation under the sponsorship of private practicing
physicians to develop a statewide physician-owned and directed insurance company
licensed as an HMO and offering a comprehensive array of health insurance
products. The Company will be predominantly owned by physician stockholders
practicing in Connecticut who are expected to participate actively in the
Company's affairs. As a condition to investment, each physician investing in the
Company must agree to provide, pursuant to the terms of a Participation
Agreement between the investing physician and MedServ IPA, medical services to
individuals who may be insured under the Company's products ("Enrollees"). The
Company will prepare and file an application for a COA with the DOI to operate
as an HMO throughout the state of Connecticut and will seek such other
regulatory approvals as necessary to offer its products should the COA be
approved. The Company intends to provide coverage for comprehensive health care
services to Enrollees under its insured products for a fixed, prepaid enrollment
fee paid by or on behalf of the Enrollees.
THE MANAGED HEALTH CARE INDUSTRY
Medical services traditionally have been provided on a fee-for-service basis
with insurance companies assuming responsibility for paying all or a portion of
such fees. The increase in medical costs under traditional indemnity health care
plans has been caused by a number of factors including, but not limited to, the
lack of incentives on the part of health care providers to deliver
cost-effective medical care, and the absence of controls over the utilization of
costly and medically unnecessary specialty care physicians and hospitals.
An HMO is a health care delivery system that provides a broad range of
health services to an enrolled population in return for a premium paid in
advance. HMOs actually provide or arrange for the provision of medical,
hospital, emergency and appropriate preventive care. In particular, HMOs stress
preventive health care so that Enrollees may avoid unnecessary hospitalization
and medical procedures, two primary reasons for escalating health care costs.
Managed care requires many different types of health care providers to
coordinate activities and to share information to operate most efficiently.
Because providers have not been organized collectively in local markets and have
operated largely as a cottage industry, providers have had limited effect in
managing care. Furthermore, insurers have avoided promoting formation of more
efficient provider organizations because such organizations can also more
effectively negotiate payments with insurers, reducing insurer profits. In
response to this environment, insurers have developed centralized medical
management programs requiring extensive prior authorization or pre-certification
of services, referral authorizations, or other limitations on access to care.
The industry has promoted managed access, rather than managed care which can
only be achieved by providers in local markets acting in concert.
As a result of these developments, members of managed care plans now
perceive HMOs as profit-driven, with excessive interference in the
physician-patient relationship. The industry is plagued with low member
satisfaction and a backlash of legislative initiatives designed to guarantee
enrollee access or to promote member rights.
The Company was incorporated for the purpose of developing and operating a
statewide HMO and offering other insurance products in Connecticut. The Company
will be a physician-directed HMO, providing comprehensive health insurance
products to its Enrollees. The goals of the Company are to offer the highest
quality medical care through a broad network of physicians and to ensure access
to care for Enrollees.
23
<PAGE>
THE COMPANY RESPONSE
The Company intends to address concerns raised by patients and their
physicians that managed care plans unreasonably interfere with the
physician-patient relationship and control medical decisions through centrally
administered programs. The Company hopes to position itself in the market as a
physician-directed company that recognizes the critical nature of the
physician-patient relationship within the context of cost-effective and
accessible health care. The Company recognizes that physicians play the most
critical role in defining the Company's products due to their direct impact on
cost control, quality, and patient satisfaction, and the Company is directly
dependent upon their efforts for its success.
The cornerstone of the Company's operations will be a decentralized medical
management program intended to produce a superior product with the following
optimal characteristics:
- affordable price
- outstanding and measurable quality
- superior customer satisfaction
This medical management model can be successfully implemented only if the
Company and its participating physicians work as partners in close association.
Each party will play an important role. If the Company is to succeed, physicians
in local markets must (i) coordinate medical management activities, (ii) access
timely information to make best medical decisions, (iii) have autonomy to make
medical decisions, and (iv) be held accountable for those decisions through an
effective peer review and educational process. The following summarizes
objectives and joint physician/Company initiatives.
<TABLE>
<CAPTION>
OBJECTIVES JOINT PHYSICIAN/COMPANY INITIATIVES
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
- - Coordinated medical management in local markets - Develop physician-influenced organizations (e.g.,
integrated medical groups, PHOs, IPAs) which manage
medical delivery
- - Timely physician access to information - Perform joint investment in information system
infrastructure to improve information flows
- - Physician-directed medical decisions - Eliminate cumbersome pre-certifications, referral
authorizations, or other centralized medical
management techniques of questionable value
- - Accountability and continous quality improvement - Conduct extensive Company reporting, peer analysis,
continuous quality improvement and educational process
</TABLE>
The Company recognizes that its participating physicians are valuable
assets, playing an important role in future success. The Company intends to
achieve its goals through innovative compensation arrangements with its
participating physicians which are designed to incent the Company and its
participating physicians to achieve those objectives. The Company is prepared to
take an active role in facilitating provider organization in local markets, to
invest in physician information system development, and to engage in extensive
reporting, peer analysis, and education to achieve these goals.
Under the HMO's product design, each new Enrollee will be required to select
a Care Manager from a directory supplied by the Company. Except in case of
emergency, all medical care received by the Enrollee, including specialist and
hospital care, will be coordinated and approved by the Care Manager who is
familiar with the Enrollee's medical history. The Company intends to execute a
Network Agreement
24
<PAGE>
with MedServ IPA to establish a physician network and has executed agreements
with other providers. MedServ IPA will also play a critical role in the
educational process.
Except for co-payments, the Company proposes to cover all other charges for
treatment at emergency rooms of non participating hospitals in the event of a
medical emergency. The Company's plans will require co-payments for office
visits and certain emergency room treatments.
Premium rate increases must be submitted to the Connecticut DOI, and there
can be no assurance that premium rate increases will be accepted without
objection. Renewal dates will vary among groups. The Company will utilize an
actuary-developed system of rating adjusted by class (with respect to groups of
fifty (50) or more Enrollees) by age, sex and industry classification, in
determining its rates for various employers in the proposed service area, all in
accordance with Connecticut law. Accordingly, premium rates for a single plan
benefit design may vary among employer groups.
COMPETITION
The managed care industry is highly competitive. Mergers and acquisitions
cause frequent reconfiguration of competitors, and changes in federal and state
laws can significantly affect the sources of payment. The Company will compete
against other companies having substantial financial resources and experience.
The Company has numerous competitors, including for-profit and tax-exempt HMOs,
self-funded plans, preferred provider organizations (PPOs), Blue Cross/Blue
Shield plans, traditional indemnity insurance carriers and provider networks
engaging in direct contracting with employers, all of which have existing
enrollments and greater financial resources than the Company currently has.
As of December 31, 1996, the Connecticut commercial HMO market consisted of
sixteen (16) organizations. The Company's major competitors are Physicians
Health Services, Inc., Blue Cross & Blue Shield of Connecticut, Inc.,
ConnectiCare, Inc., M.D. Health Plan, Inc., Oxford Health Plans, Inc., Medspan,
Inc., Cigna Corporation, and Aetna Health Plans of Southern New England, Inc.
These and other entities with which the Company may compete are or may be
substantially better capitalized than the Company. Additional competitors with
financial resources greater than the Company may enter the Company's markets in
the future. The health care industry has been subject to vigorous price
competition and intense competition may become more severe in the near future.
Further, the adoption of any state and/or federal health care reform may
significantly change the competitive health care environment in Connecticut.
GOVERNMENT REGULATION
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. Generally, regulation of health care companies is
increasing. In particular, HMOs are subject to extensive government regulation.
DOI REGULATION
The Company will apply for a COA to operate as an HMO in the State of
Connecticut. Among the areas regulated by the Connecticut DOI are the scope of
benefits required to be made available to Enrollees, continuation of benefits in
the event of insolvency or termination of arrangements with providers, reserves
required to be maintained, the manner in which Enrollees' co-payments are
structured, procedures for review of quality assurance, enrollment requirements,
the relationships among the HMO, its physicians and other health care providers,
and the financial condition of the HMO.
Under Connecticut law, an HMO must satisfy a net worth requirement of
$1,500,000 ($3,000,000 if the Company elects to offer a point of service
product). In addition, a Connecticut HMO must maintain a reserve at least equal
to all of its estimated pending claims. If the Company becomes unable to meet
the
25
<PAGE>
foregoing deposit and net worth requirements, the Company's license may be
revoked or its operations restricted. Other restrictions and requirements could
be imposed affecting HMOs generally, the products offered by the Company,
underwriting requirements, and other aspects of the Company's operations. Rates
and proposed covered benefits must be submitted to the Connecticut DOI prior to
their imposition. There can be no assurance that rates will be accepted without
objection.
ANTITRUST
Antitrust concerns have become central issues in the new managed care
environment of the health care industry. Whenever physicians or other health
care providers join together to form ventures for the delivery of health care
services, antitrust issues may be present. The Company has attempted to take all
steps possible to minimize any antitrust risk. Nevertheless, the law in this
area is unsettled and very fact specific. Therefore, there can be no assurance
that there will not be a challenge to the Company's operations on the basis of
antitrust violations at some time in the future. If antitrust lawsuits were to
be filed against the Company, it would be forced to incur substantial legal
expenses. Moreover, if any antitrust challenge were to be successful, the
Company could suffer additional material adverse consequences.
In addition, it is impossible to predict whether further federal and/or
state antitrust legislation will be adopted or the impact that such legislation
may have on the health care delivery system and the Company.
FEDERAL ANTI-KICKBACK AND ANTI-REFERRAL LAWS
Federal laws prohibit physicians from paying or receiving any remuneration,
directly or indirectly, for the referral of a patient. In addition, federal law,
under certain defined circumstances, prohibits referral by a physician to a
health care entity in which the physician or his or her immediate family member
has a financial interest. The Company believes that neither the Company nor its
physician stockholders will be in violation of federal or Connecticut law as a
result of the operation of or participation in the Company's HMO. To the extent
that physicians refer patients to other physicians, they will receive no
remuneration for such referral. Moreover, the Company will not require or
encourage physicians to refer patients to entities in which they have a
financial relationship.
Under the Medicare and Medicaid Fraud and Abuse Law, also known as the
Anti-kickback Statute, a physician is prohibited from: (A) soliciting or
receiving any remuneration in return for referring a patient to another health
care provider, and (B) offering or paying any remuneration to induce the
referral of patients to the physician.
In addition, two related federal laws, Omnibus Budget Reconciliation Act of
1990, Pub. L. No. 101-508, Title IV, Section 4207(e)(1)-(3), (k)(2) and Omnibus
Budget Reconciliation Act of 1993, Pub. L. No. 103-66, Title XIII,
SectionSection13562 and 13624, known respectively as Stark I and Stark II,
prohibit a physician from referring patients to an entity in which the
physician, or an immediate family member, has a financial relationship, for the
provision of certain designated health services. Stark I only applies to
clinical laboratory services. Stark II prohibits self-referrals to certain
additional "designated health services"; physical therapy; occupational therapy;
radiology; radiation therapy; durable medical equipment; parenteral and enteral
nutrients, equipment and supplies; prosthetics, orthotics and prosthetic
devices; home health services; inpatient prescription drugs; and inpatient and
outpatient hospital services. The Stark laws apply only to the referral of
patients who are covered under Medicare, Medicaid and/or other federal programs
and grants.
The Company may, in the future, contract with federal programs, including
Medicare and/or Medicaid, to provide services to eligible patients. However, as
indicated above, the Company will neither require nor encourage physicians to
refer patients to an entity in which the physician (or his or her immediate
family) holds a financial interest. Furthermore, the Stark laws contain a
specific statutory exception for HMOs which meet federal requirements. Finally,
with respect to the anti-kickback statute, the federal government has
promulgated so-called "safe harbor" regulations, which insulate from liability
26
<PAGE>
individuals who comply with the regulatory requirements. Included in these
regulations is a safe harbor for HMOs under contract with federal or state
agencies, and which operate in accordance with applicable laws and regulations.
Should the Company enter into such contracts, thereby bringing it within the
purview of federal law, the Company will be required to comply with this safe
harbor and the statutory exception to the Stark laws. Notwithstanding, the
Company's belief is that neither the Company nor its physicians will be in
violation of either federal or Connecticut law as a result of the operation of
or participation in the Company's HMO.
BENEFITS PROVIDED TO ENROLLEES
The Company is committed to offering high quality health care at a
competitive price in the Connecticut market. The Company recognizes the crucial
relationship between the physician and patient in the delivery of health care
services. By allowing physicians to exercise their professional judgment in
concert with patients, the Company hopes to reduce administrative and
transactional costs, resulting in higher patient satisfaction and better
management of medical costs.
The Company intends to develop benefit plans for small businesses and
individuals that meet the requirements set forth in Connecticut law for standard
benefit plans for their respective markets. Based upon a review of the HMO plans
offered in this market, the Company believes that the benefit plan the Company
intends to offer to large employers will be competitive with other plans in the
marketplace and will be customized to the needs of particular large employers.
The following are examples of the services the Company proposes to cover
under its HMO plans:
- physician office visits
- specialist visits
- hospital room and board, drugs, and inpatient ancillary services
- psychiatric inpatient and outpatient services
- diagnostic and therapeutic ambulatory services
- drug and alcohol addiction services
- emergency care
- home health care
- skilled nursing services
- therapy services
The health care services listed above will be covered only if they are
deemed to be medically necessary under the circumstances and only if Enrollees
abide by various conditions of coverage (I.E., pre-certification, referral
authorization). These benefits are subject to certain limits as set forth in the
benefit plans.
MARKETING
Although competition in the managed care industry is intense, the Company's
management believes an opportunity exists for new HMOs to manage risk
effectively, while eliminating barriers or impediments to access that Enrollees
customarily encounter in existing HMO plans. The Company hopes to build a
sufficiently large network and to manage risk aggressively through localized
efforts of physicians to manage care. Upon and subject to the Company's approval
as a Competitive Medical Plan, it will also aggressively pursue the Medicare
market.
The Company's marketing strategy is three-tiered. The first tier involves
direct sales. The Company intends to sell its products directly to small to
medium sized employer groups using Company personnel.
27
<PAGE>
The second tier employs brokerage firms. The use of the broker is effective for
the Company's target market. Typical fees for this service range from four
percent (4%) to five percent (5%) of the premium dollar. The Company will
provide the brokers with sales incentives such as commissions or other benefits.
The third tier of the Company's marketing campaign is general advertising
through various media. In all marketing efforts, the Company will seek the
assistance of its Participating Physicians in effectively marketing the
Company's products.
PHYSICIAN AND OTHER PROVIDER ARRANGEMENTS
PHYSICIANS
The Company emphasizes physician autonomy over clinical decisions with a
minimal level of Company interference. It will provide physicians with
physician-defined quality and cost of service data and performance feedback, and
will use a non-exclusive arrangement whereby providers may contract with other
HMOs for the delivery of services.
The Company will provide various support services to the providers and will
set performance standards. Participating physicians will be expected to abide by
these standards and meet reporting requirements which permit the Company to
collect high quality data on a timely basis. The Company anticipates supporting
the development of state-of-the-art information systems that permit the Company
to share data with practitioners to improve clinical decisions and to collect
information to assure that physicians are accountable for the quality, efficacy
and cost of care they provide. The Company intends to focus heavily on
continuous educational interaction with participating providers to encourage
best medical practices. The Company's goal is to have 2,000--3,000 plus
participating physicians in the MedServ IPA. As of December 31, 1996,
approximately 1,700 physicians had already agreed to participate in MedServ IPA.
The selection and credentialing of network physicians is the foundation on
which the Company's Quality Management Program ("QMC") is built. The QMC
delegates authority for credentialing and recredentialing to the MedServ IPA's
Credentialing/Recredentialing Committee with oversight by the Company's Board of
Directors. All physicians participating with the Company will be subject to a
careful review of their qualifications, including education and training,
licensure status, board certification, hospital privileges, and malpractice
history, in accordance with Credentialing requirements which are consistent with
National Committee on Quality Assurance standards. All physicians undergoing
initial credentialing and recredentialing will be reviewed and approved by the
MedServ IPA's Credentialing Committee and approved by the Company's Board of
Directors. Recredentialing is performed on a biannual basis and in addition to
the information obtained during initial credentialing, the recredentialing
process also includes review of data from: (1) Enrollee complaints, (2) results
of quality reviews, (3) utilization reviews and (4) Enrollee satisfaction
surveys.
PHYSICIAN PARTICIPATION AGREEMENTS
In addition to specifying the types of services required, MedServ IPA will
develop a Participation Agreement which will impose various requirements and
standards (many of which are also mandated by applicable federal and state law)
on participating physicians, including:
1. Providing, or arranging for the provision of, health care services to
Enrollees in accordance with the physician's licensure and training, and
consistent with accepted standards of practice. In particular:
a. Maintaining regular office hours and ensuring after-hours and
emergency coverage for Enrollees on a seven (7) days per week, twenty-four
(24) hours per day basis.
b. Avoiding discrimination in the treatment of patients or in the
quality of services delivered to Enrollees.
28
<PAGE>
c. Maintaining an unrestricted medical license and maintaining
unrestricted, active privileges in good standing at a minimum of one acute
care hospital under contract with the Company.
d. Following state and federal laws and the policies and procedures
established and adopted by the Company.
e. Operating office sites in compliance with quality assurance
requirements of the Company.
f. Agreeing that all duties performed hereunder shall be consistent
with the proper practice of medicine, and that such duties will be performed
in accordance with the customary rules of ethics and conduct promulgated by
recognized governing bodies.
2. Maintaining a medical record for each Enrollee and furnishing such
records as may be required by state and federal law, rules, regulations or by
the Company's Utilization Management and Quality Management Programs. In
addition:
a. Agreeing that medical records of Enrollees shall be maintained on a
confidential basis.
b. Providing the Company, or its designee, with reasonable access to
the physician's practice site to examine medical records of Enrollees.
3. Participating in and complying with the Utilization Management and
Quality Management Programs, policies and procedures established by the Company.
4. Limiting referrals to physicians, hospitals and ancillary health care
consultants who are participating in the Company's health care delivery network,
except where the Enrollee has freedom of choice of provider under the applicable
plan.
OTHER HEALTHCARE PROVIDERS
The Company hopes to establish relationships with acute care facilities both
in Connecticut and in nearby states. The Company intends to deliver necessary
preventive, diagnostic, and therapeutic treatment, and rehabilitation health
care services, to its Enrollees, in part, by contracting with qualified
non-physician providers, and networks of such providers, who meet the
participation criteria of the Company. It is expected that these contracts will
provide that the participating hospitals and other providers will accept
Enrollees as patients, provide to those Enrollees all medically necessary
services that are ordered or supervised by a participating physician in
accordance with Company requirements, and bill the Company according to the
parameters set forth in their participation agreement with the Company. The
services provided by hospitals and other providers will be reviewed by the
Quality Management and/or Utilization Management Committees established by the
Company to help ensure that the services meet quality standards and are
medically necessary.
QUALITY MANAGEMENT PROGRAM
The Company's success depends in large measure on its ability to provide
quality health care services, while at the same time, avoiding inappropriate
utilization of services. The Company currently is in the process of developing a
Quality Management Program in conjunction with MedServ IPA for the continuous
improvement of the quality of health care services delivered.
The Company intends that its Quality Management Program will contain various
components, including but not limited to the following:
A. Adverse Event Review
B. Sentinel Diagnosis Review
C. Ambulatory Medical Record Review
29
<PAGE>
D. Quality Measurement Studies
E. Complaints and Grievance Review
F. Credentialing/recredentialing
G. Risk Management
H. Enrollee Satisfaction Surveys
I. Provider Satisfaction Surveys
In addition, the Company intends to conduct annual evaluations of the
Quality Management Program in order to assess overall effectiveness and to
generate an annual work plan which will outline program goals and objectives
and planned projects and activities for the forthcoming year.
UTILIZATION MANAGEMENT PROGRAM
The Company's future profitability will depend in large part on its ability
to manage health care costs through utilization management and negotiation of
favorable provider contracts. A Utilization Management Program ("UMP") will be
designed to monitor, evaluate and positively influence the provision and cost of
medical care and services accessed through the Company and/or its affiliates.
On-site reviews will be performed by staff experienced in utilization review
activities.
The Company's objective is to utilize efficiently available health care
resources in order to ensure and provide for medical appropriateness of care as
well as to monitor the quality of medical services accessed through the health
plan and/or its affiliates. The UMP is currently being developed by the Company
in conjunction with Medserv IPA. Its essential components are expected to
include:
A. Inpatient Review
B. Patient Education Programs
C. Outpatient Review
D. Case Management
E. Outcomes Analysis
MANAGEMENT INFORMATION SYSTEMS ("MIS")
The Company has not yet developed a comprehensive management information
system or data management system, because it does not yet have adequate capital
to do so. The Company has begun soliciting information from various
comprehensive management information systems vendors. A Request for Proposal has
been sent out to selected vendors. Final selection could be completed during the
spring of 1997, with full implementation approximately six (6) to twelve (12)
months thereafter.
The Company may use subcontractors to provide claims processing and Enrollee
eligibility information system support. When developed, the Company's management
information system and data system will be critical to the Company's operations,
especially with respect to the long term profitability. A failure by the Company
to develop adequate management information systems may have a material adverse
effect on the financial condition of the Company.
INSURANCE/RISK MANAGEMENT
In order to enhance the quality of care for the Enrollees, the Company
intends to have a risk management program.
30
<PAGE>
The Company's objectives of risk management are two-fold: (1) to reduce the
incidence and expense of medical malpractice claims and tort litigation against
participating providers, and (2) to address and prevent conditions that could
result in adverse publicity or legal claims against the Company. A Company Risk
Manager would be responsible for evaluation and coordination of risk management
activities. All concerns will be investigated. Data will be collected, reviewed,
and analyzed for trends and opportunities for improvement. These data will be
presented to the Medical Standards/Utilization Management Committee (the "QMC")
for review and recommendations. The QMC will also review the data for trends and
opportunities for improvement.
LEGAL MATTERS
There is no pending or threatened legal or administrative proceeding or
arbitration to which the Company is currently a party, other than those
described in this Prospectus relating to the licensing of the Company to do
business as an HMO.
FACILITIES
Since the Company intends to be an IPA Model HMO, it is contemplated that
care will be delivered solely by participating providers, which are legal
entities independent of the Company. The Company's headquarters will be located
in Cheshire, Connecticut in the same facility as MedServ. The Company occupies
6,000 square feet of this facility and pays a monthly rent of approximately
$7,500.
31
<PAGE>
MANAGEMENT
Company policies and strategies will be developed by a Board of Directors
with the assistance of management. Day to day management of the Company will be
conducted by the officers of the Company and MedServ of Connecticut, Inc.
pursuant to the Management Agreement subject to the oversight of the Board of
Directors. The following describes the directors and those individuals who will
provide management services on behalf of the Company.
The Company will have a Board of not less than seventeen nor more than
twenty-one directors. Eleven directors are appointed by the Class C Common
stockholder MedServ. Upon consummation of the offering: (i) six directors will
be elected by the Class A Common stockholders and must be physicians who are not
members of the Hartford or New Haven County Medical Associations and (ii) up to
four (4) directors shall be appointed by the other directors.
At present, the Company has eleven (11) directors appointed by MedServ. The
Board will be expanded to not less than seventeen (17) directors within six (6)
months after completion of the Offering.
<TABLE>
<CAPTION>
NAME OF DIRECTOR OR OFFICER AGE TITLE
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Craig W. Czarsty, M.D................................ 43 Chairman of the Board of Directors and President
Joseph R. Coffey..................................... 53 Acting Chief Executive Officer, Executive Vice
President and Director
F.J. Montegut, M.D................................... 58 Secretary and Director
John B. Franklin, M.D................................ 59 Treasurer and Director
Richard Fiorentino................................... 49 Associate Executive Vice President and Acting
Associate Chief Executive Officer
Margaret Camarco..................................... 40 Vice President, Health Services
Edward J. Berns, Esq................................. 47 Vice President and General Counsel
John Aversa, M.D..................................... 54 Director
Joseph Balsamo, M.D.................................. 38 Director
Neil H. Brooks, M.D.................................. 54 Director
Ellen R. Fischbein, M.D.............................. 51 Director
David F. Mintell, M.D................................ 58 Director
N. Chandra Narayanan, M.D............................ 55 Director
John W. Rodgers, M.D................................. 48 Vice Chairman of the Board of Directors
Earle J. Sittambalam, M.D............................ 53 Director
</TABLE>
C. KEY MANAGEMENT STAFF
MedServ will provide day-to-day management of the Company pursuant to the
terms of the Management Agreement and subject to the supervision of the Board of
Directors. MedServ management includes the following individuals, who will hold
the specified positions at the Company:
32
<PAGE>
JOSEPH R. COFFEY, EXECUTIVE VICE PRESIDENT AND ACTING CHIEF EXECUTIVE OFFICER
Mr. Coffey is the Executive Vice President/CEO of the Hartford County
Medical Association, Inc., New Haven County Medical Association, Inc., and
MedServ of Connecticut, Inc. He has been active in association and health agency
management since 1968. In 1984, he joined the Hartford County Medical
Association as Executive Vice President/CEO. In 1985 he was instrumental in
establishing Medical Delivery Systems, Inc. and ProCare IPA, Inc. to help
physicians interface with commercial managed care entities. He has extensive
background in managing organizations dedicated to the delivery of quality based,
cost effective health care to the people of Connecticut.
Mr. Coffey earned a B.A. Degree from Siena College and has pursued graduate
study in Business Administration and Psychology at the State University of New
York. He has served as a Board member and President of the Connecticut Society
of Fund Raising Executives, The Connecticut Society of Association Executives,
and The South Park Inn, a shelter for the homeless. Mr. Coffey is a member of
the American Society of Association Executives, the Connecticut Society of
Association Executives, The American Association of Medical Society Executives,
the Medical Group Management Association, and the American Medical Care & Review
Association.
In 1994, Mr. Coffey received the Association Executive of the Year Award
from the Connecticut Society of Association Executives.
Mr. Coffey will serve as the Acting Executive Vice President and Chief
Executive Officer of the Company until a chief executive officer with experience
in the health maintenance organization industry has been recruited. As Acting
Chief Executive Officer ("CEO") of the Company, Mr. Coffey shall devote
approximately eighty percent (80%) of a full time equivalent to the Company and
shall be responsible to the Company's Board of Directors for the overall
administration, growth and performance of the Company. Through its Management
Agreement with MedServ, the Company will pay Mr. Coffey approximately $142,000 a
year with a bonus up to twenty five percent (25%) of his salary based upon
satisfying certain performance criteria.
RICHARD FIORENTINO, ASSOCIATE EXECUTIVE VICE PRESIDENT AND ACTING ASSOCIATE
CHIEF EXECUTIVE OFFICER
Mr. Fiorentino is the Associate Executive Vice President of the Hartford
County Medical Association and the Chief Operating Officer of Medical Delivery
Systems, Inc. and MedServ IPA, Inc. (formerly ProCare IPA, Inc.). He has been
active in association and health agency management since 1974 having served the
Fairfield County Medical Association and the Connecticut State Medical Society
before his employment by Hartford County Medical Association in 1985. Since that
time, Mr. Fiorentino has been at the forefront in the establishment of a 2300
plus member physician network for ProCare IPA, Inc.
Mr. Fiorentino has more than ten (10) years of experience in the managed
care field representing the interests of physicians in their interactions with
commercial managed care entities. As Chief Operating Officer of MedServ IPA,
Inc., he has been responsible for management oversight in such areas as
physician recruitment and credentialing, Quality Management/Utilization Review
programs, and management information systems.
Mr. Fiorentino earned his B.A. Degree from St. Anselm's College in 1969 and
his M.A. in Public Administration from the University of New Haven in 1977. He
is a member of the American Society of Association Executives, the Connecticut
Society of Association Executives, the American Association of Medical Society
Executives, the Medical Group Management Association, and the American Medical
Care & Review Association. In 1993 Mr. Fiorentino was awarded a Certificate of
Recognition from the American Board of Quality Assurance and Utilization Review
Physicians, Inc.
As Associate Chief Executive Officer of the Company, Mr. Fiorentino shall
devote approximately eighty percent (80%) of a full time equivalent to the
Company and assist the CEO in the discharge of his duties by consulting with the
CEO on policies, performance goals, facilities planning and general
33
<PAGE>
operations of the Company. Through its Management Agreement with MedServ, the
Company will pay Mr. Fiorentino approximately $104,000 a year with a bonus
equaling twenty five percent (25%) of his salary based upon satisfying certain
performance criteria.
MARGARET A. CAMARCO, L.P.N., VICE PRESIDENT, HEALTH SERVICES
Mrs. Camarco received her L.P.N. degree from the A. I. Prince Technical
School Licensed Practical Nurse Program affiliated with Hartford Hospital in
1982, and was recognized for her achievements with the Excellence In Nursing
Award on completion of the Program. She served as staff nurse on the Trauma Unit
at Hartford Hospital from 1982 to 1985, and as an Occupational Health Nurse for
Immediate Medical Care Centers, Inc. from 1985 to 1987.
Mrs. Camarco entered the managed care arena in 1987 serving as Coordinator
of Quality Assurance and Utilization Review for an IPA by providing assistance
in the development and administration of its Quality/Utilization Management
Program. In 1989, Mrs. Camarco earned National Certification and Diplomate
status in Quality Assurance and Utilization Review through the American Board of
Quality Assurance and Utilization Review Physician (ABQAURP). In 1995, Mrs.
Camarco obtained her certification in Outcomes Management from the New England
HealthCare Assembly (NEHA).
Mrs. Camarco serves in the capacity of Assistant Executive Vice President of
the QM/UR Programs of MedServ and has been instrumental in the establishment,
implementation, and ongoing administration of the Quality Management/Utilization
Review Procedures of MedServ IPA, Inc. and Medical Delivery Systems, Inc., under
their service arrangements with MedServ of Connecticut, Inc. and the Hartford
and New Haven County Medical Associations. The QM Program consists of an
ongoing, systematic evaluation and monitoring process that facilitates
continuous quality improvement. Mrs. Camarco is a member of the American
Association of Medical Executives, the American Board of Quality Assurance and
Utilization Review Physicians, the National Association for HealthCare Quality,
the New England HealthCare Assembly, the Connecticut Medical Group Management
Association, and the Connecticut Society of Association Executives.
As Vice President, Health Services for the Company, Ms. Camarco shall devote
approximately one hundred percent (100%) of time to the Company and will be
responsible for monitoring quantitative inpatient hospitalization and outpatient
ambulatory care experience and assuring that proper utilization management
techniques are being used. Ms. Camarco shall also be responsible for the
management of statistical and qualitative information concerning patient
outcomes and physician/hospital practice patterns in accordance with the
Company's utilization standards. Through its Management Agreement with MedServ,
the Company will pay Ms. Camarco approximately $81,000 a year with a bonus up to
25% of her salary based upon satisfying certain performance criteria.
EDWARD J. BERNS, ESQUIRE, VICE-PRESIDENT AND GENERAL COUNSEL
Mr. Berns is the General Counsel of the Hartford County Medical Association,
Inc., the New Haven County Medical Association, Inc., and MedServ of
Connecticut, Inc. He has practiced law exclusively within the medical
environment since 1987 with a concentration in the field of managed care. A
graduate of the University of Connecticut (B.A., 1971), he earned his Juris
Doctor degree from New England School of Law in 1974 where he was on the Law
Review. Prior to assuming his current positions he was engaged in the private
practice of law from 1975 to 1987 in the New Haven, Connecticut area.
Mr. Berns was admitted to the Bar of the State of Connecticut in 1974 and
the United States District Court for the District of Connecticut in 1975. He has
served on the adjunct faculty of the University of New Haven, Quinnipiac
College, and Southern Connecticut State University. Mr. Berns holds the
appointment of Magistrate from the State of Connecticut Judicial Department. Mr.
Berns is a member of the Connecticut Bar Association, the Connecticut
Magistrate's Association, the National Health Lawyers
34
<PAGE>
Association, the American Society of Medical Association Counsel, and the
Connecticut Society of Association Executives.
In his capacity as Vice-President and General Counsel, Mr. Berns shall
devote approximately eighty percent (80%) of a full time equivalent to the
Company and shall concentrate on legal matters concerning procedures, entities,
regulations, and laws relating to the practice and business of medicine. He
shall also provide general legal services required of corporate counsel on such
matters as review, negotiation, and drafting of contractual obligations, and
addressing members' communications and questions. Through its Management
Agreement with MedServ, the Company will pay Mr. Berns approximately $83,200 a
year with a bonus up to twenty five percent (25%) of his salary based upon
satisfying certain performance criteria.
JOHN AVERSA, M.D. has practiced medicine for the past 27 years specializing
in orthopaedics. Dr. Aversa received his M.D. from SUNY Downstate in 1967.
JOSEPH BALSAMO, M.D. has practiced medicine for the past 8 years
specializing in Internal Medicine. Dr. Balsamo received his M.D. from
Universidad del Noreste in 1985.
NEIL H. BROOKS, M.D. has practiced medicine for the past 26 years
specializing in Family Practice. Dr. Brooks received his M.D. from Hahnemann
University in 1968.
CRAIG W. CZARSTY, M.D. has practiced medicine for the past 14 years
specializing in Family Practice. Dr. Czarsty received his M.D. from Georgetown
University in 1980.
ELLEN R. FISCHBEIN, M.D. has practiced psychiatry for the past 19 years. Dr.
Fischbein received her M.D. from the State University of New York at Buffalo in
1970.
JOHN B. FRANKLIN, M.D. has practiced medicine for the past 29 years
specializing in opthalmology. In addition to his duties as a Director and
Treasurer, Dr. Franklin is the Company's acting Chief Financial Officer and will
hold such office until the Company hires a permanent Chief Financial Officer.
Dr. Franklin received his M.D. from New Jersey College of Medicine in 1961.
DAVID F. MINTELL, M.D. has practiced medicine for the past 29 years
specializing in Internal Medicine. Dr. Mintell received his M.D. from Thomas
Jefferson University in 1964.
F.J. MONTEGUT, M.D. has practiced medicine for the past 27 years
specializing in Thoracic Surgery. Dr. Montegut received his M.D. from Mcharry
Medical College in 1958.
N. CHANDRA NARAYANAN, M.D. has practiced medicine for the past 22 years
specializing in Surgical Oncology. Dr. Narayanan received his M.D. from Calcutta
National Medical College and Hospital in 1964.
JOHN W. RODGERS, M.D. has practiced medicine for the past 18 years
specializing in Pulmonary Diseases. Dr. Rodgers received his M.D. from the
University of Connecticut in 1974.
EARLE J. SITTAMBALAM, M.D. has practiced medicine for the past 22 years
specializing in Internal Medicine. Dr. Sittambalam received his M.D. from the
University of Ceylon in 1969.
The Company intends to hire a permanent Chief Financial Officer, Chief
Operating Officer, and Vice President of Medical Affairs, Management Information
Systems and Marketing and Sales with significant HMO experience, or to engage
the services of such persons under the terms of the Management Agreement with
MedServe. The Company will pay such compensation as the Board of Directors deems
appropriate to attract and retain qualified individuals for these positions.
As a startup in a competitive market, the Company may hire an HMO management
consulting company to provide oversight during its first year(s) of operation.
In addition to general management functions, this management company may be
charged with the recruitment and training of the permanent staff of the Company.
35
<PAGE>
EXECUTIVE COMPENSATION
The following chart provides a summary of the compensation received by the
Company's Chief Executive Officer from the Company's inception through December
31, 1996. The Company did not pay compensation in excess of $100,000 to any
officer or other employee.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ----------------------------------------------------------------------- ------------ ------------ -------------
<S> <C> <C> <C>
Joseph E. Coffey,......................................................
Exective Vice President and Acting Chief Executive Officer
</TABLE>
Other than the salaries and bonuses set forth above, the Company did not pay
MedServ any other compensation to management personnel. Management shall not be
entitled to any stock options or stock incentive programs.
PRINCIPAL SECURITY HOLDERS
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------------------ ------------------------------------ ----------------------- -----------------
<S> <C> <C> <C>
Class A Common...................... N/A N/A N/A
Class B Common...................... N/A N/A N/A
Class C Common...................... MedServ of Connecticut, Inc. 100%
</TABLE>
MedServ owns all of the outstanding Class C Common Stock of the Company.
Prior to this Offering, there is no outstanding Class A Common Stock or Class B
Common Stock of the Company.
36
<PAGE>
CONFLICTS OF INTEREST
Some of the stockholders and directors of the Company are or will be and
will continue to be physicians who have entered into a Physician Participation
Agreement with MedServ IPA. The interests of the physicians, as providers to the
Company through MedServ IPA, may differ from the interests of the physicians, as
stockholders and/or directors of the Company. As providers, physicians may have
an interest in maximizing the amount of reimbursement from the Company for
services provided by them to the Enrollees. On the other hand, as stockholders
and/or directors of the Company, physicians may benefit from the containment of
the cost of providing services through appreciation in share values or increased
compensation. The Company's ability effectively to operate its business will
depend in part upon its resolving this conflict in a way that enables the
Company to offer its products at competitive rates. See "Business" and "Risk
Factors--Method of Reimbursement for Physician Services."
The Company intends to solicit employers and individuals throughout
Connecticut, including physicians who are Stockholders and directors of the
Company, to become Enrollees of the HMO. Physicians, as employers and/or
Enrollees, may be interested in minimizing the Company's premiums (and other
financial aspects of the Company), as well as maximizing the breadth of services
provided by the Company. On the other hand, physicians, as Stockholders and/or
directors of the Company, may be interested in maximizing premiums of Enrollees,
and minimizing the breadth of services covered by the Company. Although the
Board of Directors recognizes this potential conflict of interest, its current
intention is to operate the Company in a manner that maintains market
competitive premiums and benefit designs.
Further, the Company's stockholders may own Stock and/or participate in
competing organizations. The Company's stockholders may also have an interest in
freestanding facilities or institutions with which the Company has contracted.
MedServ of Connecticut, Inc., as the sole stockholder of the Class C Common
Stock, has the right to designate greater than a majority of the Board of
Directors. The Company expects to maintain a Network Agreement with MedServ IPA
which the Company's Board of Directors believes will be on terms no less
favorable than could be obtained from a disaffiliated service provider.
RELATED PARTY TRANSACTIONS
The Company will maintain a Network Agreement with MedServ IPA. The Company
will maintain a Management Services Agreement with MedServ of Connecticut Inc.
for management of the HMO. In addition, hospitals and other purchasers which
invest in the Company may have service arrangements with the Company which may
make their interests inconsistent with the interests of the Company as its
stockholders.
Mr. Coffey, Ms. Camarco, Mr. Berns and Mr. Fiorentino are each employed by
Medserv of Connecticut, which in the year ended December 31, 1996 paid them
$154,420, $59,150, $80,172 and $92,652 respectively.
37
<PAGE>
TERMS OF OFFERING
THE OFFERING
The Company is offering two classes of Stock, Class A Common Stock and Class
B Common Stock, until all the Stock offered hereby is sold, for a period of up
to one hundred and eighty (180) days after the date of this Prospectus, with one
sixty (60) day extension subject to the discretion of the Board of Directors
(the "Offering Period"). Class A Common Stock will be sold to both individual
physicians and medical groups at a price of $4,000 per share, subject to a
"prompt subscription" price of $3,000 per share for physicians who execute and
deliver to the Subscription Agent a Subscription Agreement to purchase shares
within ninety (90) days of the commencement of the Offering. Every physician
seeking to provide medical services to Enrollees must agree to purchase one
share of Class A Common Stock. No physician may hold more than one share of
Class A Common Stock. In addition to purchasing one share of Class A Common
Stock, each Specialist Physician seeking to provide medical services to
Enrollees must agree to purchase not less than one share of Class B Common
Stock.
Class B Common Stock will be sold at a price of $4,000 per share to
physicians and hospitals that have been approved by the Company, in its
discretion, subject to a prompt subscription price of $3,000 per share for
physicians and hospitals which execute and deliver to the Subscription Agent a
Subscription Agreement to purchase shares within ninety (90) days of the
commencement of the Offering. Although the Company does not anticipate limiting
the number of shares of Class B Common Stock any purchaser may purchase, a
maximum of 3,000 shares of Class B Common Stock may be sold pursuant to this
Offering, and, in response to an over-subscription, the Company may limit the
number of shares of Class B Common Stock a particular investor may purchase.
Licensed hospitals may purchase Class B Common Stock subject to a 62.50
share minimum purchase (i.e., a $250,000 investment); provided, however, that a
hospital which is licensed to operate fewer than 100 beds is subject to a twenty
five (25) share minimum purchase (i.e., a $100,000 investment).
Professional corporations, corporations, limited liability corporations,
business trusts, trusts, independent practice associations ("IPAs"), physician
hospital organizations ("PHOs"), and partnerships that are majority-owned and
controlled, directly or indirectly, by physicians who provide medical services
on behalf of the entity (each referred to as a "Group") are eligible to purchase
shares of Class A Common Stock and are eligible for the prompt subscription
price for Class A Common Stock and Class B Common Stock if and only if (i)
physicians practicing in the Group ("Group Physicians") meet the qualifications
of individual physician investors; (ii) the number of shares of Class A Common
Stock purchased equals the number of Group Physicians in any particular
purchasing Group, and the number of shares of Class B Common Stock purchased
shall at least equal the number of Specialist Physicians practicing in any
particular purchasing Group; and (iii) each Group Physician in a purchasing
Group executes a Participation Agreement. However, with regard to any
organization purchasing on behalf of physicians affiliated therewith who hold
full time geographic academic appointments, the number of shares to be purchased
shall be calculated based on full time equivalent physician time devoted to
clinical care based on Medicare reports completed for the most recent fiscal
year of the affiliated hospital, and if a hospital is a shareholder of such
Group, Class B Common Stock must be purchased in such amount required for a
hospital purchasing individually. No Group may purchase more than the number of
shares of Class A Common Stock than could be purchased by Group Physicians if
purchasing individually.
The Offering is subject to receipt of Subscription Agreements prior to the
expiration of the Offering Period committing to purchases by physicians of not
less than $8 million dollars of Class A Common Stock and Class B Common Stock.
Within five business days after the achievement of the $8 million dollar
threshold, there shall be an Initial Closing. The Company shall conduct
subsequent Closings upon receipt of incremental subscriptions equalling
$500,000, with a final Closing to occur 180 days following the date of this
Prospectus subject to a 90 day extension at the discretion of the Board of
Directors. In the event the $8
38
<PAGE>
million threshold is not satisfied, the purchase price of both the Class A and B
Shares shall be refunded, minus $450 per share, which shall be retained by the
Company in order to offset the costs associated with the Offering. See "Risk
Factors".
The primary purposes of the Offering are, and the proceeds therefrom shall
be used: (1) to retire outstanding debt of the Company; (2) to raise working
capital; (3) to expand the number of the Company's stockholders throughout
Connecticut for purposes of providing medical services to Enrollees of the
Company's proposed HMO or other product offerings; and (4) to allow physicians
practicing in Connecticut who reside out of state to become stockholders,
ELIGIBILITY REQUIREMENTS TO PURCHASE STOCK
The Stock offered hereby may be purchased only by Eligible Purchasers, which
includes only persons meeting each of the following requirements:
- CLASS A COMMON STOCKHOLDERS:
FOR INDIVIDUAL PHYSICIANS:
(i) Must be a physician licensed in the state in which the physician
practices.
(ii) Must maintain membership in County and State Medical Associations, in
each case if available, unless such requirement is waived by the Company's Board
of Directors in its sole discretion.
(iii) Must maintain a Participation Agreement with MedServ IPA in effect.
(iv) Must have a Primary Care Physician Attachment or a Specialist Physician
Attachment to the Participation Agreement with MedServ IPA in effect.
(v) Specialist Physicians must also purchase Class B Common Stock.
DUE TO LEGAL AND OTHER RESTRICTIONS, THE COMPANY AND ITS AGENTS WILL NOT
ACCEPT FUNDS DRAWN ON INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"), KEOUGH ACCOUNTS,
MUTUAL FUND ACCOUNTS, CASH MANAGEMENT ACCOUNTS OR OTHER TYPES OF RETIREMENT OR
INVESTMENT ACCOUNTS.
FOR GROUPS:
Groups may acquire shares for such number of Group Physicians who
individually satisfy the qualifications of a Class A Common Stockholder.
- CLASS B COMMON STOCKHOLDERS: At the discretion of the Board of Directors,
physicians groups, hospitals and/or other investors may be issued Class B
Common Stock of the Company. Every Specialist Physician seeking to provide
medical services to the Company's Enrollees must agree to purchase not
less than one share of Class B Common Stock. Licensed hospitals that seek
to purchase Class B Common Stock are required to purchase not less than
62.50 shares (I.E., a $250,000 investment); provided, however, that if a
hospital has less than 100 licensed beds, then such an investor is
required to purchase not less than twenty five (25) shares (I.E, a
$100,000 investment).
See "Terms of Offering--Eligibility Requirements to Purchase Stock."
OFFERING PERIOD
The Offering will remain open for one hundred and eighty (180) days after
the commencement of the Offering Period, subject to a 90 day extension at the
discretion of the Board of Directors.
39
<PAGE>
FINANCING--GENERALLY
The Company has made arrangements with Fleet National Bank that it will make
financing available to all physicians desiring to finance the purchase price of
their Stock; provided however, THIS FINANCING IS SUBJECT TO THE BANK'S SOLE
DETERMINATION OF THE CREDIT-WORTHINESS OF EACH PURCHASER AND ACCEPTANCE OF OTHER
LOAN TERMS AND CONDITIONS. THE COMPANY MAKES NO REPRESENTATION OR GIVES ANY
ASSURANCE THAT A PURCHASER WILL BE ACCEPTABLE TO THE BANK OR THAT FINANCING CAN
BE MADE AVAILABLE TO ANY OR ALL PURCHASERS. THE BANK HAS NOT ISSUED A BINDING
COMMITMENT REGARDING SUCH FINANCING.
The financing, including amounts which may be retained by the Company in the
event the Offering is undersubscribed, will be a direct loan to the subscriber
and it will be the sole, full recourse obligation of the subscriber to the Bank
and must be paid by the subscriber regardless of the success of the Company. The
Company will be under no obligation to make any payments on account of the
financing.
A description of the terms of the financing, as well as an application for
the financing, are included in materials provided with this Prospectus. A
purchaser desiring to apply for such financing must complete the application and
return it along with the other required documents to the Company or its agent.
The Company or its agent will then forward such applications to the Bank.
40
<PAGE>
DESCRIPTION OF SECURITIES
STOCK BEING OFFERED; RIGHTS OF STOCKHOLDERS
The Company's authorized capital Stock consists of 10,000 shares of Class A
Common Stock without par value, and 10,000 shares of Class B Common Stock
without par value and 100 shares of Class C Common Stock without par value.
Currently, no shares of Class A Common Stock or Class B Common Stock are issued
and outstanding. In this Offering, a maximum of 3,000 shares of Class A Common
Stock and 3,000 shares of Class B Common Stock are being offered for sale.
Class A and Class B Common Stockholders are entitled to one vote per share
on all matters presented to the Stockholders for vote or consent, except that
Class B Common Stockholders will not be entitled to elect representatives to the
Board of Directors. There is no cumulative voting for the election of directors,
nor do any stockholders have preemptive rights. Dividend rights will be
available to Stockholders of both Classes A and B Common Stock when, as and if
declared by the Company's Board of Directors, at the Board's discretion, out of
funds legally available therefor. Receipt of dividends by one Class of Stock
does not necessitate receipt by another. Upon liquidation, after the liabilities
of the Company have been discharged, Class B Common Stockholders will have a
liquidation preference equal to $1,500 per share of Class B Common Stock. After
the Class B Common Stockholders' liquidation preference is satisfied, all
Stockholders will share any remaining liquidating distributions PRO RATA.
The Company's Class C Common Stock, has the right to designate greater than
a majority of the Board of Directors of the Company. In addition, greater than
two-thirds of the MedServ directors must approve certain extraordinary corporate
actions such as: (i) a sale or liquidation of the Company; (ii) the appointment
of management personnel; (iii) a merger or consolidation involving the Company;
(iv) the incurrence of in excess of one million dollars of debt; (v) an
amendment to the Company's Certificate of Incorporation or Bylaws; and (vi) any
matter required by law to be submitted to the stockholders for a vote.
Accordingly, MedServ will be able to determine the outcome of all corporate
actions requiring approval by the Board of Directors or stockholders and to
control the business affairs of the Company.
The Company's Bylaws provide for a staggered Board of Directors, as well as
for various designations of Directors.
The first meeting of Stockholders subsequent to this Offering will not be
held until a reasonable amount of time following the conclusion of this
Offering. Further, only a majority of the Stockholders must be present (in
person or by proxy) to constitute a quorum at meetings of Stockholders.
ELIGIBILITY TO PURCHASE
The Company's shares can only be purchased by Eligible Purchasers. For a
more comprehensive description of the eligibility requirements to purchase
Stock, see "Terms of Offering--Eligibility Requirements to Purchase Stock."
TRANSFER RESTRICTIONS AND REDEMPTION PROVISIONS
The Company's Bylaws prohibit the transfer of Stock of either Class to any
others but Eligible Purchasers and provide for either mandatory or optional
redemption by the Company upon the occurrence of certain events. If at any time
a Stockholder receives a bona fide offer to transfer shares of Stock to an
Eligible Purchaser, the Stockholder must offer to the Company in writing (the
"Transfer Notice") a right of first opportunity to purchase such shares at an
amount equal to the bona fide offer (the "Bona Fide Redemption Price"). The
Company shall notify the Stockholder in writing (the "Election Notice") of its
election to purchase such shares within thirty (30) days of receipt of the
Transfer Notice (the "Election Period"). If the Company elects to purchase such
shares, it may, at its election, make payment of the Purchase Price in cash or
by delivery of a promissory note to the selling Stockholder in the principal
amount of the Bona Fide Redemption Price, such note to have a term of not
greater than two (2) years and
41
<PAGE>
providing equal quarterly payments of principal and accrued interest thereon,
with interest at the prime rate as reported in the "Money Rates" section of the
WALL STREET JOURNAL on the first day of the month preceding the notice of sale
or transfer. The transfer shall occur within sixty (60) days of the Election
Notice at the offices of the Company on the date and at the time set forth in
the Election Notice. The promissory note shall obligate the Company to pay the
selling Stockholder the principal amount due with interest thereon in equal
quarterly installments over the two year payment term. If the Company does not
elect to purchase such shares, the Stockholder may sell such shares to the
individual or entity identified in the Transfer Notice, for the Purchase Price
specified in the Transfer Notice; provided that the closing of such sale occurs
within sixty (60) days following the expiration of the Election Period. If a
Stockholder otherwise wishes to sell his or her Stock back to the Company, the
Company, in its sole discretion, may redeem such Stockholder's Stock (optional
redemption) for book value, or for such other amount and on such other terms
agreeable to the Company and the Stockholder.
At any time after the fifth anniversary of the issuance date of a Class A
Common Stockholder's or Class B Common Stockholders shares of Stock, the Company
agrees to redeem all shares of Stock (including Class A and Class B Common Stock
shares) of a Class A Common Stockholder wishing to sell or transfer his/her
shares upon the occurrence of one of the following events (termed an
"Involuntary Transfer"): the death or permanent disability of the Physician; or
the cessation of the Physician's provision of services in Connecticut (I.E.,
retirement or relocation); provided, however, that Physicians who acquire shares
of stock through this Offering and are 55 years of age or older on the date of
receipt of an executed Subscription Agreement shall be eligible to redeem their
Stock at any time after the third anniversary of the issuance date of such
Stock. The Company shall purchase such shares of Stock at the greater of the
then current net book value of such shares determined pursuant to Generally
Accepted Accounting Principles ("GAAP") as of the most recently completed fiscal
quarter of the Company, or the original issuance price (the "Involuntary
Redemption Price"). At the election of the Company, the Company may pay in cash
or by delivery of a promissory note to the selling Stockholder in the principal
amount of the Involuntary Redemption Price, such note to have a term of not
greater than five (5) years and to provide equal quarterly payments of principal
and accrued interest thereon, with interest at the prime rate as reported in the
"Money Rates" section of the WALL STREET JOURNAL on the first day of the month
preceding the notice of sale or transfer. Upon the occurrence of any of the
events giving rise to an Involuntary Transfer, a Stockholder (or his or her
personal representative) is obligated to notify the Company immediately. Book
value, for purposes of such redemption, shall be calculated based on the most
recent financial report required to be filed with the SEC in accordance with
GAAP prior to written notification by the Stockholder to the Company.
Upon failure by a Class A Common Stockholder to maintain the necessary
qualifications for status as an Eligible Purchaser, the Class A Common
Stockholder shall immediately surrender his/her Class A shares of Stock and the
Company will cancel such shares and issue an equal number of Class B shares to
such Stockholder. Any attempted transfer by a Class A Common Stockholder to a
party which does not meet the requirements for status as an Eligible Purchaser
shall be void and of no effect.
If a Stockholder otherwise wishes to sell his or her Stock back to the
Company, the Company, in its sole discretion, may redeem such Stockholder's
Stock (as an optional redemption) for book value, or on other terms agreeable to
the Company and the Stockholder.
Notwithstanding the previous discussion in this section, the Company shall
not redeem a Stockholder's Stock if the Company is insolvent or, by reason of
such redemption, is rendered insolvent, violates a regulatory capital reserve
requirement relating to the conduct of the business of insurance, or violates
any contract to which the Company is a party or if the redemption would
materially impair the ability of the Company to conduct its affairs as
determined by the Board of Directors in its reasonable judgment. The
determination made by the Board of Directors from time to time as to whether
redemption of shares would materially impair the ability of the Company to
conduct its affairs will depend upon a number of factors, including but not
limited to (i) the amount of net proceeds received from this Offering or
42
<PAGE>
subsequent financings; if any; (ii) the income from operations earned and
anticipated to be earned in connection with the Company's business in relation
to the Company's budget and capital requirements; (iii) the amount of prior
redemptions of Stock by the Company; and (iv) the amount needed to meet
statutory surplus requirements.
The Board of Directors of the Company may adopt annually by resolution a
limitation on the amount of funds available each fiscal year for the redemption
of shares, which resolution shall set forth the priority of payments to
Stockholders, and/or the proportionate amount of Stock to be redeemed from
Stockholders, in the event the aggregate Purchase Price of shares for which
redemption is otherwise required exceeds the limitation duly adopted.
Any Stockholder of the Company who is an officer or director of the Company
at the time of the occurrence of an event which gives rise to Involuntary
Transfer of his or her stock by the Company is deemed to have resigned from any
such position, as provided in the Bylaws.
LEGEND ON STOCK CERTIFICATES
The Company's Bylaws require that certificates for all shares of Stock bear
the following restrictive legend:
Notice is hereby given that the share of stock represented by this
certificate is subject to the provisions and restrictions on transfer and
redemption included in the Bylaws of the Company, a copy of which is on file
at the office of the Company, and that any transfer of the share of stock
represented by this certificate shall be void unless said transfer is in
compliance with said Bylaws.
TRANSFER AGENT
Fleet National Bank currently acts as transfer agent and registrar for
shares of the Company's Stock.
PLAN OF DISTRIBUTION
The Company intends to engage a licensed broker-dealer to sell on a best
efforts basis the shares of common stock for and on behalf of the Company during
the offering period. The Company will pay such broker-dealer a sales commission
on Shares sold in this Offering to be agreed upon by the parties. The Company
will also reimburse such broker-dealer for its expenses incurred in connection
with the Offering. The obligations of the parties are subject to receipt of
subscriptions of not less than $8 million of Class A and Class B Common Stock,
as soon as practicable after which, there shall be an Initial Closing pursuant
to which the Shares will be sold. Following the Initial Closing, Stock will
continue to be offered by the Company through its executive officers until all
sales registered hereby have been sold. Executive officers of the Company
selling such shares shall receive no commissions or other remuneration in
connection with the sale of such additional shares after an initial closing.
EXPERTS
The validity of the shares of Common Stock offered hereby will be issued
upon for the Company by Fabiani & Kone, 714 State Street, New Haven, Connecticut
06511.
The audited financial statements included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect hereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
43
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission (the
"Commission") Washington, D.C., 20549, a Registration Statement on Form SB-2
under the 1933 Securities Act with respect to the securities offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information included in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the securities offered hereby, reference is made to the Registration Statement
and the exhibits and the schedules thereto which may be inspected, without
charge, at the Commission, or copies of which may be obtained from the
Commission in Washington, D.C. upon payment of the requisite fees. Statements
contained in this Prospectus as to the content of any contract or other document
referred to are not necessarily complete, and where such contract or other
document is an exhibit to the Registration Statement, each such statement is
deemed to be qualified in all respects by the provisions of the exhibit.
44
<PAGE>
GLOSSARY
"Care Manager"--The Company requires each Enrollee to select a Primary Care
Physician (defined below) who must deliver or coordinate the delivery of all
medical services for the Enrollee.
"Certificate of Authority"--a certificate of license that must be obtained
in order to operate an HMO in Connecticut.
"Company"--Physicians Care for Connecticut, Inc.; the company whose Stock is
being offered for sale in this Offering.
"Eligible Purchaser"--persons meeting the following requirements:
- - CLASS A STOCKHOLDERS:
FOR INDIVIDUAL PHYSICIANS:
(i) Must be a physician licensed in the state in which the physician
practices.
(ii) Must maintain membership in County (if a County Medical Association
exists in such county) and State Medical Associations, if available,
unless such requirement is waived by the Company's Board of Directors
in its sole discretion.
(iii) Must maintain a Participation Agreement with MedServ IPA, Inc. in
effect.
(iv) Must have a Physicians Care Primary Care Physician Attachment or a
Physicians Care Specialist Physician Attachment to the Participation
Agreement with MedServ IPA in effect.
FOR MEDICAL GROUPS: Class A Common Stock may be held by a professional
corporation, corporation, limited liability corporation, business trust, trust,
independent practice association, physician hospital organization or
partnership, in which physicians who provide medical services on behalf of such
entity have not less than fifty percent (50%) ownership interest or control
(referred to as a "Group"), provided that each of the physicians in the Group
meet the qualifications for physicians as if purchasing individually, unless
otherwise waived by the Company's Board of Directors in its sole discretion.
- - CLASS B STOCKHOLDERS: At the discretion of the Board of Directors, physicians,
groups, hospitals and/or other investors may be issued Class B Common Stock of
the Company. Every Specialist Physician seeking to provide medical services to
the Company's Enrollees must agree to purchase not less than one share of Class
B shares. Licensed hospitals that seek to purchase Class B Common Stock are
required to purchase not less than 62.50 shares (I.E., a $250,000 investment);
provided, however, that if a hospital has less than 100 licensed beds, then such
an investor is required to purchase not less than twenty five (25) shares (I.E,
a $100,000 investment).
"Closing"--the occurrence of the consummation of the formal purchase and
sale of Stock at which money relating to subscriptions subject to such closing
shall be transferred from Escrow to the Company and corresponding certificates
representing shares of Stock shall be issued to purchasers.
"HMO"--Health Maintenance Organization--a health care delivery system that
provides a broad range of health care services to individuals in return for a
prepaid premium.
"Initial Closing"--the Closing which will occur as soon as is practicable
after the receipt by the Company of subscriptions exceeding $8 million.
"Managed Care"--the provision of health care services, other than through a
traditional fee-for-service arrangement, in a manner that attempts to control
the cost or frequency of health care services.
"Enrollee"--a person entitled to receive medical and hospital services and
financing of such services through the Company. For purposes of this Agreement,
an Enrollee includes any person for whom the Company provides, arranges, and/or
finances managed health care or administrative services.
45
<PAGE>
"Offering"--the current offering of the Company's Stock, as set forth in
this Prospectus.
"Primary Care Physician"--a person licensed to practice medicine by the
applicable state licensing board who (a) (i) is board eligible or board
certified in internal medicine, family medicine, general practitioner, or
pediatrics, or (ii) meets such other standards as determined by the Board of the
Company from time to time, and (b) devotes significant practice time to
providing primary care services or managing the delivery of other medical
services with a capability to make preliminary diagnoses or to provide treatment
of medical and health care needs, without limitation by problem origin, organ
system or gender, to arrange for delivery of all necessary care and to satisfy
other requirements as established in Board policy recording relating to
qualifications of Primary Care Physicians. For the limited purpose of
determining which physicians qualify to purchase shares of Stock as a Primary
Care Physician, psychiatrists shall be considered Primary Care Physicians.
"Specialist Physician"--a licensed physician who (i) executes the Company
Specialist Physician Attachment to the MedServ IPA, Inc. Participation Agreement
for Physicians and is listed as a Specialist Physician in the Company's provider
directory or (ii) provides medical services to Enrollees upon referral from a
Primary Care Physician and submits a claim for payment therefor.
"Stock"--the Class A Common Stock and Class B Common Stock of the Company
being offered to Eligible Purchasers through this Offering.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheet as of December 31, 1996...................................................................... F-3
Statement of Operations for the period from Inception (November 12, 1996) through December 31, 1996........ F-4
Statement of Stockholder's Equity (Deficit) for the period from Inception (November 12, 1996) through
December 31, 1996......................................................................................... F-5
Statement of Cash Flows to the period from Inception (November 12, 1996) through December 31, 1996......... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Physicians Care for Connecticut, Inc.:
We have audited the accompanying balance sheet of Physicians Care for
Connecticut, Inc. (a development stage, Connecticut corporation) (the Company)
as of December 31, 1996 and the related statements of operations, stockholder's
equity (deficit) and cash flows for the period from inception (November 12,
1996) to December 31, 1996. These financial statements are the responsibility of
the Company's and MedServ of Connecticut, Inc.'s management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Physicians Care for
Connecticut, Inc. as of December 31, 1996, and the results of its operations and
its cash flows for the period from inception (November 12, 1996) to December 31,
1996 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage, has not yet
commenced its business activities and had a net capital deficiency of $703,764,
which raises substantial doubt about its ability to continue as a going concern.
The Company plans to offer Class A Common Stock and Class B Common Stock to
certain eligible purchasers. The net proceeds from the offering, if successful,
will be used to repay borrowings and for other working capital purposes. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Hartford, Connecticut
January 31, 1997
F-2
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 65,435
---------
Total assets............................................................. $ 65,435
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Borrowings under line of credit................................................ $ 400,000
Accounts payable............................................................... 103,025
Related party payable, net..................................................... 106,389
Accrued expenses............................................................... 159,785
---------
Total current liabilities................................................ 769,199
---------
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock --
Class A, no par value, 10,000 shares authorized, no shares issued and
outstanding................................................................ --
Class B, no par value, 10,000 shares authorized, no shares issued and
outstanding................................................................ --
Class C, no par value, 100 shares authorized, 3 shares issued and
outstanding................................................................ 12,000
Accumulated deficit............................................................ (715,764)
---------
Total stockholder's equity (deficit)..................................... (703,764)
---------
Total liabilities and stockholder's equity (deficit)..................... $ 65,435
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 12, 1996)
TO DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES......................................................................... $ --
EXPENSES:
Consultants.................................................................... 342,457
Legal.......................................................................... 238,313
Actuarial...................................................................... 57,561
Accounting..................................................................... 76,800
Other.......................................................................... 633
---------
715,764
---------
Net loss................................................................... $(715,764)
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (NOVEMBER 12, 1996)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------------------------------------------------- ACCUMULATED
SHARES CLASS A SHARES CLASS B SHARES CLASS C DEFICIT
----------- ----------- ----------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, at November 12, 1996............. -- $ -- -- $ -- -- $ -- $ --
Net loss.................................. -- -- -- -- -- -- (715,764)
Issuance of 3 shares of Class C common
stock................................... -- -- -- -- 3 12,000 --
-- -- --
----- ----- --------- ------------
BALANCE, at December 31, 1996............. -- $ -- -- $ -- 3 $ 12,000 $ (715,764)
-- -- --
-- -- --
----- ----- --------- ------------
----- ----- --------- ------------
<CAPTION>
TOTAL
-----------
<S> <C>
BALANCE, at November 12, 1996............. $ --
Net loss.................................. (715,764)
Issuance of 3 shares of Class C common
stock................................... 12,000
-----------
BALANCE, at December 31, 1996............. $ (703,764)
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 12, 1996)
TO DECEMBER 31, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $(715,764)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in liabilities--
Accounts payable........................................................... 103,025
Related party payable, net................................................. 106,389
Accrued expenses........................................................... 159,785
---------
Net cash used in operating activities.................................... (346,565)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit................................................ 400,000
Issuance of common stock....................................................... 12,000
---------
Net cash provided by financing activities................................ 412,000
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................ 65,435
CASH AND CASH EQUIVALENTS, beginning of period................................... --
---------
CASH AND CASH EQUIVALENTS, end of period......................................... $ 65,435
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION:
Physicians Care for Connecticut, Inc. (the Company), a wholly owned
subsidiary of MedServ of Connecticut, Inc. (MedServ), was formed as a
Connecticut corporation on November 12, 1996 under the sponsorship of private
practicing physicians to develop a physician-owned and directed insurance
company licensed as a Health Maintenance Organization (HMO) and offer a
comprehensive array of health insurance products throughout the state of
Connecticut. The Company intends to provide coverage for comprehensive
healthcare services to Members under its insured products for a fixed, prepaid
enrollment fee paid by or on behalf of the Members.
The Company is in the development stage and has not yet commenced its
business activities. The Company has no operating history and has generated no
operating revenues. As such, the Company is subject to all of the risks inherent
in a new enterprise. The Company will prepare and file an application for a
Certificate of Authority with the Connecticut Department of Insurance to operate
as an HMO throughout the state of Connecticut and will also seek such other
regulatory approvals as necessary to offer its products. The Company plans to
offer Class A Common Stock and Class B Common Stock to certain eligible
purchasers. The net proceeds from the offering, if successful, will be used to
repay borrowings and for other working capital purposes.
There can be no assurance that the Company's development will be successful
or that its services or that its services or products will be successfully
marketed, or that the Company will ever achieve profitable operations.
2. SIGNIFICANT ACCOUNTING POLICIES:
CASH EQUIVALENTS--
The Company considers all short-term investments in highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents.
INCOME TAXES--
The Company has not as yet determined its tax reporting position for federal
and state income tax purposes. There will be temporary differences in reporting
certain expenses for financial statement and income tax purposes. A principal
difference relates to accounting for organization costs. A deferred income tax
benefit has not been recorded as its realization is not considered more likely
than not. The Company has a tax net operating loss carryforward which
approximates the loss for financial reporting purposes for the period from
inception (November 12, 1996) to December 31, 1996, which may be used to offset
taxable income in future years. Such carryforward expires by 2011.
USE OF ESTIMATES--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
F-7
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996
3. RELATED PARTY TRANSACTIONS:
The Company intends to enter into a Management Agreement (the Management
Agreement) with MedServ. MedServ was organized in 1995 as a joint venture
between the Hartford and New Haven County Medical Associations. MedServ is a
for-profit entity performing administrative functions for both county medical
associations and operates as a Central Verification Organization to provide
credentialing services which are intended to meet National Commission for
Quality Assurance credentialing standards. MedServ and the Company's management
will conduct the day to day operations of the Company.
Under the Management Agreement, MedServ will exclusively provide management
and administrative services in connection with the development, licensing,
marketing and operations of the Company. MedServ will be permitted to contract
with third-party independent contractors to provide some or all of the services
required to be delivered under the terms of the Management Agreement.
The Company intends to enter into a Provider Network Agreement (Network
Agreement) with MedServ IPA, Inc. (MedServ IPA) under which MedServ IPA will
arrange for the availability of a network of qualified physicians throughout the
state of Connecticut to provide medical services to the Company's Members.
MedServ IPA (formerly known as ProCare IPA, Inc.) is a Connecticut corporation
formed specifically for the purpose of developing a network of physicians to
provide services to health plan enrollees.
4. FINANCING ARRANGEMENTS:
The Company has a $650,000 revolving credit facility with a bank. The credit
facility, when used, bears interest at the prime rate or the London interbank
borrowing rate plus 100 basis points at the Company's election (6.5% at December
31, 1996), and matures on November 22, 1997.
5. COMMON STOCK:
Holders of Class A and Class B common stock are entitled to one vote on all
matters presented to the stockholders for vote or consent, except that Class B
stockholders will not be entitled to elect representatives to the Board of
Directors. There is no cumulative voting for the election of directors, nor do
any stockholders have preemptive rights. Dividend rights will be available to
stockholders of both classes of stock when, as and if declared by the Company's
Board of Directors, at the Board's discretion, out of funds legally available
therefore. Receipt of dividends by one class of stock does not necessitate
receipt by another. Upon liquidation, after the liabilities of the Company have
been discharged, Class B stockholders will have a liquidation preference of up
to $1,500 per share of Class B Common Stock. After the Class B stockholders'
liquidation preference is satisfied, all stockholders will share any remaining
liquidating distributions PRO RATA. Outstanding shares are not subject to and do
not benefit from any sinking fund provisions. As of December 31, 1996, there
were no shares of Class A and Class B common stock outstanding.
The Company also has Class C common stock which has been issued to MedServ.
MedServ is the only eligible holder of Class C common stock in the Company. With
its Class C stock investment, MedServ has the right to appoint eleven out of not
more than twenty-one of the Directors to the Company's Board of Directors. In
addition, the Company must have a vote of two-thirds of the MedServ appointed
Directors to approve the sale or liquidation of the Company, the appointment of
management, the merger or consolidation of the Company, the decision to incur
debt over $1,000,000, the amendment of the Articles of Organization or By-laws
of the Company and all other decisions required by law.
F-8
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
Questions and Answers for Prospectus
1. QUESTION: What is Physicians Care For Connecticut ("Physicians Care")?
ANSWER: PHYSICIANS CARE IS A CONNECTICUT CORPORATION ORGANIZED TO ESTABLISH AND
OPERATE A CONNECTICUT HEALTH MAINTENANCE ORGANIZATION WHICH IS
PREDOMINANTLY PHYSICIANS-OWNED, CONTROLLED AND DIRECTED. THE PRINCIPAL
GOAL OF PHYSICIANS CARE IS TO BECOME THE INSURER PREFERRED BY EMPLOYERS
AND INDIVIDUALS TO PROVIDE HEALTH INSURANCE PRODUCTS IN THE STATE OF
CONNECTICUT. PHYSICIANS CARE'S PRINCIPAL MEANS OF ACHIEVING THAT GOAL IS
TO DEVELOP PRODUCTS WITH VALUE (I.E., AN OPTIMAL COMBINATION OF PRICE,
OBJECTIVE MEASURES OF QUALITY AND HIGH CUSTOMER SATISFACTION) WHICH ARE
SO CLEARLY IDENTIFIED IN THE MINDS OF CONNECTICUT EMPLOYERS AND
RESIDENTS THAT THEY WILL SEEK TO OBTAIN PHYSICIANS CARE PRODUCTS
WHENEVER POSSIBLE. BECAUSE OF THE CRITICAL ROLE PROVIDERS PLAY IN
BUILDING PRODUCT VALUE, PHYSICIANS CARE INTENDS TO WORK VERY
COOPERATIVELY WITH PHYSICIANS TO ENCOURAGE ENTHUSIASTIC CONTRIBUTION TO
PRODUCT VALUE AND TO REWARD THAT CONTRIBUTION ACCORDINGLY. PHYSICIANS
CARE IS PREPARED TO ESTABLISH PROVIDER INCENTIVES TO IMPROVE QUALITY OF
CARE AND CUSTOMER SERVICE AND TO INCREASE MEMBER GROWTH AND WILL
REINVEST CONTINUALLY IN PHYSICIANS CARE PRODUCTS (PRINCIPALLY THROUGH
INFRASTRUCTURE DEVELOPMENT TO SUPPORT PHYSICIAN CLINICAL
DECISION-MAKING) IN EXCHANGE FOR THE PHYSICIAN'S COMMITMENT TO ACTIVELY
PARTICIPATE IN MARKETING PROGRAMS, TO MANAGE MEDICAL RISK, AND TO
MAINTAIN CUSTOMER SATISFACTION.
2. QUESTION: What is the purpose of the Offering?
ANSWER: THE PURPOSE OF THE OFFERING IS TO RAISE A MINIMUM OF $8 MILLION AND A
MAXIMUM OF $24 MILLION OF NEW CAPITAL TO ENABLE PHYSICIANS CARE TO
ORGANIZE AND OPERATE ON A STATE-WIDE BASIS AS A HEALTH MAINTENANCE
ORGANIZATION.
3. QUESTION: Who may purchase shares of stock in Physicians Care?
ANSWER: THE FOLLOWING PARTIES MAY PURCHASE STOCK IN PHYSICIANS CARE:
PHYSICIANS SATISFYING THE FOLLOWING REQUIREMENTS MAY PURCHASE STOCK IN
PHYSICIANS CARE:
- BE A PHYSICIAN LICENSED IN THE STATE IN WHICH THE PHYSICIAN PRACTICES
- MAINTAIN MEMBERSHIP IN COUNTY (IF A COUNTY MEDICAL ASSOCIATION EXISTS IN
SUCH COUNTY) AND STATE MEDICAL ASSOCIATION, IF AVAILABLE, UNLESS SUCH
REQUIREMENT IS WAIVED BY PHYSICIANS CARE'S BOARD OF DIRECTORS IN ITS
SOLE DISCRETION
- MAINTAIN A PARTICIPATION AGREEMENT WITH MEDSERV IPA IN EFFECT
- MUST HAVE A PHYSICIANS CARE PRIMARY CARE PHYSICIAN ATTACHMENT OR A
PHYSICIANS CARE SPECIALIST PHYSICIAN ATTACHMENT TO THE PARTICIPATING
AGREEMENT WITH MEDSERV IPA, INC. IN EFFECT
HOSPITALS SATISFYING THE FOLLOWING REQUIREMENTS MAY PURCHASE CLASS B
STOCK IN PHYSICIANS CARE:
- BE A LICENSED ACUTE CARE HOSPITAL IN CONNECTICUT
- MAINTAIN A PARTICIPATION AGREEMENT WITH PHYSICIANS CARE.
4. QUESTION: I am a member of a physician group practice, may the group
practice purchase the shares of stock on my behalf?
ANSWER: PROFESSIONAL CORPORATIONS, CORPORATIONS, BUSINESS TRUSTS, TRUSTS,
PARTNERSHIPS OR LIMITED LIABILITY CORPORATIONS, WHICH ARE OWNED AND
CONTROLLED, DIRECTLY OR INDIRECTLY, BY A MAJORITY OF PHYSICIANS WHO
PROVIDE MEDICAL SERVICES ON BEHALF OF THE ENTITY (COLLECTIVELY "GROUP")
MAY PURCHASE CLASS A OR CLASS B STOCK, AS APPLICABLE, ON BEHALF OF THEIR
PHYSICIANS; PROVIDED THAT THE PHYSICIAN AFFILIATED WITH THE GROUP
INDIVIDUALLY MEETS THE QUALIFICATIONS OF STOCK OWNERSHIP. THE GROUP MUST
PURCHASE NOT LESS THAN THE NUMBER OF SHARES REQUIRED TO BE PURCHASED BY
PHYSICIANS AS IF EACH PHYSICIAN IN THE GROUP PARTICIPATED
A-1
<PAGE>
IN PHYSICIANS CARE AND PURCHASED STOCK INDIVIDUALLY. IF A HOSPITAL IS A
SHAREHOLDER IN THE GROUP, THE GROUP MUST ALSO PURCHASE CLASS B COMMON
STOCK IN SUCH AMOUNT AS IF THE HOSPITAL WERE PURCHASING THE SHARES
SEPARATELY.
5. QUESTION: How much does a share of stock cost?
ANSWER: PHYSICIANS MAY PURCHASE CLASS A AND CLASS B COMMON STOCK IN PHYSICIANS
CARE FOR $4,000 PER SHARE. HOWEVER, IF A PHYSICIAN SUBMITS A COMPLETED
SUBSCRIPTION AGREEMENT AND RELATED DOCUMENTATION WITHIN NINETY (90) DAYS
OF THE COMMENCEMENT OF PHYSICIANS CARE'S STOCK OFFERING (THE "OFFERING")
THE PHYSICIAN WILL RECEIVE A PROMPT SUBSCRIPTION PRICE OF $3,000 PER
SHARE.
HOSPITALS WISHING TO PURCHASE CLASS B SHARES OF STOCK MUST PURCHASE NOT
LESS THAN 62.50 SHARES (I.E., A $250,000 INVESTMENT); PROVIDED, HOWEVER,
THAT IF A LICENSED HOSPITAL HAS LESS THAN 100 BEDS, THEN SUCH AN INVESTOR
IS REQUIRED TO PURCHASE NOT LESS THAN 25 SHARES (I.E., A $100,000
INVESTMENT). HOWEVER, IF A HOSPITAL SUBMITS A COMPLETED SUBSCRIPTION
AGREEMENT AND RELATED DOCUMENTATION WITHIN NINETY (90) DAYS OF THE
COMMENCEMENT OF PHYSICIANS CARE'S STOCK OFFERING (THE "OFFERING"), THE
HOSPITAL WILL RECEIVE A PROMPT SUBSCRIPTION PRICE OF $3,000 PER SHARE.
6. QUESTION: If I want to provide medical services to Members of Physicians
Care, must I purchase stock in Physicians Care?
ANSWER: YES, EVERY PHYSICIAN WHO WISHES TO PROVIDE MEDICAL SERVICES TO
PHYSICIANS CARE'S MEMBERS MUST EXECUTE A MEDSERV IPA PARTICIPATION
AGREEMENT AND IF A PRIMARY CARE PHYSICIAN ("PCP") MUST AGREE TO PURCHASE
ONE SHARE OF CLASS A COMMON STOCK, AND IF A SPECIALIST, MUST AGREE TO
PURCHASE ONE SHARE OF CLASS A COMMON STOCK AND ONE SHARE OF CLASS B
COMMON STOCK. THE BOARD IN ITS DISCRETION MAY ELIMINATE THE REQUIREMENT
OF STOCK PURCHASE AS A CONDITION OF HOLDING A PARTICIPATION AGREEMENT.
7. QUESTION: If I am a Primary Care Physician, how many shares of stock must I
purchase?
ANSWER: PRIMARY CARE PHYSICIANS MUST PURCHASE ONE SHARE OF CLASS A COMMON STOCK.
PRIMARY CARE PHYSICIANS MAY, AT THEIR ELECTION, PURCHASE ADDITIONAL
SHARES OF CLASS B COMMON STOCK. NO PHYSICIAN MAY HOLD MORE THAN ONE
SHARE OF CLASS A COMMON STOCK.
8. QUESTION: If I am a Specialist, how many shares of stock must I purchase?
ANSWER: SPECIALISTS MUST PURCHASE ONE SHARE OF CLASS A COMMON STOCK AND ONE
SHARE OF CLASS B COMMON STOCK. SPECIALISTS MAY, AT THEIR ELECTION,
PURCHASE ADDITIONAL SHARES OF CLASS B COMMON STOCK. NO PHYSICIAN MAY
HOLD MORE THAN ONE SHARE OF CLASS A COMMON STOCK.
9. QUESTION: What is the difference between Class A and Class B shares of
stock?
ANSWER: CLASS A SHAREHOLDERS ARE ENTITLED TO ELECT SIX (6) OUT OF A MAXIMUM OF
SEVENTEEN OF THE DIRECTORS OF PHYSICIANS CARE. CLASS B SHAREHOLDERS ARE
NOT ENTITLED TO ELECT DIRECTORS TO THE BOARD OF PHYSICIANS CARE.
HOWEVER, CLASS B SHAREHOLDERS HAVE A PREFERENCE UPON LIQUIDATION OF
PHYSICIANS CARE. THIS MEANS THAT UPON LIQUIDATION OF PHYSICIANS CARE,
AFTER THE LIABILITIES OF PHYSICIANS CARE HAVE BEEN DISCHARGED, CLASS B
SHAREHOLDERS WILL HAVE A LIQUIDATION PREFERENCE EQUAL TO $1,500 PER
SHARE OF CLASS B COMMON STOCK. AFTER THE CLASS B STOCKHOLDERS'
LIQUIDATION PREFERENCE IS SATISFIED, ALL STOCKHOLDERS WILL SHARE ANY
REMAINING DISTRIBUTIONS FROM PHYSICIANS CARE ON A PRO RATA BASIS.
10. QUESTION: May a hospital purchase shares of stock?
ANSWER: YES, A HOSPITAL MAY PURCHASE CLASS B COMMON STOCK. HOSPITALS MUST
PURCHASE NOT LESS THAN 62.50 SHARES (I.E., A $250,000 INVESTMENT);
PROVIDED, HOWEVER, THAT IF A VALID LICENSED HOSPITAL HAS NOT LESS THAN
100 BEDS, THEN SUCH AN INVESTOR IS REQUIRED TO PURCHASE NOT LESS THAN 25
SHARES (I.E., $100,000).
A-2
<PAGE>
11. QUESTION: Are there any other Classes of Stock for Physicians Care?
ANSWER: YES, THERE IS CLASS C STOCK WHICH MAY BE HELD ONLY BY MEDSERV OF
CONNECTICUT, INC. CLASS C PROVIDES MEDSERV WITH THE RIGHT TO ELECT
ELEVEN (11) DIRECTORS TO THE BOARD. IN ADDITION, PHYSICIANS CARE MUST
HAVE A VOTE OF 2/3 OF THE MEDSERV APPOINTED DIRECTORS TO APPROVE ANY OF
THE FOLLOWING ACTIONS OF PHYSICIANS CARE:
- THE SALE OR LIQUIDATION OF THE COMPANY;
- THE APPOINTMENT OF MANAGEMENT;
- THE MERGER OR CONSOLIDATION OF THE COMPANY;
- THE DECISION TO INCUR DEBT OVER $1,000,000 DOLLARS;
- THE AMENDMENT OF THE ARTICLES OF ORGANIZATION OR BYLAWS OF THE COMPANY;
- ALL OTHER MATTERS REQUIRED BY LAW TO BE SUBMITTED TO THE STOCKHOLDERS
FOR A VOTE.
12. QUESTION: What if Physicians Care does not raise enough money from the
Offering to start the HMO?
ANSWER: THIS OFFERING IS SUBJECT TO THE REQUIREMENT THAT PHYSICIANS CARE MUST
RECEIVE SUBSCRIPTIONS FROM PHYSICIANS TO PURCHASE $8 MILLION DOLLARS OF
CLASS A AND CLASS B COMMON STOCK. IF PHYSICIANS CARE DOES NOT RAISE $8
MILLION DOLLARS OF CLASS A AND CLASS B COMMON STOCK FROM THE OFFERING,
THE PURCHASE PRICE OF BOTH CLASS A AND CLASS B SHARES WILL BE REFUNDED,
MINUS $450 DOLLARS PER SHARE, WHICH WILL BE RETAINED BY PHYSICIANS CARE
IN ORDER TO OFFSET THE COSTS ASSOCIATED WITH THE OFFERING.
13. QUESTION: What happens if I no longer meet the qualifications for Class A
stock?
ANSWER: IF YOU NO LONGER MEET THE QUALIFICATIONS NECESSARY FOR CLASS A
STOCKHOLDER STATUS OR IF YOU TRANSFER YOUR STOCK TO AN INDIVIDUAL WHO
DOES NOT MEET THE QUALIFICATIONS FOR CLASS A STOCKHOLDER STATUS, YOU
MUST IMMEDIATELY SURRENDER YOUR CLASS A SHARES OF STOCK AND PHYSICIANS
CARE WILL CANCEL THE SHARES AND ISSUE AN EQUAL NUMBER OF CLASS B SHARES.
14. QUESTION: Can I sell my stock to other interested investors?
ANSWER: IF YOU RECEIVE A BONA FIDE OFFER TO PURCHASE YOUR SHARES, YOU MUST FIRST
OFFER PHYSICIANS CARE A RIGHT OF FIRST OPPORTUNITY TO PURCHASE YOUR
SHARES AT AN AMOUNT EQUAL TO THE BONA FIDE OFFER. IF PHYSICIANS CARE
DECLINES TO PURCHASE THE SHARES, YOU MAY SELL THE SHARES TO THE
INTERESTED INVESTOR.
15. QUESTION: If I die, become disabled or retire, what happens to my stock?
ANSWER: AT ANY TIME AFTER THE FIFTH ANNIVERSARY OF THE ISSUANCE DATE OF A CLASS
A STOCKHOLDER'S SHARES OF STOCK, PHYSICIANS CARE AGREES TO REDEEM ALL
SHARES OF STOCK (INCLUDING CLASS A AND CLASS B SHARES) OF A CLASS A
STOCKHOLDER WISHING TO SELL OR TRANSFER HIS/HER SHARES UPON THE
OCCURRENCE OF ONE OF THE FOLLOWING EVENTS: (I) THE DEATH OR PERMANENT
DISABILITY OF THE PHYSICIAN; OR (II) THE CESSATION OF THE PHYSICIAN'S
PROVISION OF MEDICAL SERVICES IN CONNECTICUT (I.E., RETIREMENT OR
RELOCATION); PROVIDED THAT PHYSICIANS WHO ACQUIRE SHARES OF STOCK
THROUGH THE INITIAL OFFERING OF PHYSICIAN CARE'S STOCK AND ARE 55 YEARS
OR OLDER ON THE DATE OF RECEIPT OF AN EXECUTED SUBSCRIPTION AGREEMENT
SHALL BE ELIGIBLE TO REDEEM THEIR STOCK AT ANY TIME AFTER THE THIRD
ANNIVERSARY OF THE ISSUANCE OF THE STOCK. THE COMPANY SHALL PURCHASE
SUCH SHARES OF STOCK AT THE GREATER OF (I) THE THEN CURRENT NET BOOK
VALUE OF SUCH SHARES DETERMINED PURSUANT TO GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ("GAAP") AS OF THE MOST RECENTLY COMPLETED FISCAL
QUARTER OF PHYSICIANS CARE, OR (II) THE ORIGINAL ISSUANCE PRICE OF SUCH
SHARES.
16. QUESTION: How long do I have to purchase stock in Physicians Care?
ANSWER: YOU WILL HAVE 180 DAYS FROM THE COMMENCEMENT OF THE OFFERING TO PURCHASE
SHARES OF STOCK IN PHYSICIANS CARE. THE BOARD OF DIRECTORS OF PHYSICIANS
CARE MAY, IN ITS DISCRETION, EXTEND THE OFFERING
A-3
<PAGE>
FOR AN ADDITIONAL SIXTY (60) DAYS. HOWEVER, IF YOU WOULD LIKE TO TAKE
ADVANTAGE OF THE PROMPT PAYMENT DISCOUNT DESCRIBED IN THE PROSPECTUS,
YOU MUST RETURN AN EXECUTED SUBSCRIPTION AGREEMENT WITHIN 90 DAYS OF THE
DATE OF THIS PROSPECTUS.
17. QUESTION: Will this stock generate dividends?
ANSWER: PHYSICIANS CARE DOES NOT ANTICIPATE PAYING DIVIDENDS TO STOCKHOLDERS FOR
THE FORESEEABLE FUTURE. IT IS ANTICIPATED THAT PROFITS FROM OPERATIONS
WILL BE REINVESTED IN THE COMPANY'S HEALTHCARE FINANCING PLANS IN ORDER
TO PROVIDE BETTER BENEFITS FOR PATIENTS, MORE COMPETITIVE PRICING,
IMPROVED REIMBURSEMENT LEVELS FOR PROVIDERS AND FOR OTHER CORPORATE
PURPOSES.
18. QUESTION: How will stock be allocated in the event of an oversubscription?
ANSWER: PHYSICIANS CARE REGISTERED 3,000 SHARES OF CLASS A COMMON STOCK AND
3,000 SHARES OF CLASS B COMMON STOCK WHICH CAN BE ISSUED IN THIS
OFFERING. SINCE APPROXIMATELY PHYSICIANS ARE CURRENTLY LICENSED TO
PRACTICE MEDICINE IN THE STATE OF CONNECTICUT, THE POTENTIAL FOR A TOTAL
SUBSCRIPTION IN EXCESS OF THESE AMOUNTS EXISTS. IF ORDERS FOR MORE THAN
3,000 SHARES OF CLASS A COMMON STOCK AND 3,000 SHARES OF CLASS B COMMON
STOCK ARE RECEIVED, THE ORDERS WILL BE FILLED ON A FIRST-COME,
FIRST-SERVED BASIS. THEREFORE, IT IS ADVISABLE FOR ALL INTERESTED
PHYSICIANS TO SUBMIT THEIR ORDERS AS EARLY AS POSSIBLE.
19. QUESTION: Will interest be paid on my subscription during the time the
funds are held in escrow?
ANSWER: SUBSCRIPTION FUNDS WILL BEAR INTEREST FROM THE DATE OF DEPOSIT IN THE
ESCROW ACCOUNT.
20. QUESTION: Who serves on the Board of Directors of Physicians Care?
ANSWER: THE NUMBER OF DIRECTORS SHALL NOT BE LESS THAN SEVENTEEN (17) AND NOR
MORE THAN TWENTY ONE (21) DIRECTORS.
SIX (6) OF THE DIRECTORS ARE ELECTED BY THE CLASS A SHAREHOLDERS. EACH OF
THESE DIRECTORS MUST BE A PHYSICIAN AND A MEMBER OF A COUNTY MEDICAL
SOCIETY OTHER THAN THE HARTFORD OR NEW HAVEN MEDICAL SOCIETY. NO MORE
THAN TWO OF THE CLASS A DIRECTORS MAY BE MEMBERS OF ANY ONE COUNTY
MEDICAL SOCIETY AT ANY GIVEN TIME; AND AT ALL TIMES, THREE OF THE CLASS A
DIRECTORS SHALL BE "PRIMARY CARE PHYSICIANS", AS SAID TERM IS DEFINED BY
CORPORATION POLICY FROM TIME TO TIME. ELEVEN (11) OF THE DIRECTORS MUST
BE APPOINTED AND REMOVED BY MEDSERV. SIX (6) OF THESE ELEVEN DIRECTORS
SHALL BE PRIMARY CARE PHYSICIANS.
UP TO FOUR DIRECTORS (SUCH NUMBER TO BE DETERMINED IN THE DISCRETION OF
THE BOARD) SHALL BE REPRESENTATIVES OF AREA EMPLOYERS, HOSPITALS, ETC.
THESE DIRECTORS WILL BE ELECTED BY A MAJORITY OF THE COMBINED CLASS A
STOCKHOLDERS AT THE ANNUAL MEETING OF THE BOARD OF DIRECTORS FROM A LIST
OF NOMINEES DEVELOPED BY THE BOARD OF DIRECTORS.
21. QUESTION: Who will manage Physicians Care?
ANSWER: PHYSICIANS CARE WILL ENTER INTO A LONG TERM MANAGEMENT SERVICES
AGREEMENT WITH MEDSERV OF CONNECTICUT, INC., A JOINT VENTURE BETWEEN THE
HARTFORD AND NEW HAVEN MEDICAL COUNTY ASSOCIATIONS, TO PROVIDE
MANAGEMENT SERVICES TO PHYSICIANS CARE.
22. QUESTION: What products will Physicians Care offer?
ANSWER: PHYSICIANS CARE WILL OFFER VARIED PRODUCTS (E.G., HMO, PPO, POS AND
SELF-INSURED EMPLOYER) AND FLEXIBLE BENEFITS TO MAXIMIZE CONSUMER
CHOICE.
23. QUESTION: Will Physicians Care seek to limit the number of physicians
providing medical services to Physicians Care Members?
ANSWER: UNLIKE OTHER HMO'S WHICH SEEK TO SIGNIFICANTLY RESTRICT ACCESS TO HEALTH
CARE PROVIDERS, PHYSICIANS CARE WILL OFFER PARTICIPATION TO ALL
PHYSICIANS BUT WILL IMPOSE RIGOROUS DEMANDS ON PHYSICIAN ACCOUNTABILITY
TO ENCOURAGE THE BEST CLINICAL PRACTICES.
A-4
<PAGE>
24. QUESTION: What is Physicians Care's philosophy concerning medical
management?
ANSWER: PHYSICIANS CARE IS COMMITTED TO DECENTRALIZED MEDICAL MANAGEMENT AND
WILL SUPPORT PHYSICIAN CLINICAL DECISION-MAKING BY:
- PROVIDING DATA AND INFORMATION TO MORE EFFECTIVELY MANAGE THE DELIVERY
OF CARE TO PATIENTS, INCLUDING ULTIMATELY ON-LINE ACCESS FOR MEMBER
ELIGIBILITY, REFERRAL AUTHORIZATION, CLAIM ADJUDICATION AND APPROVAL,
AND CLINICAL DATABASE ANALYSIS;
- PROMOTING INCREASED PHYSICIAN AUTONOMY OVER CLINICAL DECISIONS, WITH
DATA COLLECTION SUPPORT TO ENHANCE PHYSICIAN ACCOUNTABILITY;
- DEVELOPING STANDARDS FOR BEST CLINICAL PRACTICES AND CUSTOMER SERVICE
AND PROVIDING EXTENSIVE EDUCATION TO PROMOTE USE OF SUCH PRACTICES.
25. QUESTION: What will Physicians Care do with its profits?
ANSWER: WHILE PHYSICIANS CARE REQUIRES PROFIT TO MAINTAIN A VIABLE BUSINESS,
PHYSICIANS CARE IS COMMITTED TO REINVESTING ITS PROFITS IN ITS PRODUCTS.
26. QUESTION: How will Physicians Care compensate physicians for services
rendered?
ANSWER: PHYSICIANS CARE PLANS TO REIMBURSE PHYSICIANS BASED UPON A FEE SCHEDULE
FOR SERVICES RENDERED. EVENTUALLY, PHYSICIANS CARE HOPES TO EXPERIMENT
WITH MORE INNOVATIVE REIMBURSEMENT METHODOLOGIES. PHYSICIANS CARE
INTENDS TO COMMIT A GREATER PERCENTAGE OF THE PREMIUM TO PAY FOR MEDICAL
SERVICES THAN COMPETITORS. PHYSICIANS WHO CONTRIBUTE SIGNIFICANTLY TO
PRODUCT VALUE (MEMBER GROWTH, HIGH QUALITY, CUSTOMER SATISFACTION AND
EFFECTIVE MEDICAL MANAGEMENT) WILL BE REWARDED WITH A SERIES OF
COMPENSATION INCENTIVES.
PHYSICIANS CARE IS COMMITTED TO DEVELOPING A PARTNERSHIP WITH ITS
PHYSICIAN INVESTORS. IN THE END, A PARTNERSHIP IS PREMISED ON THE CONCEPT
OF RELATIVE PROFITABILITY, I.E., A FAIR PROFIT FOR EACH PARTY IN THE
PARTNERSHIP GIVEN THE RESPECTIVE EFFORTS IN CONTRIBUTING VALUE TO THE
PARTNERSHIP. PHYSICIANS CONTRIBUTE SIGNIFICANT VALUE THROUGH MANAGEMENT
OF MEDICAL RISK AND IMPROVED CUSTOMER SERVICE AND, AS A RESULT, SHOULD BE
APPROPRIATELY COMPENSATED. PHYSICIANS CARE IS COMMITTED TO PAYING FAIR
COMPENSATION TO PHYSICIANS FOR SERVICES RENDERED AND TO REINVESTING IN
ITS PRODUCTS AND INFRASTRUCTURE.
27. QUESTION: What do I need to do to purchase shares of stock in Physicians
Care?
ANSWER: IN ORDER TO PURCHASE STOCK IN PHYSICIANS CARE, YOU MUST RETURN THE
FOLLOWING DOCUMENTS TO PHYSICIANS CARE:
- A SIGNED SUBSCRIPTION AGREEMENT
- A SIGNED MEDSERV IPA PARTICIPATION AGREEMENT AND ATTACHED PHYSICIANS
CARE PRIMARY CARE PHYSICIAN OR PHYSICIANS CARE SPECIALIST PHYSICIAN
ATTACHMENT
- A CHECK OR MONEY ORDER EQUALING THE PURCHASE PRICE OF THE AMOUNT OF
SHARE YOU WOULD LIKE TO PURCHASE.
THESE DOCUMENTS SHOULD BE RETURNED TO PHYSICIANS CARE AT THE FOLLOWING
ADDRESS:
PHYSICIANS CARE FOR CONNECTICUT, INC.
C/O MEDSERV IPA, INC.
1520 HIGHLAND AVENUE
CHESHIRE, CONNECTICUT 06410
ATTN: STOCK SUBSCRIPTION
28. QUESTION: Can I purchase shares with a check drawn from a mutual fund?
A-5
<PAGE>
ANSWER: ONLY CHECKS AND MONEY ORDERS WILL BE ACCEPTED AS PAYMENT. CASH, CREDIT
CARD NUMBERS AND OTHER FORMS OF PAYMENT SHOULD NOT BE SENT AND WILL NOT
BE ACCEPTED. THE CHECK OR MONEY ORDER MUST BE PAYABLE IN U.S. DOLLARS
AND DRAWN ON A BANK IN THE UNITED STATES. THE CHECK MUST BE HONORED UPON
INITIAL DEPOSIT; NO ATTEMPT WILL BE MADE TO REDEPOSIT ANY DISHONORED
CHECK. DUE TO LEGAL AND OTHER RESTRICTIONS, PHYSICIANS CARE CANNOT
ACCEPT FUNDS DRAWN ON INDIVIDUAL RETIREMENT ACCOUNTS ("IRAS"), KEOUGH
ACCOUNTS, MUTUAL FUND ACCOUNTS, CASH MANAGEMENT ACCOUNTS OR OTHER TYPES
OF RETIREMENT OR INVESTMENT ACCOUNTS.
29. QUESTION: What if I cannot afford to buy shares of stock in Physicians
Care, but would like to invest in Physicians Care?
ANSWER: PHYSICIANS CARE HAS ARRANGED WITH A BANK TO MAKE LOANS AVAILABLE TO ALL
PHYSICIANS DESIRING TO FINANCE THE PURCHASE PRICE OF THE STOCK WHO MEET
THE BANK'S QUALIFICATIONS. A DESCRIPTION OF THE TERMS OF THE LOAN, AS
WELL AS AN APPLICATION FOR THE LOAN ARE ENCLOSED WITH THE OFFERING
DOCUMENT. THE LOAN IS SUBJECT TO THE BANK'S SOLE DETERMINATION OF YOUR
CREDIT-WORTHINESS AND ACCEPTANCE OF THE BANK'S TERMS AND CONDITIONS OF
FINANCING. THERE IS NO ASSURANCE THAT EACH PHYSICIAN WILL QUALIFY FOR
THIS LOAN. FOR ADDITIONAL INFORMATION, PLEASE CONTACT:
A-6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation and Bylaws of the Company provide that the
Company shall indemnify its officers and directors to the full extent permitted
by law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are as follows:
<TABLE>
<S> <C>
SEC Registration Fee................................................ $ 7,274
Printing and Engraving Expenses.....................................
Accounting Fees and Expenses........................................
Legal Fees and Expenses.............................................
Blue Sky Fees and Expenses..........................................
Transfer Agent's Fees and Expenses..................................
Actuarial Fees and Expenses.........................................
Miscellaneous Expenses..............................................
Total............................................................... $
---------
---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Company sold three (3) shares of its Class C Common Stock to MedServ of
Connecticut, Inc. in a private placement on September 1996 and raised $12,000 of
gross proceeds therefrom.
On November 25, 1996, the Company issued a Line of Credit Note to Fleet Bank
in principal amount of $650,000.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
ITEM #
- -----------
<C> <C> <S>
3.1 -- Certificate of Incorporation of the Registrant*
3.2 -- Bylaws of the Registrant*
4.1 -- Form of Stock Certificate*
5.1 -- Opinion of Fabiani & Kone*
10.1 -- Form of Physician Participation Agreement with Registrant
10.2 -- Form of Hospital Participation Agreement with Registrant
10.3 -- Form of Group Participation Agreement with Registrant
10.4 -- Form of Stock Subscription Agreement
10.5 -- Loan Agreement, dated November 25, 1996, between the Company and Fleet Bank
10.6 -- Line of Credit Note, dated November 25, 1996, issued to Fleet National Bank in principal amount of
$650,000
10.7 -- Form of Management Agreement by and between MedServ of Connecticut, Inc. and Registrant
10.8 -- Form of Service Agreement with MedServ IPA
10.9 -- Form of Escrow Agreement with Fleet Bank
23.1 -- Consent of Fabiani & Kone (included in Exhibit 5.1)
23.2 -- Consent of Arthur Andersen LLP
24.1 -- Power of Attorney--Included on Page II-3
</TABLE>
- ------------------------
* To be filed by amendment
II-1
<PAGE>
ITEM 28. UNDERTAKINGS
Registrant undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the formation in the
registration statement; and notwithstanding the foregoing, an increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% charge in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act of 1933, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its Certificate of Incorporation and
Bylaws, the Connecticut Corporation Act, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM S-1 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT ON FORM SB-2 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED IN CHESHIRE, CONNECTICUT ON MARCH 6, 1997.
PHYSICIANS CARE FOR CONNECTICUT, INC.
By: /s/ JOSEPH R. COFFEY
-----------------------------------------
Name: Joseph R. Coffey
Title: Chief Executive Officer
We, The Undersigned Officers And Directors Of Physicians Care For
Connecticut, Inc. Hereby Severally constitute and appoint Joseph R. Coffey and
Edward J. Berns, and each of them singly, our true and lawful attorneys, with
full power to them and each of them singly to sign for us and in our names in
the capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and, in connection with any registration of additional
securities pursuant to Rule 462(b) under the Securities Act of 1933, to sign any
abbreviated registration statement and any and all amendments thereto, and to
file the same, with all exhibits thereto and other documents in connection
therewith, in each case, with the Securities and Exchange Commission, and
generally to do all such things in our names and on our behalf in our capacities
with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
- ------------------------------ --------------------------- -------------------
Director and Chief
/s/ JOSEPH R. COFFEY Executive Officer
- ------------------------------ (principal executive March 6, 1997
Joseph R. Coffey officer)
/s/ CRAIG W. CZARSTY Chairman of the Board of
- ------------------------------ Directors and President March 6, 1997
Craig W. Czarsty, MD
/s/ JOHN M. AVERSA Director
- ------------------------------ March 6, 1997
John M. Aversa, MD
/s/ JOSEPH A. BALSAMO Director
- ------------------------------ March 6, 1997
Joseph A. Balsamo, MD
II-3
<PAGE>
SIGNATURES TITLE DATE
- ------------------------------ --------------------------- -------------------
Director
- ------------------------------ March 6, 1997
Neil H. Brooks, MD
/s/ ELLEN R. FISCHBEIN Director
- ------------------------------ March 6, 1997
Ellen R. Fischbein, MD
/s/ JOHN B. FRANKLIN Director and Treasurer
- ------------------------------ (principal financial and March 6, 1997
John B. Franklin, MD accounting officer
Director
- ------------------------------ March 6, 1997
David F. Mintell, MD
/s/ F.J. MONTEGUT Director and Secretary
- ------------------------------ March 6, 1997
F.J. Montegut, MD
/s/ N. CHANDRA NARAYANAN Director
- ------------------------------ March 6, 1997
N. Chandra Narayanan, MD
Director
- ------------------------------ March 6, 1997
John W. Rodgers, MD
/s/ EARL J. SITTAMBALAM Director
- ------------------------------ March 6, 1997
Earl J. Sittambalam, MD
II-4
<PAGE>
MEDSERV IPA, INC.
PARTICIPATION AGREEMENT FOR PHYSICIANS
This AGREEMENT (the "Agreement") is made and entered into this ____ day
of ______________, 1997, by and between MEDSERV IPA, INC. ("IPA"), and ______
____________________________________________ M.D. having a principal place of
business at ________________________________________________________________
("Physician").
WHEREAS, IPA intends to enter into agreements with third party payors
including insurers, self-insured employers, health maintenance organizations,
and other managed care organizations (collectively, "Plan(s)") for the
provision of primary care and specialty medical and surgical services to
Members; and
WHEREAS, IPA and Physician desire to enter into an agreement whereby
Physician agrees to provide Covered Services to Members of such Plans.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. DEFINED TERMS.
Terms used herein which are not otherwise defined in context and the
initial letters of which are capitalized shall have the following
definitions:
a. "Admitting Physician" means a physician who, in the normal
course and scope of his medical practice, admits patients for hospital care
on either an inpatient or treats patients within a hospital on an outpatient
basis.
b. "Co-payment" means those charges for professional services
which shall be collected directly by Physician from Member as payment in
addition to payments by a Plan, in accordance with the Member's Subscriber
Agreement.
c. "Covered Services" means those Medically Necessary health care
services and supplies which a Member is entitled to receive under a Plan's
benefit program and which are described and defined in the Member's
Subscriber Agreement and in the Plan's provider manual.
d. "Dependent" shall have the meaning assigned to it in the
Member's Subscriber Agreement.
<PAGE>
e. "Emergency Services" means those health care services provided
to a Member in the event of the sudden onset of a symptom, illness or injury
requiring immediate medical or surgical care to prevent serious impairment of
health, or where taking the time to call his or her Primary Care Physician
might place the Member's life in danger. Heart attacks, strokes, poisoning,
loss of consciousness, and convulsions are examples of emergencies.
f. "Medical Director" means a Participating Physician who is
authorized by IPA to be responsible for administering IPA medical affairs.
The Medical Director shall also serve as IPA's liaison to Plans.
g. "Medically Necessary" means medical treatment required by a
Member as determined in accordance with accepted medical and surgical
practices and standards prevailing at the time of treatment and in conformity
with the professional and technical standards adopted by the Quality Care
Committee.
h. "Member" means a person who is enrolled in a Plan, including
enrolled Dependents, has selected a IPA Physician as their Primary Care
Physician, and is entitled to receive Covered Services. At such time as a
Member receives Covered Services from a Participating Physician, such Member
shall be deemed a patient of IPA.
i. "Participating Physician" means a physician duly licensed to
practice medicine by the applicable state authority and who has entered into
an agreement with IPA to provide Covered Services to Members.
j. "Participating Provider" means a participating hospital, a
physician, or any other health care practitioner or entity that has a direct
or indirect contractual arrangement with IPA and/or a Plan to provide Covered
Services to Members.
k. "Plan" means a benefit program of a third party payor which is
an insurer, self-insured employer, health maintenance organization or other
managed care organization and which has entered into an agreement pursuant to
which IPA is to provide Covered Services.
l. "Plan Schedule" means a document attached to this Agreement
relating to a particular Plan which is entitled "Plan Schedule" and which
provides an executive summary of the services to be rendered, compensation to
be paid, requirements to be met and additional terms and conditions of this
Agreement applicable to the particular Plan. In any instance where this
Agreement and a Plan Schedule are inconsistent in a particular circumstance,
the Plan Schedule shall govern. This Agreement may have more than one Plan
Schedule and additional Plan Schedules may be added from time to time in
accordance with the terms of this Agreement.
m. "Primary Care" means the field of general medicine, internal
medicine, family practice or pediatrics.
-2-
<PAGE>
n. "Primary Care Physician" means a physician licensed to practice
medicine who has executed the attached Primary Care Physician Participation
Schedule to provide Primary Care Covered Services and who has agreed to
provide Primary Care physician services to Members.
o. "Quality Management" means the process, plans and procedures by
which IPA or a Plan assures that the quality of care provided to Members
meets accepted medical standards. It may involve the establishment of a
Quality Care Committee to, among other things, monitor medical services
provided to Members and take action in any instance in which the competence
or professional conduct of a Participating Provider may be detrimental to
patient safety or to the delivery of patient care.
p. "Referral" means the process by which a Participating Physician
directs a Member to seek and obtain Covered Services from a health
professional, a hospital or any other provider of Covered Services.
q. "Specialist Care" means Covered Services rendered by a
Participating Physician who is not a Primary Care Physician.
r. "Specialist Care Physician" means a physician licensed to
practice medicine who has executed the attached Participating Specialist Care
Attachment to provide Specialist Care Covered Services and who has agreed to
provide Specialist Care physician services to Members.
s. "Subscriber" means the person who signs the application for
membership in the Plan and in whose name the subscription premium is paid. A
Subscriber signs for himself or herself and any Dependents.
t. "Subscriber Agreement" means the individual or family contract
with a Plan or any of its affiliates, including all amendments thereto, under
which a Subscriber and his or her Dependents are entitled to receive Covered
Services.
u. "Utilization Management" means the process, plans and
procedures by which IPA or Plan assures that Participating Providers are
efficient and follow economically sound practices in providing Covered
Services. It may involve the establishment of a Quality Care Committee to
set economic standards and procedures and to monitor and make appropriate
corrections which relate to the business, efficiency and economic aspects of
providing Covered Services.
2. SERVICES TO BE PERFORMED BY THE PHYSICIAN.
a. Services. Physician, within Physician's licensure and
expertise, agrees to provide or arrange to provide Covered Services, as
described in relevant Plan Schedule(s)
-3-
<PAGE>
incorporated herein by reference, to Members. Physician shall provide
Covered Services with the same standard of care, skill and diligence used by
similar physicians in the community in which such services are rendered.
b. Covering Physicians. Physicians agrees to provide or arrange
to provide coverage for all Members under the Physician's care twenty-four
(24) hours per day, each day of the year. If Physician is, for any reason,
from time to time unable to provide Covered Services when and as needed,
Physician may secure the services of a qualified physician (the "Covering
Physician") who shall render such Covered Services otherwise required of
Physician. Covering Physician must be approved by IPA to provide Covered
Services to Members and Physician shall notify IPA in advance of Covering
Physician providing any services hereunder by giving his or her name,
qualifications, address and telephone number and such other pertinent
information as shall be required by IPA. Physician shall be solely
responsible for securing services of such Covering Physician. It will be
Physician's responsibility to ensure that the Covering Physician (i) will not
seek reimbursement from the Plan for Covered Services under the terms of this
Agreement unless the payment arrangement with the Plan permits the Covering
Physician to be paid directly by the Plan for such services, (ii) will abide
by IPA's and Plan's policies and procedures including Utilization Management
and Quality Management, and (iii) agrees to be bound by all other provisions
of this Agreement relating to the delivery of Covered Services. Physician
agrees to accept responsibility for costs associated with any deviations of
Covering Physician from above requirements.
c. Ancillary Services. Physician agrees to refer all ancillary
services to Participating Providers, to the extent available, in accordance
with IPA Utilization Management procedures.
d. Hospital Admission Authorization. Physician shall admit
Members to a Participating Hospital in accordance with Utilization Management
procedures described in the Plan Schedules and/or in accordance with the
policies adopted by the IPA from time to time. Physician may not admit any
Member to any hospital on a non-emergency basis without pre-certification for
admission as prescribed in the Plan Schedules or in the IPA's policies.
e. Physician Referral. Primary Care Physicians shall not refer
Members except in accordance with Utilization Management procedures of the
Plan and/or policies adopted by the IPA from time to time, and shall (i)
refer a Member to another Participating Physician or Provider for
non-emergency Covered Services, or (ii) self refer for other than primary
care services, only upon compliance with the Referral Management Program as
prescribed by the Plan or IPA. Specialist Physicians shall provide non
emergency Covered Services (including diagnostic services) to a Member upon
referral, by the Member's Primary Care Physician unless such referral
authorization is not required and, if applicable, upon receipt of
authorization from IPA, except in case of emergency. Specialist Physicians
shall only refer a Member to another Participating Physician or other
Participating Provider for non-emergency Covered Services upon compliance
with the Referral Management Program. Failure of
-4-
<PAGE>
Physician to obtain such prior authorizations when applicable shall
constitute a material breach of this Agreement which shall entitle IPA, at
its option, to terminate this Agreement under Paragraph 8(a) below.
f. Data Requirements. Physician agrees to provide Plan with any
reasonably requested billing, claims or medical record information which is
necessary for the Plan to conduct utilization review and quality management
activities. The IPA shall inform Physician of the type and format of the
required data and the time-frames for submission of such data. The IPA
represents that it has been appointed as the Plan's agent for purposes of
conducting utilization management and related activities. Physician agrees
to comply with any such request for information from the IPA in a timely
manner.
3. COMPENSATION.
a. Compensation. Physician shall be paid compensation for Covered
Services provided to Members pursuant to (i) the rates, fees or capitation
payments set forth in the Plan Schedules or (ii) the rates and/or capitation
payments adopted by the IPA, as may be modified or adjusted from time to time
by the IPA, and applicable to the service and class of provider. The IPA
shall from time to time distribute information setting forth services, rates
of payment, co-payments, billing information and other arrangements pertinent
to Physician's compensation with respect to services to Members.
b. Charges to Members. Physician will look only to Plan for
compensation for Covered Services, except that Physician may seek
compensation from or make surcharges to a Member for i) services other than
Covered Services, or ii) co-payments or deductibles identified in the
applicable Plan Schedules.
c. Physician Responsibility. Physician shall be responsible to
collect for Physician's own account all co-payments and deductibles
applicable to Covered Services rendered to Members. Services rendered to
Members which are not Covered Services shall be solely the responsibility of
the Member.
d. Plan Schedules. Plan Schedules in respect of Plans for which
contractual arrangements with IPA exist as of the date of the Agreement are
attached to and are a part of this Agreement. Plan Schedules respecting
Plans with which contractual arrangements are made in the future shall become
a part of this Agreement in accordance with the provisions of Paragraph 8.e.
below. If any Plan Schedule which is a part of this Agreement is in conflict
with any provision of this Agreement, such Plan Schedule shall govern the
rights of the parties with respect to the matter in conflict.
e. Claims. Physician shall submit claims to the Plan, for all
Covered Services on the appropriate claim forms as soon as possible but in no
event later than sixty (60) days from date of service; provided, however,
that Plan may waive this requirement. Physician agrees to
-5-
<PAGE>
complete such claims information, including appropriate coding and completion
of HCFA-1500 or similar claims forms, in connection with services rendered
pursuant to this Agreement. All claim payments will be considered final
unless adjustments are requested in writing by Physician within the time
specified by the applicable Plan.
f. COB Obligations of Physician. Physician agrees to cooperate
with IPA and the applicable Plan for proper identification of claims subject
to Coordination of Benefits ("COB") or subrogation, and to bill and collect
from other payors such charges for which the other payor is responsible.
When Plan is determined to be secondary to any other payor including
Medicare, shall pay Physician no greater amount than the difference between
the amount received by Physician from the primary payor and the amount owing
under the applicable Plan Schedule.
g. Member Non-Recourse. In accordance with Section 38a-193 (c) of
the Connecticut General Statutes, Physician agrees that in no event,
including but not limited to, non-payment by Plan, Plan's insolvency or
breach of this Agreement, will Physician bill, charge, collect a deposit
from, seek compensation, remuneration or reimbursement from or have any
recourse against a Member or persons (other than the Plan) acting on the
Member's behalf for services provided under this Agreement. Physician
agrees that in the event of the Plan's insolvency or other cessation of
operations, to continue to provide services to Members through the period for
which premiums have been paid and until care has been appropriately
transferred to another physician. The Physician agrees that the provisions
of this Section shall survive the termination of this Agreement regardless of
the reason for termination, including the Plan's insolvency, and shall be
construed to be for the benefit of Members.
4. REPRESENTATIONS
a. Representations by IPA. IPA represents and warrants that it is
a Connecticut corporation. IPA makes no representation concerning the number
of Members it can or will refer to Physician under this Agreement.
b. Representations by Physician. Physician represents and
warrants:
(i) that Physician is a physician, duly licensed to practice
medicine in the State of Connecticut without restriction or sanction;
(ii) that if Physician is an Admitting Physician, Physician
will remain a member in good standing of the medical staff of a
Participating Hospital, with privileges that are appropriate to allow
admission of patients by Physician;
(iii) that Physician maintains, and agrees to continue to
maintain, in effect, at Physician's sole cost and expense, throughout the
entire term of this Agreement, a policy of professional malpractice
liability insurance with a licensed insurance company
-6-
<PAGE>
permitted to do business in the State of Connecticut to cover any loss,
liability or damage alleged to have been committed by Physician, or
Physician's professional agents, servants or employees. Where
malpractice coverage is maintained on a claims-made basis, appropriate
tail coverage insuring Physician against any claims relating to the
period that the Physician provides services hereunder. The limits of
liability provided by such insurance policy shall be at least as great as
established by the Board of the IPA from time to time and as required by
the applicable Plan; and
(iv) that Physician provides and agrees to continue to provide,
at Physician's sole cost and expense, throughout the entire term of this
Agreement, a policy or policies of insurance covering Physician's
principal place of business insuring Physician against any claim of loss,
liability or damage committed or arising out of the alleged condition of
said premises, or the furniture, fixtures, appliances or equipment
located therein, with limits at least as great as established by the
Board of the IPA from time to time and as required by the applicable Plan.
5. OBLIGATIONS OF PHYSICIAN
a. Hours. Physician agrees to be available to provide Covered
Services or to provide coverage for said services twenty-four (24) hours per
day, seven (7) days per week, three hundred sixty-five (365) days per year.
b. Proof of Insurance and Notice of Adverse Claims. Physician
shall provide IPA with a minimum of thirty (30) days prior written notice in
the event any of the insurance policies set forth in Paragraph 4 are
canceled, amended or not renewed. Upon request, Physician shall furnish to
IPA written evidence that the policies of insurance required under Paragraph
4 are in full force and effect. Physician agrees to provide written
notification to IPA in the event of any legal action arising out of services
provided to Members covered by IPA contracts with Plans within ten (10)
working days of any notice of such legal action.
c. Medical Records. Physician agrees to maintain records and to
provide information regarding services rendered to patients subject to this
Agreement to IPA, to applicable Plans, and to applicable state and federal
regulatory agencies, as may be reasonably required. Such obligations shall
not be terminated upon termination of this Agreement. Physician agrees to
permit Plan's or IPA's authorized representatives at all reasonable times to
have access upon reasonable request to books, records and other papers
relating to Covered Services rendered by Physician, and access to the cost
thereof and to the amounts of any payments received from Members or from
others on such Member's behalf. Physician agrees to retain such books and
records for a term of at least seven (7) years from and after the termination
of this Agreement. Physician further agrees to permit access to and
inspection, to the extent required by law, by IPA, Plans, the Connecticut
Secretary of State, the Connecticut Commissioner of Public Health, The United
States Department of Health and Human Services, and the Comptroller General
of the United States, at all reasonable times and upon demand, of all
-7-
<PAGE>
of those facilities, books and records maintained or utilized by Physician in
the performance of Covered Services pursuant to this Agreement.
d. Hospital Privileges. If Physician is an Admitting Physician,
during the entire term of this Agreement, Physician shall remain a member in
good standing of the medical staff of a [Participating Hospital], with
privileges that are appropriate to allow admission to a Participating
Hospital of patients by Physician.
e. Continuing Education. Physician shall attend and participate
in approved continuing education courses and shall attend, at the reasonable
request of the IPA, specialized training sessions and managed care programs
presented by Plan and/or IPA.
f. Compliance with IPA Rules. Physician agrees to be bound by the
rules, regulations and policies of IPA, as developed and adopted from time to
time by the IPA, and Physician recognizes that such provisions may be amended
from time to time. Physician agrees to cooperate with any administrative
procedures which may be adopted by IPA regarding the performance of Covered
Services pursuant to this Agreement.
g. Compliance with IPA Dispute Resolution Procedures. Physician
agrees to be bound by the IPA's Dispute Resolutions Policies and Procedures,
as in effect from time to time.
h. Physician Roster. Physician agrees that IPA and each Plan
which contracts with IPA may use Physician's name, address, telephone number
and specialty in the IPA or Plan directory of Participating Providers.
i. Cooperation with Plan Medical Directors. Physician understands
that Plans will place certain obligations upon IPA regarding the quality of
care received by Members and that in certain instances will have the right to
review the quality of care administered to Members. Physician agrees to
cooperate with Plan or IPA Medical Directors, as applicable, in the Medical
Directors' review of the quality of care administered to Members, to
participate in IPA's Quality Care Committee and Utilization Management
subcommittees and to comply with the policies adopted by the IPA and such
committees from time to time.
j. Binding Agreement. Physician agrees to be bound by all of the
terms and conditions, applicable to Physician, of each and every agreement
between IPA and any Plan with respect to which Physician has agreed to
participate under this Agreement; provided, however, that in any instance in
which there is a conflict between any Plan agreement and either this
Agreement or the applicable schedule to this Agreement, the Plan agreement
shall prevail.
k. Closure of Practice. Physician may close his/her practice to
new patients upon thirty (30) days prior notice to IPA, provided that the
practice shall be closed to all new patients except family members of
existing patients.
-8-
<PAGE>
l. Compliance with Law and Ethical Standards. Physician shall at
all times, during the term of this Agreement comply with all applicable
federal, state or municipal statues or ordinances, all applicable rules and
regulations of the Board of Registration in Medicine and the ethical
standards of the American Medical Association.
m. Nondiscrimination. Physician agrees not to differentiate or
discriminate in its provision of Covered Services to Members because of race,
color, national origin, ancestry, religion, sex, marital status, sexual
orientation or age.
6. MEDICAL RECORDS.
With respect to each Member receiving Covered Services hereunder,
Physician shall maintain medical records in such form, containing such
information, and preserved for such time period(s), and shall keep such
records confidential, all as are required by state and federal law. To the
extent permitted by law, in accordance with procedures required by law and
upon receipt of reasonable notice from IPA or Plan, Physician shall permit
IPA or Plan to inspect and make copies of said records.
7. TERM OF AGREEMENT.
This Agreement will become effective ________________, 199__ and remain
in effect through _____________________, 199__, unless sooner terminated
pursuant to the terms of this Agreement. This Agreement will automatically
renew for successive periods of twelve (12) months each on the same terms and
conditions contained herein, unless sooner terminated pursuant to the terms
of this Agreement.
8. TERMINATION OF THE AGREEMENT.
a. Termination With Cause. This Agreement may be terminated with
cause by either party upon sixty (60) days prior written notice to the other
party if the other party violates or fails to comply with any of the material
requirements of this Agreement, or if any of the representations made in
Paragraph 4 by the other party are not or cease to be true; provided,
however, that the breaching party shall be given an opportunity to cure such
breach during the sixty (60) day notice period. If the breach is cured
during such notice period, then this Agreement shall remain in effect.
b. Immediate Termination. Notwithstanding any other provision of
this Agreement to the contrary, the IPA shall have the right to terminate
this Agreement immediately in the event that the Physician:
(i) shall have his or her license to practice medicine revoked
or subject to sanction;
-9-
<PAGE>
(ii) is subject to the loss, suspension or reduction of (i)
medical staff privileges at any hospital or (ii) federal or state
controlled substance registrations;
(iii) undertakes any activity which results in jeopardy to the
life, health or safety of patients; or
(iv) fails to comply with a Plan's or IPA's policies and
procedures, as adopted from time to time.
c. Termination Without Cause. This Agreement may be terminated
by either party at any time without cause upon at least ninety (90) days
prior written notice to the other party.
d. Suspension. Pending the final adjudication of any action to
revoke, sanction or reduce a license to practice medicine or privileges at a
hospital, or upon failure of the Physician to satisfy the participation
criteria of any Plan, the President of IPA may suspend the Physician's
provision of Covered Services pursuant to this Agreement or to the Members of
a Plan, as the case may be. Any Physician subject to such action may seek
reinstatement by filing a petition with the Board of Directors pursuant to
procedures approved by the Board; provided, however, that no Physician shall
be eligible for reinstatement unless the proceeding leading to suspension has
been finally adjudicated in favor of the Physician or the Board of Directors
finds by clear and convincing evidence that such proceeding, if conducted,
would be finally adjudicated in favor of the Physician.
e. Failure to Accept Plan Participation. For each Plan with which
the IPA contracts, the IPA shall provide to Physician a description of the
Plan contract. Physician understands and agrees that the IPA shall review,
evaluate and, in some instances, negotiate contracting options with the
various Plans. The IPA may act as a messenger to facilitate discussions
concerning non-risk contracts with Plans ("Non-Risk Contracts") and may
negotiate contracts with Plans which require the IPA and Physician to bear
economic risk as part of the contract's terms ("Risk Contracts").
Physician agrees to participate in, and to accept the terms and
compensation negotiated by IPA with respect to each Plan except where the
Physician is required to give IPA notice of election for participation, or
may elect that to participate under applicable law.
Within fifteen (15) days of receipt of IPA's notice of a Non-Risk
contract, Physician may notify the IPA of his/her intent to participate in
the Contract (the "Opt-in Notice"). If the IPA does not receive an Opt-in
Notice from Physician then the time period prescribed above, Physician shall
be designated as not participating in Contracts where the Physician must
provide a notice of election to participate and shall be designated
participating where the Physician must elect not to participate.
-10-
<PAGE>
IPA may request that Physician execute documents indicating participation
in a particular Risk or Non-Risk Contract.
f. Responsibility for Members Upon Suspension or at Termination.
Physician shall continue to provide Covered Services to a Member who is
receiving Covered Services from Physician on the effective date of suspension
of participation under, or termination of, this Agreement until the then
existing spell of illness is completed, unless IPA or Plan makes reasonable
and medically appropriate provision for the assumption of such Covered
Services by another Participating Provider. Physician agrees to cooperate
with the IPA and the Plan in the proper transition of care to another
Participating Physician. For the period after termination, specified in the
applicable Plan Schedule, IPA or Plan, as applicable, shall pay Physician for
those Covered Services provided to a Member in accordance with the
compensation methodology described in the Plan Schedule or, if applicable,
developed by the IPA.
g. Liability Upon Termination. The contractual obligations
(including but not limited to payment of deficits or a loss of withholds) of
Physician under this Agreement and a Plan Schedule which arise or accrue
prior to the effective date of termination will survive termination of this
Agreement.
9. UTILIZATION/QUALITY MANAGEMENT
a. IPA shall establish a Quality Care Committee which shall be
responsible for the continuing review of the care provided to Members by
Participating Providers. The Quality Care Committee shall also establish a
Utilization Management program to review the cost effectiveness of Covered
Services furnished by Physician to Members on an inpatient and outpatient
basis. Such program will include pre-admission, concurrent and retrospective
review. Physician shall comply with the Utilization Management program and
with any additional Utilization Management requirements imposed by IPA or a
Plan.
b. Physician agrees to be bound by and comply with policies and
procedures established by the Quality Care Committee. Physician agrees that
the Quality Care Committee may deny Physician payment hereunder for those
Covered Services provided to a Member which are determined not to be
Medically Necessary or in respect of which Physician failed to receive a
required prior consent/authorization or follow policies or procedures which
are developed and adopted by a Plan and/or IPA. IPA may also impose
financial penalties and/or terminate this Agreement immediately if Physician
fails to comply with the IPA's Utilization Management policies or
recommendations.
c. Failure to comply with the requirements of this paragraph 9
shall be deemed by IPA to be a material breach of this Agreement and shall,
at IPA's option, be grounds for immediate termination of this Agreement.
10. RIGHT OF FIRST OPPORTUNITY.
-11-
<PAGE>
The Physician hereby grants IPA the first opportunity to negotiate Risk
Contracts and enter into Risk Contracts with a Plan on behalf of the
Physician in accordance with the following terms:
a. If the Physician is contacted by a Plan for the purpose of
participating in the Plan, or if the Physician desires to participate in a
Plan or to renew a contract where the IPA also has a contract with such Plan
in effect, in any case after the effective date of this Agreement, the
Physician agrees to promptly notify IPA in writing of such offer. IPA will
have sixty (60) days from the date of notice to execute a letter of intent to
enter into a definitive agreement with the Plan and an additional one hundred
twenty (120) days after execution of the letter of intent to negotiate and
execute a definitive agreement between IPA and the Plan. The Physician
agrees to suspend all negotiations with such Plan during the period in which
IPA is conducting negotiations with the Plan. IPA agrees to promptly notify
the Physician if IPA decides not to contract with the Plan or is otherwise
unable to reach an acceptable agreement with such Plan, and in either such
case the Physician may after such notice negotiate and execute a separate
agreement with the Plan. IPA will use its best efforts to exercise its right
of first refusal in an expeditious manner.
b. If IPA is contacted by a Plan for the purpose of entering into
an agreement with the Plan, or if IPA contacts a Plan for the purpose of
entering into a contract with the Plan, IPA will promptly notify the
Physician in writing of such contact. The Physician agrees to suspend or
forego separate negotiation of a contract with the Plan during a one hundred
twenty (120) day period from the date of such notice, during which time IPA
may negotiate a definitive agreement between IPA and the Plan. IPA agrees to
promptly notify the Physician if it decides not to contract with the Plan or
is otherwise unable to reach an acceptable agreement with such Plan, and in
either such case, the Physician may after such notice negotiate and execute a
separate agreement with the Plan.
c. If the Physician has in effect a contract with a Plan as of the
date that IPA first executes a contract with a Plan, then the Physician
agrees not to renew such contract as of its expiration date and instead to
participate in such Plan through IPA as of such expiration date.
11. GENERAL PROVISIONS.
a. 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 Physician at the address
appearing in the introductory paragraph on the first page of this Agreement,
and to IPA as follows:
MedServ IPA, Inc.
1520 Highland Avenue
-12-
<PAGE>
Cheshire, Connecticut 06410
Attn: Associate Chief Executive Officer
Each party may change such party's address by written notice given in
accordance with this paragraph. Notices delivered personally will be deemed
communicated as of actual receipt; mailed notices will be deemed communicated
as of three days after mailing.
b. Entire Agreement of the Parties. This Agreement supersedes any
and all agreements, either written or oral, between the parties hereto with
respect to the subject matter contained herein and contains all of the
covenants and agreements between the parties with respect to the rendering of
Covered Services to Members. Each party to this Agreement acknowledges that
no representations, inducements, promises, or agreements, oral or otherwise,
have been made by either party, or anyone acting on behalf of either party,
which are not embodied herein, and that no other agreement, statement, or
promise not contained in this Agreement shall be valid or binding.
c. 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.
d. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
e. Assignment. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties to it, and their respective heirs, legal
representatives, successors and assigns. Notwithstanding the foregoing,
neither Physician or IPA may assign any of their respective rights or
delegate any of their respective duties hereunder without receiving the prior
written consent of the other party which consent shall not be unreasonably
withheld.
f. Independent Contractor. At all times relevant and pursuant to
the terms and conditions of this Agreement, Physician is and shall be
construed to be an independent contractor practicing Physician's profession
and shall not be deemed to be or construed to be an agent, servant or
employee of IPA.
g. Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to enforce the performance of this Agreement or
as required by law.
h. 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-
<PAGE>
i. Amendment. This Agreement may be automatically amended by IPA
to comply with any amendments to Plan Schedules or any subsequent agreements
entered into between IPA and a Plan or to comply with any applicable state or
federal law or regulation or other governmental requirement. Any other
amendments must be mutually agreed to in writing by IPA and Physician.
Executed on the date and year first above written.
PHYSICIAN
By:___________________________________(signature)
___________________________________, M.D. (print name)
Date:________________
MEDSERV IPA, INC.
By:___________________________________(signature)
___________________________________(print name)
Date:________________
-14-
<PAGE>
PHYSICIANS CARE FOR CONNECTICUT, INC.
ACUTE HOSPITAL AGREEMENT
This Agreement is between PHYSICIANS CARE FOR CONNECTICUT, INC.
("Physicians Care"), a Connecticut corporation, licensed as a health
maintenance organization (HMO) under the laws of the State of
Connecticut, and _________________________________ ("the Hospital"), a
facility duly licensed under the laws of the State of Connecticut.
WHEREAS, Physicians Care desires to purchase, on behalf of Physicians
Care Members, certain inpatient and outpatient hospital services
[and hospital-based professional services]; and
WHEREAS, the HOSPITAL desires to contract with Physicians Care to provide
such services to Members.
NOW THEREFORE, Physicians Care and the HOSPITAL agree as follows:
1.0 DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 Covered Services: The medical services and benefits for which a
Member is eligible under the applicable Subscriber Agreement. Except as
specifically stated in the applicable Subscriber Agreement, only (i)
services that are Medically Necessary and provided or authorized by a
Member's Primary Care Physician or (ii) Emergency Services, are Covered
Services. The terms used herein shall have the same meaning in
this Agreement as those specified in the applicable Subscriber Agreement
unless there is a conflict, in which case the Subscriber Agreement shall
control.
<PAGE>
1.2 Emergency Services: Health care services required in the event of
the sudden onset of a condition that requires immediate medical or
surgical care to prevent death or permanent impairment of the Member's
health, or where taking the time to call his or her Primary Care
Physician might place the Member's life in danger. Heart attack, stroke,
poisoning, loss of consciousness or convulsions are examples.
1.3 Inpatient Hospital Services: All hospital services, including
ancillary services (but not including separately billed professional
services) associated with inpatient care.
1.4 Medicaid: A program under which Physicians Care membership is
provided to persons eligible for Medicaid benefits in return for periodic
payments to Physicians Care by the Connecticut Medicaid agency.
1.5 Medically Necessary: Those medical services that are essential for
the treatment of a Member's medical condition and are in accordance with
generally accepted medical practice.
1.6 Medicare Risk Program: A program under which Physicians Care
membership is provided to Medicare-eligible beneficiaries in return for
-2-
<PAGE>
prospective payments to Physicians Care by the Health Care Financing
Administration and/or the enrolled member.
1.7 Medicare Supplement Program: A program under which Physicians Care
membership is provided to Medicare-eligible beneficiaries. Medicare is
the primary payor, and Physicians Care is financially responsible for
supplemental coverage in accordance with the Medicare Supplement Program
Agreement.
1.8 Member: A Member means a person entitled to receive medical and
hospital services and/or financing of such services through Physicians
Care pursuant to the terms of an effective and applicable Subscriber
Agreement. For purposes of this Agreement, a Member includes any person
for whom Physicians Care is legally obligated to provide, arrange to
provide and/or underwrite health care or administrative services.
1.9 Outpatient Hospital Services: All hospital services provided on an
ambulatory basis, including, but not limited to emergency room services,
surgical day care and outpatient ambulatory procedures, but not including
separately billed professional services.
1.10 Physicians Care Administrative Manual ("Manual"): This Agreement
incorporates by reference, as fully set forth herein, the Manual in
effect on the date hereof
-3-
<PAGE>
and as modified by Physicians Care in its sole discretion. The Manual
includes, but is not limited to, claims submission procedures, discharge
planning procedures, and Hospital recredentialing criteria. Hospital
acknowledges receipt of the Manual. In the event of conflict between the
Manual and this Agreement, this Agreement shall control.
1.11 Physicians Care Physician: A physician who maintains a contractual
relationship with Physicians Care to provide or arrange to provide
comprehensive health care services to Members.
1.12 Primary Care Physician: A specialist in internal medicine, family
practice, or pediatrics who is under contract with Physicians Care to
provide and authorize a Member's care.
1.13 Self-Funded Employer (Self-Insured Employer): An Employer that
contracts with Physicians Care for the provision or arrangement of
managed care medical services and other related administrative services
for its eligible employees, dependents and/or retirees whereby the
Employer assumes financial risk for claims incurred by those participants.
1.14 Subscriber Agreement(s): The contract(s) under which Physicians Care
is legally required to provide Covered Services to a Member. Physicians
Care shall provide the Hospital with copies of Subscriber Agreements upon
written request.
-4-
<PAGE>
2.0 HOSPITAL SERVICES AND AUTHORIZATION REQUIREMENTS
2.1 The Hospital will provide Members with Covered Services to the
extent customarily provided by the Hospital. If the Hospital plans to
modify or delete services that are usually and customarily provided, or
add services for its patients not in effect as of the effective date of
this contract, the Hospital will provide prior written notice to
Physicians Care of such changes.
Priority and access to services for Members will be determined on the
same basis as for other patients, according to the severity of medical
need and availability of accommodations. The Hospital agrees to provide
Covered Services to Members in accordance with generally accepted
standards of patient care. The Hospital will provide the same quality of
care to Members as it provides to its other patients.
2.2 In the event that a Member requires Emergency Services, the Hospital
will provide or arrange for such services and will notify Physicians Care
as soon as practical (but no longer than the later of twelve (12) hours
or the next business day) following the provision of Emergency Services
to permit Physicians Care to notify the applicable Primary Care Physician
to coordinate further delivery of care. Whenever Emergency Services are
provided or arranged, the Hospital shall furnish Physicians Care with
information on care provided and patient status. The Hospital shall also
notify and provide Physicians Care with the status and likely disposition
of any patients being cared for by the Hospital's Emergency Room.
-5-
<PAGE>
2.3 In the event that admission is deemed necessary following the
provision of Emergency Services, Physicians Care authorization must be
obtained for the admission. This authorization is separate from the
notification for Emergency Services and must be obtained prior to
admitting the patient, unless the delay would endanger the patient. If
patient condition does not permit prior authorization of admission, the
Hospital must contact Physicians Care within twelve (12) hours of the
admission or the next business day to obtain authorization. The
notification to Physicians Care in and of itself does not constitute
authorization.
2.4 In the event that follow-up services, but not an admission, are
believed to be necessary by the Hospital or its physicians following the
provision of Emergency Services, Physicians Care authorization must be
obtained. This authorization is separate from the notification for
Emergency Services and must be obtained prior to treating the patient for
follow-up care.
3.0 HOSPITAL FINANCIAL RESPONSIBILITIES
3.1 In the event that the Hospital provides or arranges for Services to
a Member, (except a Point of Service Plan Member receiving Out-of-Network
Services), without Physicians Care authorization and not otherwise
constituting Emergency Services as defined in this Agreement, the
Hospital must seek payment from such Member or other responsible party,
and Physicians Care shall not be responsible for payment for such
-6-
<PAGE>
services. In the event of admission following Emergency Services,
Physicians Care will not be responsible for payment of unauthorized days
if the notification procedures outlined in Section 2.2 were not followed.
Under these circumstances, the Hospital cannot bill the Member for
payment of these services.
3.2 The Hospital shall submit claims to Physicians Care within ninety
(90) days from the date of service; however, claims may be submitted
later than ninety (90) days but not more than one (1) year from the date
of service, if accompanied by documentation indicating good cause for
late filing. Physicians Care shall determine good cause in its sole
discretion and shall not be obligated to pay claims submitted more than
ninety (90) days from date of service without good cause for delay or
claims submitted more than one (1) year from the date of service. The
Member may not be billed for such services. Claims shall be submitted in
accordance with the procedures and requirements set forth in the Manual.
This includes the requirement that all claims shall be submitted on an
UB-82 or UB-92 form, with all appropriate ICD-9 and CPT codes.
3.3 Except as specifically set forth herein, the Hospital will look
solely to Physicians Care for payment for Covered Services provided to
Members. The Hospital will not assert any claim or demand on Members or
employers of Members (except for Self-Funded Employers in accordance with
Section 4.10 of this Agreement), for
-7-
<PAGE>
compensation for Covered Services, whether or not payment has actually been
received from Physicians Care.
3.4 When rendering Covered Services, the Hospital may collect and retain
from Members, at the same time services are provided, any applicable
copayment or deductible as set forth in the applicable Subscriber
Agreement. Payments to the Hospital shall be net of any applicable
copayments or deductibles payable by Members for Covered Services,
whether or not the Hospital collects such payment.
3.5 Physicians Care will be responsible for payment for Covered Services
if the patient is an active Member and eligible for such service on the
date of treatment. Physicians Care reserves the right to deny or recover
payment if after receipt of a claim it is determined that the patient was
not a Member on the date of service. The Hospital may bill the patient
or his or her insurance carrier directly for those non-reimbursed
services furnished to the patient. [Retroactive termination policy]
3.6 The Hospital may bill a Member for services furnished to a Member if
(1) the services were not authorized by a Physicians Care Physician
(except Emergency Services), (2) the services were not Covered Services
and the Member was advised that the services were not Covered Services
prior to their provision, or (3) the Member did not identify himself or
herself as a Member.
-8-
<PAGE>
3.7 Physicians Care assesses the appropriateness of inpatient care using
clinically recognized criteria, such as the Managed Care Appropriateness
Protocol (MCAP). If through its utilization management program,
Physicians Care determines that any portion of a hospital stay is not
Medically Necessary, Physicians Care, at its discretion, will not be
financially responsible for said portion of the hospital stay.
3.8 The Hospital agrees that, in the event of the insolvency or
bankruptcy of Physicians Care, the Hospital shall not seek payment from
Members who have received Covered Services pursuant to this Agreement
whether or not payment has actually been received for such services, and
whether or not this Agreement remains in effect. The Hospital's sole
redress shall be against the assets of Physicians Care as applicable
under this Agreement. In the event of insolvency on the part of
Physicians Care, the Hospital agrees to continue to provide services to a
Member who is an inpatient until the Member is discharged based on
medical appropriateness.
4.0 RATES AND PAYORS' FINANCIAL RESPONSIBILITIES
4.1 Physicians Care will pay the Hospital for authorized Inpatient
Services and Outpatient Services, and the Hospital shall accept from
Physicians Care in full and final satisfaction for all Hospital Inpatient
Services and Outpatient Services rendered hereunder, fees and charges as
specified in Exhibit A, which is by reference expressly incorporated
herein.
-9-
<PAGE>
4.2 Pre-Admission Testing: The cost of any diagnostic, consultative or
other services related to an inpatient admission performed by the
Hospital, or by a wholly-owned or controlled subsidiary or affiliate of
the Hospital, within seven (7) days immediately preceding the admission
shall be included in the Inpatient Services rates of payment.
4.3 If Physicians Care and the Hospital have not reached agreement on
rates for Medicare Risk Program Members, Physicians Care may pay the
Hospital for Inpatient Services at the then applicable Medicare DRG rates
of payment in accordance with Section 4012 of the Omnibus Budget
Reconciliation Act of 1987 in full satisfaction of its obligations
hereunder.
4.4 For Covered Services provided to Medicare Supplement Program Members
who are covered by Medicare or Physicians Care, as applicable, Physicians
Care shall reimburse the Hospital solely for the Medicare copayment and
deductible that would be payable by the Medicare enrollee for such care
(or the full contract rate, if lower). For any Covered Services that
Medicare does not cover, the Hospital shall be reimbursed at the contract
rates, as set in Exhibit A.
4.5 Physicians Care may pay the Hospital for Covered Services for
Connecticut Medicaid Members at the rates that the Hospital has
contracted with the Connecticut Medicaid agency for such services.
-10-
<PAGE>
4.6 All rates of payment, as listed in Exhibit A, are applicable to all
Member, except as otherwise indicated.
4.7 For hospitals licensed in Connecticut, all rates of payment, as
listed in Exhibit A, are inclusive of any free care surcharge as may be
required to be itemized on Hospital bills to payors in accordance with
any state law regarding uncompensated or free care pool. If the
Connecticut Medicaid agency regulations or other legal mandates prohibit
the inclusion of any uncompensated or free care surcharge in the rates of
payment listed above, then those rates will be reduced by the amount of
the uncompensated or free care surcharge.
For hospitals licensed out of state, all rates of payment, as listed in
Exhibit A, are inclusive of any surcharges, taxes, or similar fees
required to be itemized or otherwise incorporated into or added onto
Hospital bills to payers in accordance with laws that may be enacted in
the provider hospital's state.
4.8 Hospital agrees to accept payments for Inpatient and Outpatient
Services according to the guidelines as specified in the Manual.
Physicians Care will pay the lower of billed charges or the rate set
forth in Exhibit A. Physicians Care may revise the outpatient Physicians
Care Fee Schedule(s) from time to time in accordance with industry
practice, including but not limited to such revisions as the addition or
deletion of procedural codes.
-11-
<PAGE>
4.9 Notwithstanding any other provisions of Section 3 or 4 of this
Agreement, Physicians Care shall not be liable under this Agreement for
payment of Covered Services that are the financial responsibility of a
Self-Funded Employer. The Hospital shall look to the responsible
Self-Funded Employer for payment for any non-reimbursed Covered Services.
4.10 Physicians Care's may engage a third-party auditing firm to verify
the accuracy of Hospital claims. The Hospital shall cooperate with
Physicians Care and its auditor under the procedures as set forth in the
Manual. For DRG-based reimbursement, Physicians Care reserves the right
to validate inpatient claim information (including diagnosis procedure
code) used to determine DRG assignment by Physicians Care, and to adjust
payments to the Hospital based on corrections to claim information.
5.0 PAYMENT FOR MEMBERS ELIGIBLE FOR OTHER INSURANCE
5.1 Hospital agrees to comply with generally accepted practices and
procedures for coordination of benefits, and third party liability
recovery and to assist Physicians Care with such programs. Hospital will
collect information concerning duplicate coverage, workers compensation
and personal injury liability at the time of admission, and provide such
information to Physicians Care in a timely manner.
-12-
<PAGE>
5.2 Hospital shall bill the primary payor directly, and provide
Physicians Care with copies of all primary payor payments and outstanding
claims. Physicians Care will pay the remaining balance for Covered
Services provided to Members whose primary insurer is not Physicians Care
after the primary payor's full liability has been determined (full
liability equals the primary payor's payment plus the primary payor's
contractual allowance). In no event will Physicians Care pay more than
if it were the primary payor, and Physicians Care's secondary liability
as payor shall be determined based on the rates set forth in Exhibit A.
If Physicians Care makes payment to the Hospital and it is subsequently
determined that Physicians Care is not the primary payor, the Hospital
shall reimburse Physicians Care for such payments.
5.3 Notwithstanding the above and in accordance with state regulation,
Physicians Care shall not have liability, either as the primary or
secondary payor, under this Agreement, unless the services are Covered
Services under this Agreement and unless the Hospital has complied with
all other terms of the Agreement.
6.0 PROFESSIONAL STAFF; PHYSICIAN CREDENTIALING AND RECREDENTIALING
6.1 The Physicians Care Medical Director shall be responsible for
representing Physicians Care Physicians in their relationship with the
Hospital and will assume general oversight of Physicians Care's
responsibility with respect to the provision of services pursuant to this
Agreement. The Hospital agrees to consider applications from
-13-
<PAGE>
qualified Physicians Care Physicians for appointment to the Hospital Staff
and for delineation of privileges in accordance with the Bylaws, rules,
regulations and policies of both the Hospital and its Medical Staff.
6.2 A Physicians Care Physician who has been appointed to the Hospital
medical staff under Section 6.1 shall have the opportunity to provide
medical care to Members at the Hospital within the scope of any
applicable privilege. Any professional services required with respect to
any service or admission (such as consultation services) that cannot
appropriately be delivered by a Physicians Care Physician who has been
appointed to the Hospital staff may be provided by an appropriate
physician on the Hospital staff according to the usual Hospital protocols
and rules for referral and in accordance with any separate agreements
which may exist between the Hospital physicians and Physicians Care for
physician services.
6.3 Each physician who is a member of the medical staff of the Hospital
providing services under this Agreement shall maintain his or her status
as a duly licensed physician under the laws of Connecticut and shall
continue to be Board Certified or Board Eligible in their respective
practicing specialty. Hospital agrees to provide Physicians Care, on
written request, with a current list of staff physicians and their
medical staff classifications.
-14-
<PAGE>
6.4 Physicians Care may request credentialing and recredentialing
information from the Hospital regarding Physicians Care Physicians
(either current Physicians Care Physicians or physicians who have applied
to become Physicians Care Physicians) who are on the medical staff of the
Hospital. Pursuant to each physician's release and waiver, in accordance
with the regulations of the Connecticut Board of Medicine and as supplied
by Physicians Care, the Hospital shall provide written confirmation that
the physicians in question have been credentialed by Hospital, and are
members of the Hospital staff in good standing; and the Hospital shall
provide a copy of each physician's application for medical licensure or
renewal of medical licensure, whichever is most recent. The Hospital
shall provide whatever additional information may be required in
accordance with Board of Medicine regulations.
To the extent the Hospital has knowledge, it shall immediately notify
Physicians Care in the event that a Physicians Care Physician is censured
or reprimanded by any health care facility (and such discipline is
reportable to the Board of Medicine) or has his or her privileges at any
health care facility suspended, revoked, restricted, made probationary,
or otherwise diminished in any way, including resignation or nonrenewal,
or is subject to any disciplinary action by the Board of Registration.
Physicians Care shall be notified of any medical malpractice claim or
potential medical malpractice claim against the Hospital or its
physicians by any Physicians Care Member.
-15-
<PAGE>
7.0 REPORTING REQUIREMENTS; MEDICAL RECORDS
7.1 The Hospital shall make available to Physicians Care the information
specified in the Reporting Requirements section of the Manual, and shall
comply with such procedures specified therein.
7.2 Upon request, the Hospital agrees to provide Physicians Care with
copies of Members' medical records, except where specific member consent
is required by law. Physicians Care represents that patient consent for
release of patient records has been obtained by Physicians Care as part
of its enrollment process and the Member's acceptance of the Subscriber
Agreement.
7.3 During the term of this Agreement, and for a period of seven years
thereafter, Hospital will allow Physicians Care to have access to their
Members' medical records relating to services provided under this
Agreement.
7.4 In addition, upon reasonable request and at reasonable times,
Physicians Care and the Hospital shall make available to the other for
review and copying any additional records, patient charts, and other
medical or billing documents or information as may be deemed relevant to
any determination required by this Agreement, or as may be requested by
Physicians Care for medical purposes, quality assurance or utilization
review purposes, pursuant to any legal or regulatory
-16-
<PAGE>
requirements. All parties shall treat such information confidentially
pursuant to Section 1 9.0 of this Agreement and in accordance with law.
7.5 The Hospital will be reimbursed for copies of any documents
requested pursuant to Section 7 of this Agreement at the rate of $
per page.
8.0 UTILIZATION MANAGEMENT/ CASE MANAGEMENT/ QUALITY ASSURANCE
8.1 The Hospital shall cooperate with and assist Physicians Care in its
case management/quality assurance and utilization management functions.
The Hospital shall provide on-site privileges for Physicians Care's
liaison nurses, continuing care nurses, patient care coordinators, and/or
social workers upon Physicians Care's request, including unrestricted
access to medical records, unrestricted access to Members and hospital
staff, and authority to input into the Hospital medical record, when in
accordance with the Bylaws of the Hospital. The Hospital shall allow
Physicians Care's liaison nurses, continuing care nurses, patient care
coordinators, and/or social workers work spare access including desk
space, telephone access, spare for a computer terminal, and secure space
for personal belongings.
-17-
<PAGE>
8.2 The Hospital shall cooperate with Physicians Care in level-of-care
decision-making and discharge planning in accordance with the discharge
planning procedures outlined in the Manual. The final decision of
level-of-care for purposes of determining reimbursement by Physicians
Care shall be made by Physicians Care.
8.3 The Hospital shall treat Physicians Care Members the same as any
other Hospital patients in making available to such patients social
services (e.g., assistance with Medicaid applications, family counseling,
and advice and assistance in obtaining other non-medical post-discharge
services and continuing care services.)
8.4 The Hospital shall not exclude Members from its utilization
management, quality assurance and discharge planning programs and will
notify Physicians Care of Members referred to its Quality Assurance
Review Committee.
9.0 HOSPITAL RECREDENTIALING PROGRAM
9.1 The Hospital agrees to cooperate with and participate in any
Physicians Care Recredentialing Requirements as set forth in the Manual.
The Hospital agrees to provide the required information and documentation
in a timely manner as specified in the Manual.
10.0 TERM AND TERMINATION
10.1 This Agreement shall be effective as of ___________________________
and shall continue
-18-
<PAGE>
in effect through ______________________________ (the "Term") and shall
be automatically renewed under the same terms and conditions for
successive one-year terms (each referred to as a "Renewal Term"), unless
terminated upon written notice given at least ninety (90) days prior to
the end of the Term.
10.2 The Hospital fees for services to Physicians Care Members specified
in Exhibit A shall be effective for the Term of this Agreement. Should
the parties be unable to agree upon the schedule of fees and charges
within ninety (90) days after the start of any Renewal Term, the Hospital
will be reimbursed in accordance with the reimbursement schedule in
effect on the last day of the Term, until a new reimbursement schedule is
finalized or unless the Agreement is terminated as provided in Section
10.1.
10.3 Physicians Care shall continue to pay for Covered Services provided
to Members hospitalized at the time of termination of this Agreement in
accordance with the terms and rates in effect on the date of termination
and until there can be a medically appropriate discharge.
10.4 This Agreement shall be terminated immediately upon receipt of
notice of any of the following: 1) material breach, where the material
breach is not resolved or cured within thirty (30) days of receipt of
written notice of the alleged breach; 2) fraud and misrepresentation; 3)
loss, limitation or suspension of the Hospital's license, JCAHO
-19-
<PAGE>
accreditation, or qualification under Medicare or Medicaid; 4) where
either party (i) makes a general assignment for the benefit of creditors,
(ii) suffers or permits the appointment of a receiver for its business or
assets, (iii) avails itself of, or becomes subject to, any proceeding
under the Federal Bankruptcy Act or any other statute of any state
relating to insolvency or the protection of the rights of creditors.
11.0 NOTICES
All legal notices or other communications provided for or required by
this Agreement shall be given by each party to the other parties in
writing addressed to the parties as set forth below, or to such other
addresses as each party may designate by written notice:
To Hospital:
To Physicians Care:
12.0 SEVERABILITY
If any term, provision, covenant or condition of this Agreement is
invalid, void or unenforceable, the rest of the Agreement shall remain in
full force and effect. The validity or enforceability of any term or
provision hereof shall in no way affect the validity or enforceability of
any other term or provisions.
-20-
<PAGE>
13.0 INTEGRATION AND AMENDMENTS
13.1 This Agreement (and its Exhibits and Appendices) contains the
complete understanding and agreement between the parties and supersedes
all representations, understandings or agreements prior to the execution
hereof.
13.2 No waiver, alteration, amendment or modification of this Agreement,
(except to the Manual and except as otherwise noted), shall be valid
unless in each instance a written memorandum specifically expressing such
waiver, alteration, amendment or modification is made and subscribed by a
duly authorized officer of the Hospital and a duly authorized officer of
Physicians Care.
14.0 LIABILITY INSURANCE
The Hospital shall procure and maintain professional liability insurance
(medical malpractice) in the amount of at least $1,000,000/$3,000,000,
and ensure that its physicians maintain such insurance for the duration
of this Agreement. Physicians Care shall procure and maintain
professional liability insurance (medical malpractice) in the amount of
at least $1,000,000/$3,000,000, and the Hospital agrees to procure and
maintain comprehensive general liability in an amount commensurate with
industry standards. The parties shall immediately report to the other
any lapse or modification in such coverage.
-21-
<PAGE>
15.0 USE OF NAME
The Hospital agrees to designation as a participating Hospital in
Physicians Care Member or marketing materials and the parties agree to
the listing of each other's name, address, telephone number and
description of facilities and services in each other's brochures and
literature.
16.0 MEMBER COMPLAINTS
16.1 Physicians Care and the Hospital agree, to the extent permitted by
law, fully to advise each other of any Member complaint, grievance or
claim known to that party relating to services provided under this
Agreement.
16.2 Physicians Care maintains a grievance process for Members in
accordance with applicable state and federal law, and the applicable
Subscriber Agreement. Hospital agrees to cooperate with Physicians Care
in its resolution of Member complaints and grievances.
17.0 INDEMNIFICATION
17.1 The Hospital shall indemnify and hold harmless Physicians Care from
and against any claims, demands, costs, or expenses (including reasonable
attorney's fees) arising from or based on acts or omissions of the
Hospital or its agents or employees
-22-
<PAGE>
under this Agreement, provided that the Hospital shall have no liability to
Physicians Care under this subsection unless the Hospital is promptly
notified in writing of all claims asserted and actions instituted against
Physicians Care and is given the opportunity to defend the same at its own
cost and expense.
17.2 Physicians Care shall indemnify and hold the Hospital harmless from
and against any claims, demands, costs or expenses (including reasonable
attorney's fees) arising from or based on acts or omissions of Physicians
Care or its agents or employees under this Agreement, provided that
Physicians Care shall have no liability to the Hospital under this
subsection unless Physicians Care is promptly notified in writing of all
claims asserted and actions instituted against the Hospital and is given
the opportunity to defend the same at its own cost and expense.
18.0 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which will be deemed to be an original, but all of which together shall
constitute the same instrument.
19.0 PROPRIETARY INFORMATION
Each party to this Agreement shall protect the confidentiality of
proprietary business information, Member medical record information, and
any other confidential information disclosed to it by any other party
under this Agreement, and labeled as such, including but not limited to
financial information, fees, and rates contained in this
-23-
<PAGE>
Agreement and Exhibit A, and shall take all reasonable measures to
prevent any of its agents, employees, independent contractors, or any
other person involved in doing business with or controlled by the party
involved from disclosing or transmitting to any person or entity any of
such information; provided, however, that nothing herein shall prohibit a
party from disclosing or transmitting information to the extent necessary
under the terms of this Agreement or as required by law. This provision
shall not apply to any information which is now in, or subsequently
enters the public domain, provided that a party has not, in violation of
this provision, disclosed or caused to be disclosed such information so
as to make it public or to enter the public domain.
IN WITNESS WHEREOF, Physicians Care and the HOSPITAL have executed this
Agreement by their respective duly authorized officers.
PHYSICIANS CARE FOR CONNECTICUT, INC. HOSPITAL
BY:______________________________ BY:______________________________
DATE:___________________________ DATE:___________________________
-24-
<PAGE>
MEDSERV IPA, INC.
PARTICIPATION AGREEMENT FOR MEDICAL GROUPS
This AGREEMENT (the "Agreement") is made and entered into this _____ day
of _________________, 1997, by and between MEDSERV IPA, INC. ("IPA"), and
__________________________________ having a principal place of business at
________________________________________________("Group").
WHEREAS, IPA intends to enter into agreements with third party payors
including insurers, self-insured employers, health maintenance organizations,
and other managed care organizations (collectively, "Plan(s)") for the
provision of primary care and specialty medical and surgical services to
Members; and
WHEREAS, IPA and Group desire to enter into an agreement whereby the
Group agrees to arrange for the provision of Covered Services to Members of
such Plans through physicians employed or associated with the Group who are
listed on Exhibit ___("Group Physicians").
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties agree as follows:
1. DEFINED TERMS
Terms used herein which are not otherwise defined in context and the
initial letters of which are capitalized shall have the following
definitions:
a. "Admitting Physician" means a physician who, in the normal
course and scope of his medical practice, admits patients for hospital care
on either an inpatient or treats patients within a hospital on an outpatient
basis.
b. "Co-payment" means those charges for professional services
which shall be collected directly by Group Physician from Member as payment
in addition to payments by a Plan, in accordance with Member's Subscriber
Agreement.
c. "Covered Services" means those Medically Necessary health care
services and supplies which a Member is entitled to receive under a Plan's
benefit program and which are described and defined in the Member's
Subscriber Agreement and in the Plan's provider manual.
<PAGE>
d. "Dependent" shall have the meaning assigned to it in the
Member's Subscriber Agreement.
e. "Emergency Services" means those health care services provided
to a Member in the event of the sudden onset of an illness or injury
requiring immediate medical or surgical care to prevent serious impairment of
health, or where taking the time to call his or her Primary Care Physician
might place the Member's life in danger. Heart attacks, strokes, poisoning,
loss of consciousness, and convulsions are examples of emergencies.
f. "Medical Director" means a Participating Physician who is
authorized by IPA to be responsible for administering IPA medical affairs.
The Medical Director shall also serve as IPA's liaison to Plans.
g. "Medically Necessary" means medical treatment required by a
Member as determined in accordance with accepted medical and surgical
practices and standards prevailing at the time of treatment and in conformity
with the professional and technical standards adopted by the Quality Care
Committee.
h. "Member" means a person who is enrolled in a Plan, including
enrolled Dependents, has selected an IPA Physician as his/her Primary Care
Physician, and is entitled to receive Covered Services. At such time as a
Member receives Covered Services from a Participating Physician, such Member
shall be deemed a patient of IPA.
i. "Participating Physician" means a physician duly licensed to
practice medicine by the applicable state authority and who has entered into
an agreement with IPA to provide Covered Services to Members.
j. "Participating Provider" means a participating hospital, a
physician, or any other health care practitioner or entity that has a direct
or indirect contractual arrangement with IPA and/or a Plan to provide Covered
Services to Members.
k. "Plan" means a benefit program of a third party payor which is
an insurer, self-insured employer, health maintenance organization or other
managed care organization and which has entered into an agreement pursuant to
which IPA is to provide Covered Services.
l. "Plan Schedule" means a document attached to this Agreement
relating to a particular Plan which is entitled "Plan Schedule" and which
provides an executive summary of the services to be rendered, compensation to
be paid, requirements to be met and additional terms and conditions of this
Agreement applicable to the particular Plan. In any instance where this
Agreement and a Plan Schedule are inconsistent in a particular circumstance,
the Plan Schedule shall govern. This Agreement may have more than one Plan
Schedule and additional Plan Schedules may be added from time to time in
accordance with the terms of this Agreement.
-2-
<PAGE>
m. "Primary Care" means the field of general medicine, internal
medicine, family practice or pediatrics.
n. "Primary Care Physician" means a physician licensed to practice
medicine who has executed the attached Primary Care Physician Participation
Schedule to provide Primary Care Covered Services and who has agreed to
provide Primary Care physician services to Members.
o. "Quality Management" means the process, plans and procedures by
which IPA or a Plan assures that the quality of care provided to Members
meets accepted medical standards. It may involve the establishment of a
Quality Care Committee to, among other things, monitor medical services
provided to Members and take action in any instance in which the competence
or professional conduct of a Participating Provider may be detrimental to
patient safety or to the delivery of patient care.
p. "Referral" means the process by which a Participating Physician
directs a Member to seek and obtain Covered Services from a health
professional, a hospital or any other provider of Covered Services.
q. "Specialist Care" means Covered Services rendered by a
Participating Physician who is not a Primary Care Physician.
r. "Specialist Care Physician" means a physician licensed to
practice medicine who has executed the attached Participating Specialist Care
Attachment to provide Specialist Care Covered Services and who has agreed to
provide Specialist Care physician services to Members.
s. "Subscriber" means the person who signs the application for
membership in the Plan and in whose name the subscription premium is paid. A
Subscriber signs for himself or herself and any Dependents.
t. "Subscriber Agreement" means the individual or family contract
with a Plan or any of its affiliates, including all amendments thereto, under
which a Subscriber and his or her Dependents are entitled to receive Covered
Services.
-3-
<PAGE>
u. "Utilization Management" means the process, plans and
procedures by which IPA or Plan assures that Participating Providers are
efficient and follow economically sound practices in providing Covered
Services. It may involve the establishment of a Quality Care Committee to
set economic standards and procedures and to monitor and make appropriate
corrections which relate to the business, efficiency and economic aspects of
providing Covered Services.
2. SERVICES TO BE PERFORMED BY GROUP PHYSICIANS.
a. Services. The Group shall cause Group Physicians, within Group
Physicians' licensure and expertise, to provide or arrange to provide
Covered Services, as described in relevant Plan Schedule(s) incorporated
herein by reference, to Members. The Group shall cause Group Physicians to
provide Covered Services with the same standard of care, skill and diligence
used by similar physicians in the community in which such services are
rendered.
b. Covering Physicians. The Group shall require that Group
Physicians provide or arrange to provide coverage for all Members under Group
Physicians' care twenty-four (24) hours per day, each day of the year. If a
Group Physician is, for any reason, from time to time, unable to provide
Covered Services when and as needed, the Group Physician may secure the
services of a qualified physician (the "Covering Physician") who shall render
such Covered Services otherwise required of the Group Physician. Covering
Physician must be approved in writing by IPA to provide Covered Services to
Members and the Group shall cause Group Physicians to notify IPA in advance
of Covering Physician providing any services hereunder by giving Covering
Physician's name, qualifications, address and telephone number and such other
pertinent information as shall be required by IPA. The Group agrees that its
Group Physicians shall be solely responsible for securing services of such
Covering Physician. It will be the Group Physician's responsibility to
ensure that the Covering Physician (i) will not seek reimbursement from the
Plan for Covered Services under the terms of this Agreement unless the
payment arrangement with the Plan permits the Covering Physician to be paid
directly by the Plan for such services, (ii) will abide by IPA's and Plan's
policies and procedures including Utilization Management and Quality
Management, and (iii) agrees to be bound by all other provisions of this
Agreement relating to the delivery of Covered Services. The Group agrees to
accept responsibility for costs associated with any deviations of Covering
Physician from above requirements.
c. Ancillary Services. The Group shall cause Group Physicians to
refer all ancillary services to Participating Providers, to the extent
available, in accordance with IPA Utilization Management procedures.
d. Hospital Admission Authorization. The Group shall cause Group
Physicians to admit Members to a Participating Hospital in accordance with
Utilization Management procedures described in the Plan Schedules and/or in
accordance with the policies adopted by the IPA from time to time. The Group
agrees that Group Physicians may not admit any Member to any hospital on a
non-emergency basis without pre-certification for admission as prescribed in
the Plan Schedules or in the IPA's policies.
e. Physician Referral. The Group agrees to require that Group
Physicians who are Primary Care Physicians shall not refer Members except in
accordance with Utilization Management procedures of the Plan and/or policies
adopted by the IPA from time to time, and shall (i) refer a Member to another
Participating Physician or Provider for non-emergency
-4-
<PAGE>
Covered Services, or (ii) self refer for other than primary care services,
only upon compliance with the Referral Management Program as prescribed by
the Plan or IPA. The Group agrees to require that Group Physicians who are
Specialist Physicians shall provide non emergency Covered Services (including
diagnostic services) to a Member upon referral, by the Member's Primary Care
Physician unless such referral authorization is not required and, if
applicable, upon receipt of authorization from IPA, except in case of
emergency. The Group agrees to require that Group Physicians who are
Specialist Physicians only to refer a Member to another Participating
Physician or other Participating Provider for non-emergency Covered Services
upon compliance with the Referral Management Program. Failure of a Group
Physician to obtain such prior written authorizations when applicable shall
constitute a material breach of this Agreement which shall entitle IPA, at
its option, to terminate this Agreement under Paragraph 7(a) below.
f. Data Requirements. The Group shall require Group Physicians
to provide Plan with any reasonably requested billing, claims or medical
record information which is necessary for the Plan to conduct utilization
review and quality management activities. The IPA shall inform the Group of
the type and format of the required data and the time-frames for submission
of such data. The IPA represents that it has been appointed as the Plan's
agent for purposes of conducting utilization management and related
activities. The Group shall cause Group Physicians to comply with any such
request for information from the IPA in a timely manner.
3. COMPENSATION.
a. Compensation. The Group agrees that the Group shall be
compensated for Covered Services provided to Members pursuant the terms set
forth in Exhibit A.
b. Charges to Members. The Group agrees to require that Group
Physicians will look only to the Plan for compensation for Covered Services,
except that Group Physicians may seek compensation from or make surcharges to
a Member for i) services other than Covered Services, or ii) co-payments,
coinsurance or deductibles identified in the applicable Plan Schedules.
c. Group Physician Responsibility. The Group shall cause each
Group Physician to be responsible to collect for the Group Physician's own
account all co-payments and deductibles applicable to Covered Services he/she
rendered to Members. Services rendered to Members which are not Covered
Services shall be solely the responsibility of the Member.
d. Plan Schedules. Plan Schedules in respect of Plans for which
contractual arrangements with IPA exist as of the date of the Agreement are
attached to and are a part of this Agreement. Plan Schedules respecting
Plans with which contractual arrangements are made in the future shall become
a part of this Agreement in accordance with the provisions of Paragraph 7.e.
below. If any Plan Schedule which is a part of this Agreement is in conflict
with any
-5-
<PAGE>
provision of this Agreement, such Plan Schedule shall govern the rights of
the parties with respect to the matter in conflict.
e. Claims. The Group shall cause Group Physicians to submit
claims to the Plan for all Covered Services on the appropriate claim forms as
soon as possible but in no event later than sixty (60) days from date of
service; provided, however, that Plan may waive this requirement in its sole
discretion. The Group shall cause Group Physicians to complete such claims
information, including appropriate coding and completion of HCFA-1500 or
similar claims forms, in connection with services rendered pursuant to this
Agreement. All claim payments will be considered final unless adjustments
are requested in writing by the Group or a Group Physician within the time
specified by the applicable Plan. In the event the Group is compensated
under Exhibit A on a capitated basis, the Group shall cause Group Physicians
to submit claims information so that Plan and IPA may maintain a record of
encounters and perform utilization management and quality assurance
activities.
f. COB Obligations of Group Physicians. The Group shall cause
Group Physicians to cooperate with IPA and the applicable Plan for proper
identification of claims subject to Coordination of Benefits ("COB") or
subrogation, and to bill and collect from other payors such charges for which
the other payor is responsible. When Plan is determined to be secondary to
any other payor including Medicare, the IPA shall pay Group Physician no
greater amount than the difference between the amount received by Group
Physician from the primary payor and the amount owing under the applicable
Plan Schedule.
g. Member Non-Recourse. The Group shall cause Group Physicians to
agree that in no event, including but not limited to, non-payment by Plan,
Plan's insolvency or breach of this Agreement, will Group or Group Physicians
bill, charge, collect a deposit from, seek compensation, remuneration or
reimbursement from or have any recourse against a Member or persons (other
than the Plan) acting on the Member's behalf for services provided under
this Agreement. The Group shall cause Group Physicians to agree that in
the event of the Plan's insolvency or other cessation of operations, to
continue to provide services to Members through the period for which premiums
have been paid and until care has been appropriately transferred to another
physician. The Group agrees and shall cause Group Physicians to agree that
the provisions of this Section shall survive the termination of this
Agreement regardless of the reason for termination, including the Plan's
insolvency, and shall be construed to be for the benefit of Members.
4. REPRESENTATIONS
a. Representations by IPA. IPA represents and warrants that it is
a Connecticut corporation. IPA makes no representation concerning the number
of Members it can or will refer to Group Physicians under this Agreement.
-6-
<PAGE>
b. Representations by Group. The Group represents and warrants
that Group Physicians:
(i) are physicians duly licensed to practice medicine in the
State of Connecticut without restriction or sanction;
(ii) if a Group Physician is an Admitting Physician, Group
Physician will remain a member in good standing of the medical staff of a
Participating Hospital, with privileges that are appropriate to allow
admission of patients by Group Physician;
(iii) maintain, and agree to continue to maintain, in effect, at
Group's or Group Physicians' sole cost and expense, throughout the entire
term of this Agreement, a policy of professional malpractice liability
insurance with a licensed insurance company permitted to do business in
the State of Connecticut to cover any loss, liability or damage alleged
to have been committed by Group Physicians, or by Group Physicians'
professional agents, servants or employees. Where malpractice coverage
is maintained on a claims-made basis, appropriate tail coverage insuring
Group Physicians against any claims relating to the period that the Group
Physician provides services hereunder. The limits of liability provided
by such insurance policy shall be at least as great as established by the
Board of the IPA from time to time and as required by the applicable
Plan; and
(iv) maintain and agree to continue to maintain, at the Group's
or Group Physician's sole cost and expense, throughout the entire term of
this Agreement, a policy or policies of insurance covering the Group
Physicians' principal place of business insuring Group Physician against
any claim of loss, liability or damage committed or arising out of the
alleged condition of said premises, or the furniture, fixtures,
appliances or equipment located therein, with limits at least as great as
established by the Board of the IPA from time to time and as required by
the applicable Plan.
5. OBLIGATIONS OF GROUP PHYSICIANS
a. Hours. The Group shall cause Group Physicians to be available
to provide Covered Services or to provide coverage for said services
twenty-four (24) hours per day, seven (7) days per week, three hundred
sixty-five (365) days per year.
b. Proof of Insurance and Notice of Adverse Claims. The Group
shall cause Group Physicians to provide IPA with a minimum of thirty (30)
days prior written notice in the event any of the insurance policies set
forth in Paragraph 4 are canceled, amended or not renewed. Upon request, the
Group or Group Physicians shall furnish to IPA written evidence that the
policies of insurance required under Paragraph 4 are in full force and
effect. The Group shall cause Group Physicians to provide written
notification to IPA in the event of any legal action arising out of services
provided to Members covered by IPA contracts with Plans within ten (10)
working days of any notice of such legal action.
-7-
<PAGE>
c. Medical Records. The Group shall cause Group Physicians to
maintain medical records and to provide information regarding services
rendered to patients subject to this Agreement to IPA, to applicable Plans,
and to applicable state and federal regulatory agencies, as may be reasonably
required. Such obligations shall not be terminated upon termination of this
Agreement. The Group shall cause Group Physicians to permit Plan's or IPA's
authorized representatives at all reasonable times to have access upon
reasonable request to books, records and other papers relating to Covered
Services rendered by Group Physicians, and access to the cost thereof and to
the amounts of any payments received from Members or from others on such
Member's behalf. The Group shall cause Group Physicians to retain such books
and records for a term of at least seven (7) years from and after the
termination of this Agreement. The Group shall further cause Group
Physicians to permit access to and inspection, to the extent required by law,
by IPA, Plans, the Connecticut Secretary of State, the Connecticut
Commissioner of Public Health, the United States Department of Health and
Human Services, and the Comptroller General of the United States, at all
reasonable times and upon demand, of all of those facilities, books and
records maintained or utilized by Group Physicians in the performance of
Covered Services pursuant to this Agreement.
d. Continuing Education. The Group shall cause Group Physicians
to attend and participate in approved continuing education courses and shall
attend, at the reasonable request of the IPA, specialized training sessions
and managed care programs presented by Plan and/or IPA.
e. Compliance with IPA Policies and Rules. The Group shall cause
Group Physicians to be bound by the rules, regulations and policies of IPA,
as developed and adopted from time to time by the IPA, and the Group
recognizes that such provisions may be amended from time to time. The Group
shall cause Group Physicians to cooperate with any administrative procedures
which may be adopted by IPA regarding the performance of Covered Services
pursuant to this Agreement.
f. Physician Roster. The Group agrees and shall cause Group
Physicians to agree that IPA and each Plan which contracts with IPA may use
Group Physicians' name, address, telephone number and specialty in the IPA or
Plan directory of Participating Providers.
g. Cooperation with Plan Medical Directors. The Group agrees and
shall cause Group Physicians to agree that Plans will place certain
obligations upon IPA regarding the quality of care received by Members and
that in certain instances will have the right to review the quality of care
administered to Members. The Group shall cause Group Physicians to cooperate
with Plan or IPA Medical Directors, as applicable, in the Medical Directors'
review of the quality of care administered to Members, to participate in
IPA's Quality Care Committee and Utilization Management subcommittees and to
comply with the policies adopted by the IPA and such committees from time to
time.
-8-
<PAGE>
h. Binding Agreement. The Group shall cause Group Physicians to
be bound by all of the terms and conditions, applicable to Group Physicians,
of each and every agreement between IPA and any Plan with respect to which
Group Physicians have agreed to participate under this Agreement; provided,
however, that in any instance in which there is a conflict between any Plan
agreement and either this Agreement or the applicable schedule to this
Agreement, the Plan agreement shall prevail.
i. Closure of Practice. The Group agrees that Group Physicians
may close their practice to new patients upon thirty (30) days prior notice
to IPA, provided that the practice shall be closed to all new patients except
family members of existing patients or patients with which the physician had
a prior professional relationship.
j. Compliance with Law and Ethical Standards. The Group shall
cause Group Physicians to, at all times, during the term of this Agreement
comply with all applicable federal, state or municipal statutes or
ordinances, all applicable rules and regulations of the Board of Registration
in Medicine and the ethical standards of the American Medical Association.
k. Nondiscrimination. The Group shall cause Group Physicians not
to differentiate or discriminate in its provision of Covered Services to
Members because of race, color, national origin, ancestry, religion, gender,
marital status, sexual orientation or age.
6. TERM OF AGREEMENT.
This Agreement will become effective __________________, 199__ and remain
in effect through ______________________, 199__, unless sooner terminated
pursuant to the terms of this Agreement. This Agreement will automatically
renew for successive periods of twelve (12) months each on the same terms and
conditions contained herein, unless sooner terminated pursuant to the terms
of this Agreement.
7. TERMINATION OF THE AGREEMENT.
a. Termination With Cause. This Agreement may be terminated with
cause by either party upon sixty (60) days prior written notice to the other
party if the other party violates or fails to comply with any of the material
requirements of this Agreement, or if any of the representations made in
Paragraph 4 by the other party are not or cease to be true; provided,
however, that the breaching party shall be given an opportunity to cure such
breach during the sixty (60) day notice period. If the breach is cured
during such notice period, then this Agreement shall remain in effect. In
lieu of termination of this Agreement, the IPA may terminate the
participation of a Group Physician if the breach is attributable to the
action of a Group Physician.
b. Immediate Termination. Notwithstanding any other provision of
this
-9-
<PAGE>
Agreement to the contrary, the IPA shall have the right to terminate any
Group Physician's participation under this Agreement immediately in the event
that the Group Physician:
(i) has his or her license to practice medicine revoked or
subject to sanction;
(ii) is subject to the loss, suspension or reduction of (i)
medical staff privileges at any hospital, or (ii) federal or state
controlled substance registrations;
(iii) undertakes any activity which results in jeopardy to the
life, health or safety of patients; or
(iv) fails to comply with a Plan's or IPA's policies and
procedures, as adopted from time to time.
c. Termination Without Cause. This Agreement may be terminated
by either party at any time without cause upon at least ninety (90) days
prior written notice to the other party.
d. Suspension. Pending the final adjudication of any action to
revoke, sanction or reduce a license to practice medicine or privileges at a
hospital, or upon failure of a Group Physician to satisfy the participation
criteria of any Plan, the President of IPA may suspend a Group Physician's
provision of Covered Services pursuant to this Agreement or to the Members of
a Plan, as the case may be. Any Group Physician subject to such action may
seek reinstatement by filing a petition with IPA's Board of Directors
pursuant to procedures approved by the Board; provided, however, that no
Group Physician shall be eligible for reinstatement unless the proceeding
leading to suspension has been finally adjudicated in favor of the Group
Physician or the Board of Directors finds by clear and convincing evidence
that such proceeding, if conducted, would be finally adjudicated in favor of
the Group Physician.
e. Failure to Accept Plan Participation. For each Plan with which
the IPA contracts, the IPA shall provide to the Group a description of the
Plan contract. The Group understands and agrees that the IPA shall review,
evaluate and, in some instances, negotiate contracting options with the
various Plans. The IPA may act as a messenger to facilitate discussions
concerning non-risk contracts with Plans ("Non-Risk Contracts") and may
negotiate contracts with Plans which require the IPA and the Group and/or
Group Physicians bear economic risk as part of the contract's terms ("Risk
Contracts").
The Group agrees and shall cause each Group Physician to agree to
participate in, and to accept the terms and compensation negotiated by IPA
with respect to each Plan except where the Group is required to give IPA
notice of election for participation, or may elect that to participate under
applicable law. Failure to participate in any Risk Contract with a Plan
under this
-10-
<PAGE>
Agreement shall be grounds for IPA, at its sole option, to terminate this
Agreement upon fifteen (15) days notice to the Group.
Within fifteen (15) days of receipt of a notice of a new contract, the
Group may notify the IPA of its intent to participate in the Contract (the
"Opt-in Notice"). If the IPA does not receive an Opt-in Notice from Group
then the time period prescribed above, the Group shall be designated as not
participating in Contracts where the Group must provide a notice of election
to participate and shall be designated participating where the Group must
elect not to participate.
f. Responsibility for Members Upon Suspension or at Termination.
The Group shall cause its Group Physicians to continue to provide Covered
Services to a Member who is receiving Covered Services from Group Physicians
on the effective date of suspension of participation under, or termination
of, this Agreement until the then existing spell of illness is completed,
unless IPA or Plan makes reasonable and medically appropriate provision for
the assumption of such Covered Services by another Participating Provider.
The Group shall cause Group Physicians to cooperate with the IPA and the Plan
in the proper transition of care to another Participating Physician. For the
period after termination, specified in the applicable Plan Schedule, IPA or
Plan, as applicable, shall pay Group Physicians for those Covered Services
provided to a Member in accordance with the compensation methodology
described in the Plan Schedule or, if applicable, developed by the IPA.
g. Liability Upon Termination. The contractual obligations
(including but not limited to payment of deficits or a loss of withholds) of
the Group and/or Group Physicians under this Agreement and a Plan Schedule
which arise or accrue prior to the effective date of termination will survive
termination of this Agreement.
8. UTILIZATION/QUALITY MANAGEMENT
a. IPA shall establish a Quality Care Committee which shall be
responsible for the continuing review of the care provided to Members by
Participating Providers. The Quality Care Committee shall also establish a
Utilization Management program to review the cost effectiveness of Covered
Services furnished by Group Physicians to Members on an inpatient and
outpatient basis. Such program will include pre-admission, concurrent and
retrospective review. The Group shall cause Group Physicians to comply with
the Utilization Management program and with any additional Utilization
Management requirements imposed by IPA or a Plan.
b. The Group shall cause Group Physicians to be bound by and
comply with policies and procedures established by the Quality Care
Committee. The Group agrees and shall cause its Group Physicians to agree
that the Quality Care Committee may deny Group Physicians payment hereunder
for those Covered Services provided to a Member which are determined not to
be Medically Necessary or in respect of which Group Physicians failed to
receive a required prior consent/authorization or follow policies or
procedures which are developed and adopted by
-11-
<PAGE>
a Plan and/or IPA. IPA may also impose financial penalties and/or terminate
this Agreement immediately if Group Physicians fail to comply with the IPA's
Utilization Management policies or recommendations.
c. Failure to comply with the requirements of this paragraph 8 may
be deemed by IPA to be a material breach of this Agreement and may, at IPA's
option, be grounds for immediate termination of this Agreement.
9. RIGHT OF FIRST OPPORTUNITY.
The Group, on behalf of each of the Group Physicians, hereby grants IPA
the first opportunity to negotiate Risk Contracts and enter into Risk
Contracts with a Plan on behalf of the Group and its Group Physicians in
accordance with the following terms:
a. If the Group or a Group Physician is contacted by a Plan for
the purpose of participating in the Plan, or if the Group or a Group
Physician desires to participate in a Plan or to renew a contract where the
IPA also has a contract with such Plan in effect, in any case after the
effective date of this Agreement, the Group agrees and shall cause its Group
Physicians to agree to promptly notify IPA in writing of such offer. IPA
will have sixty (60) days from the date of notice to execute a letter of
intent to enter into a definitive agreement with the Plan and an additional
one hundred twenty (120) days after execution of the letter of intent to
negotiate and execute a definitive agreement between IPA and the Plan. The
Group agrees and shall cause its Group Physicians to agree to suspend all
negotiations with such Plan during the period in which IPA is conducting
negotiations with the Plan. IPA agrees to promptly notify the Group if IPA
decides not to contract with the Plan or is otherwise unable to reach an
acceptable agreement with such Plan, and in either such case the Group and
Group Physicians may after such notice negotiate and execute a separate
agreement with the Plan. IPA will use its best efforts to exercise its right
of first refusal in an expeditious manner.
b. If IPA is contacted by a Plan for the purpose of entering into
an agreement with the Plan, or if IPA contacts a Plan for the purpose of
entering into a contract with the Plan, IPA will promptly notify the Group in
writing of such contact. The Group agrees and shall cause Group Physicians
to agree to suspend or forego separate negotiation of a contract with the
Plan during a one hundred twenty (120) day period from the date of such
notice, during which time IPA may negotiate a definitive agreement between
IPA and the Plan. IPA agrees to promptly notify the Group if it decides not
to contract with the Plan or is otherwise unable to reach an acceptable
agreement with such Plan, and in either such case, the Group and Group
Physicians may after such notice negotiate and execute a separate agreement
with the Plan.
c. If the Group or one of the Group Physicians has in effect a
contract with a Plan as of the date that IPA first executes a contract with a
Plan, then the Group agrees and shall cause its Group Physicians to agree not
to renew such contract as of its expiration date and instead to participate
in such Plan through IPA as of such expiration date.
-12-
<PAGE>
10. GENERAL PROVISIONS.
a. 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 Group at the address
appearing in the introductory paragraph on the first page of this Agreement,
and to IPA as follows:
Executive Director
MedServ IPA, Inc.
1520 Highland Avenue
Cheshire, Connecticut 06410
Each party may change such party's address by written notice given in
accordance with this paragraph. Notices delivered personally will be deemed
communicated as of actual receipt; mailed notices will be deemed communicated
as of three days after mailing.
b. Entire Agreement of the Parties. This Agreement supersedes any
and all agreements, either written or oral, between the parties hereto with
respect to the subject matter contained herein and contains all of the
covenants and agreements between the parties with respect to the rendering of
Covered Services to Members. Each party to this Agreement acknowledges that
no representations, inducements, promises, or agreements, oral or otherwise,
have been made by either party, or anyone acting on behalf of either party,
which are not embodied herein, and that no other agreement, statement, or
promise not contained in this Agreement shall be valid or binding.
c. 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.
d. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut.
e. Assignment. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties to it, and their respective heirs, legal
representatives, successors and assigns. Notwithstanding the foregoing,
neither the Group nor the IPA may assign any of their respective rights or
delegate any of their respective duties hereunder without receiving the prior
written consent of the other party which consent shall not be unreasonably
withheld.
f. Independent Contractor. At all times relevant and pursuant to
the terms and conditions of this Agreement, the Group and its Group
Physicians are and shall be construed
-13-
<PAGE>
to be an independent contractor and shall not be deemed to be or construed to
be an agent, servant or employee of IPA.
g. Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to enforce the performance of this Agreement or
as required by law.
h. 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.
i. Amendment. This Agreement may be automatically amended by IPA
to comply with any amendments to Plan Schedules or any subsequent agreements
entered into between IPA and a Plan or to comply with any applicable state or
federal law or regulation or other governmental requirement. Any other
amendments must be mutually agreed to in writing by IPA and the Group.
Executed on the date and year first above written.
GROUP
By:__________________________________
Date:__________________________________
MEDSERV IPA, INC.
By:__________________________________
-14-
<PAGE>
Subscription Attachment
I, _____________, hereby agree to purchase the following shares of stock
in Physicians Care for Connecticut, Inc. (the "Company") on the terms and
conditions set forth below and in the Company's Prospectus dated ________
("Prospectus"):
A. Primary Care Physicians (See definition of Primary Care Physician
("PCP") contained on page 48 of the Prospectus):
1 Class A shares: (Note: PCPs may only purchase 1 share of Class A
stock)
@ $3,000 per share if shares purchased before _____ $_________
@ $4,000 per share if shares purchased after ______ $_________
___ Class B shares: (Note: PCPs may purchase as many Class B shares
as desired but are not required to purchase any Class B shares)
@ $3,000 per share if shares purchased before _____ $_________
@ $4,000 per share if shares purchased after ______ $_________
Total: $_________
B. Specialist Physician (See definition of Specialist Physician contained
on page 48 of the Prospectus):
1 Class A shares: (Note: Specialists may only purchase 1 share of
Class A stock)
@ $3,000 per share if shares purchased before _____ $_________
@ $4,000 per share if shares purchased after ______ $_________
Total: $_________
___ Class B shares: (Note: Specialists must purchase at least one share of
Class B stock; however, after purchasing a share of Class B stock,
Specialists may purchase as many Class B shares as desired)
@ $3,000 per share if shares purchased before ____ $_________
@ $4,000 per share if shares purchased after ______ $_________
<PAGE>
C. Hospital Investors.
___ Class B shares: (Note: Hospitals may not purchase Class A shares)
(Note: Licensed hospitals are required to purchase not less than
62.50 shares of Class B stock at $4,000 dollars per share, provided,
however, that if a validly licensed hospital has less than 100 beds,
then the Hospital is required to purchase not less than 25 shares of
Class B stock at $4,000 per share.)
$________
Total: $________
I acknowledge and agree that my purchase of the shares of the Company's
stock indicated above is subject to the terms, conditions, restrictions,
limitations and obligations set forth in the Prospectus.
Please read, complete and sign this Subscription Attachment and return the
Subscription Attachment to:
Physicians Care for Connecticut, Inc.
c/o MedServ IPA, Inc.
1520 Highland Avenue
Cheshire, Connecticut 06410
Attn: Stock Subscription
This Subscription Attachment should be returned to Physicians Care for
Connecticut, Inc. along with the following:
- If applying for a loan from Fleet National Bank, the loan
application form and an executed.
- A MedServ IPA Participation Agreement and the attached Physicians
Care for Connecticut Primary Care Physician or Specialist
Physician Attachment.
<PAGE>
- A check or money order payable in good funds in U.S. dollars and
drawn on a bank in the United States in an amount equaling the
purchase price calculated above.
__________________________
Signature
__________________________
Date
Acknowledged and Accepted:
Physicians Care for Connecticut, Inc.
By:_______________________
__________________________
Date
<PAGE>
LOAN AGREEMENT
This Agreement made this 25th day of November, 1996, by and between FLEET
NATIONAL BANK, a national banking association with an address at 777 Main
Street, Hartford, CT 06115 (the "Lender") and PHYSICIANS CARE FOR
CONNECTICUT, INC., a Connecticut corporation located at 1520 Highland Avenue,
Cheshire, Connecticut 06410 (the "Borrower").
SECTION 1. The Loan Transaction.
1.1 The Line of Credit
a. Amount. Lender will loan to Borrower and Borrower may borrow,
repay and reborrow from Lender up to Six Hundred Fifty Thousand
Dollars ($650,000) (the "Loan").
b. Note. The obligation of Borrower to repay the Loan made pursuant
to this Section 1.1 with interest (the "Loan Obligations") will
be evidenced by a line of credit note (the "Note") in the form
annexed hereto as EXHIBIT 1.1b.
c. Repayment. The Loan Obligations shall be payable as stated in
the Note and if not sooner paid in full will be immediately due
and payable on November 22, 1997.
1.2 Obligations. The Loan Obligations, together with all other
obligations of Borrower to Lender under this Agreement and any
document referred to herein or related to this transaction whether
now existing or hereafter arising, including, without limitation,
principal, interest, reasonable attorneys' fees and costs of
collection, shall be referred to as the "Obligations".
1.3 Guaranty. The payment and performance of the Obligations shall be
unconditionally guaranteed by Hartford County Medical Association,
Incorporated (the "Guarantor") pursuant to a Guaranty Agreement
(the "Guaranty") dated the date of this Agreement.
1.4 Pledge Agreement. The Guaranty shall be fully secured by a pledge
of securities pursuant to a Pledge Agreement dated the date of this
Agreement (the "Pledge Agreement") executed by the Guarantor. The
Lender will release the pledge of the securities pursuant to the
Pledge Agreement upon a pledge by the Borrower of similar securities
pursuant to a new pledge agreement executed by the Borrower
containing the same basic provisions as in the Pledge Agreement and
which is otherwise satisfactory to Lender in its reasonable
discretion.
<PAGE>
SECTION 2. Representations, Warranties and General Covenants. On the date
hereof and in order to induce Lender to enter into this Agreement, Borrower
represents, warrants and covenants the following:
2.1 Organization and Qualification. Borrower is and will continue to
be a corporation duly organized, validly existing and in good
standing under the laws of the State of Connecticut, and is and
will continue to be duly qualified and licensed to do business in
each state where failure to be so qualified would have a material
adverse effect on the Borrower.
2.2 Corporate Records. The Certificate of Incorporation and all
amendments thereto of Borrower have been duly filed and are in
proper order. All books and records of Borrower, including but
not limited to its minute books, bylaws, and books of account, are
accurate and up to date and will be so maintained.
2.3 Power and Authority. Borrower has the power to execute, deliver and
carry out this Agreement and to incur the Obligations and has taken
all necessary action to authorize the execution, delivery and
performance by Borrower of this Agreement and the other documents
executed in connection with this Agreement and the incurring of the
Obligations.
2.4 No Legal Bar. The execution and delivery of this
Agreement and compliance by Borrower with the terms and
provisions hereof or of any of the other agreements or
instruments referred to herein (i) will not, on the date hereof,
violate any provision of any existing law or regulation or any
writ or decree of any court or governmental instrumentality, or
any agreement or instrument to which Borrower is a party or which
is binding upon it or its assets, and (ii) will not result in
the creation or imposition of any hen, security interest, charge
or encumbrance of any nature whatsoever upon or in any of its
assets, except as contemplated by this Agreement. No consent of
any other party, and no consent, license, approval or
authorization of or registration or declaration with any
governmental bureau or agency, is required in connection with the
execution, delivery, performance, validity and enforceability of
this Agreement except for those which have been obtained or
completed prior to the closing of the transactions contemplated
herein; and this Agreement and the Note are valid, binding and
enforceable against Borrower in accordance with their terms.
2.5 Title. Borrower has good and marketable title to all of its
property and assets (the "Property").
2.6 No Material Litigation. Borrower represents that no material
litigation or administrative proceeding of or before any
governmental body is presently pending or, to the knowledge of
Borrower, threatened against Borrower or any of its property.
-2-
<PAGE>
2.7 No Default. Borrower is not in default with respect to the payment
or performance of any of its obligations or in the performance of
any covenants or conditions to be performed by it pursuant to the
terms and provisions of any indenture, agreement or instrument to
which it is a party or by which it may be bound, including, without
limitation, leases of or mortgages on the premises, if any, on
which the Property is or may be located, except in any such case
where such default would not have a material adverse effect on the
financial condition of the Borrower, and Borrower has received no
notice of default thereunder.
2.8 Compliance with Laws. Borrower has complied with and will continue
to comply, except where non-compliance would not have a material
adverse effect on the Borrower, with all applicable statutes and
regulations of the United States of America, and all states,
counties, municipalities and agencies of any governmental authority
thereof, including those with respect to:
a. Any restrictions, specifications or other requirements pertaining
to the services it performs;
b. The conduct of its business operations;
c. The use, maintenance and operation of the real and personal
properties owned or leased by it in the operation of its
business; and
d. The management storage and disposal of hazardous materials,
substances and wastes.
2.9 No Secondary Liabilities. There are no outstanding contracts or
agreements of guaranty or suretyship made by Borrower, or to which
it is a party, or to which. any of its assets are subject, except as
set forth on the financial statements previously provided to Lender.
2.10 Taxes. Borrower has filed or caused to be filed or obtained
extensions for the filing of, and will continue to file and cause to
be filed, all federal, state and local tax returns required by law
to be filed, and has paid and will continue to pay all taxes shown
to be due and payable on such returns or on any assessment made
against it, except if being contested in good faith, and adequate
provision has been made therefor on its books of account. No claims
are being asserted with respect to such taxes which are not
reflected in the financial statements previously provided to Lender.
2.11 Financial Condition. Borrower has submitted to Lender various
financial statements and information, and represents that all of
such financial information is true and correct to the best of the
knowledge and belief of Borrower; that such financial information
fairly presents the financial condition and results of the
operations of Borrower as of the date thereof and for the period
indicated therein; that such financial statements have been prepared
in accordance with generally accepted accounting principles and
practices
-3-
<PAGE>
consistently maintained throughout the period involved; that, as of
the date of such financial information, there were no material
unrealized or anticipated losses from any unfavorable commitments
of Borrower; and that there has been no material adverse change in
the business or assets or in the condition, financial or otherwise,
of Borrower from that set forth in such financial statements.
2.12 Accuracy of Representations. No representation or warranty by
Borrower contained in any certificate or other document furnished
or to be furnished by Borrower pursuant hereto or in connection with
the transactions contemplated hereunder, contains, or at the time
of delivery will contain, any untrue statement of material fact or
omits or will omit to state a material fact necessary to make it not
misleading.
2.13 Trade Names. Borrower operates its business under the name
"Physicians Care for Connecticut" and has no other trade names.
2.14 Director and Officer Debt. Borrower does not owe any money to or
have any outstanding liabilities to any director, trustee or officer
of Borrower other than liabilities to officers for services rendered
in the ordinary course of the Borrower's business.
2.15 Pension Plans. To the extent that any present or future pension
plan of Borrower is subject to state or federal statutes or
regulations, Borrower represents and warrants that it shall at
all times be in compliance in all material respects with such
statutes and regulations and will furnish Lender with copies of such
reports as it may be required to furnish under such statutes or
regulations.
2.16 Environmental Contamination. To the best of Borrower's knowledge,
there does not now exist on, under or within any property owned or
operated by the Borrower any known discharge, spillage, uncontrolled
loss, seepage or filtration of oil, petroleum or hazardous or toxic
substances or wastes which could have a material adverse effect on
the property, financial condition or operations of Borrower.
SECTION 3. Affirmative Covenants. Borrower covenants and agrees that, so long
as any of the Obligations shall remain outstanding, Borrower will perform and
observe each and all of the covenants and agreements herein set forth.
3.1 Payments Under this Agreement and Other Agreements. Borrower
will make punctual payment of all monies and will faithfully and
fully keep and perform all of the terms, conditions, covenants and
agreements contained on Borrower's part to be paid, kept or
performed hereunder, and will be bound in all respects as debtor
under this Agreement; and will make punctual payment of all monies
and will faithfully and fully keep and perform all of the material
terms, conditions, covenants and agreements on its part to be paid,
kept or performed under the terms of any lease or mortgage of the
premises where the Property is located or is to be located wherein
Borrower is lessee or mortgagor, and
-4-
<PAGE>
will promptly notify Lender in the event of any default on the part
of Borrower or receipt by Borrower of any notice of alleged default
under any such lease or mortgage.
3.2 Information, Access to Books, and Inspection. Borrower will furnish
to Lender such information regarding the business affairs and
financial condition of Borrower as Lender may reasonably request,
and upon at least 24 hours prior notice, give any representative or
agent of Lender access during normal business hours to, and permit
him or her to examine and copy, and make extracts from, any and all
books, records and documents in the possession of Borrower relating
to its affairs and to inspect any of the properties of Borrower.
3.3 Payment of Liabilities. Borrower will pay and discharge at or before
their due date all taxes, assessments, rents, claims, debts and
charges, except where the same may be contested in good faith and
Borrower maintains, in accordance with generally accepted accounting
principles and practice, appropriate reserves satisfactory to Lender
for the accrual of any of the same.
3.4 Payment of Taxes. Borrower will pay promptly when due
all taxes and assessments upon the Property or for its use or
operation or upon this Agreement or upon any note or notes
evidencing the Obligations. If not paid by Borrower, at Lender's
option, in its sole and absolute discretion, Lender may discharge
taxes, liens or security interests or other encumbrances at any
time levied or placed on the Property, including but not limited
to payments on premises leased by Borrower. Borrower agrees to
reimburse Lender on demand for any payment made with interest at
the prime rate contained in the Note, or any expense incurred by
Lender pursuant to the foregoing authorization. Nothing herein
contained shall obligate Lender to make such payment nor shall
the making of one or more such payments constitute: (i) an
agreement on Lender's part to take any farther or similar action;
or (ii) a waiver of any default by Borrower under the terms
thereof or of this Agreement. Borrower may in good faith contest
any of such taxes in the manner provided by law as long as
Borrower establishes a reserve on its financial statements, as
Lender may reasonably require, equal to the amount of the
contested charges, interest and penalties.
3.5 Corporate Existence, Properties, Insurance. (a)
Borrower will do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate
existence, rights and franchises, and comply in all material
respects with all laws applicable thereto; at all times maintain,
preserve and protect all franchises, patents, and trade names and
preserve all the remainder of its property used or useful in the
conduct of its business and keep the same in good condition and
repair (normal wear and tear and obsolescence excepted), and from
time to time make, or cause to be made, all needful and proper
repairs, renewals, replacements, betterments and improvements
thereto, and will pay or cause to be paid, except when the same
may be contested in good faith, all rent due on premises where
any property is held or may be held, so that the business carried
on in connection therewith may be continuously conducted.
-5-
<PAGE>
(b) Borrower will have and maintain, or shall cause
to be in place and maintained, insurance at all times with
respect to all Property against risks of fire (including
so-called extended coverage), theft and such other risks as is
customary for entities engaged in the same business as the
Borrower in companies licensed to do business in Connecticut.
Borrower will furnish Lender with certificates or other evidence
satisfactory to Lender of compliance with the foregoing insurance
provisions. Borrower will also at all times maintain necessary
workers' compensation insurance and such other insurance as may
be required by law or as may be reasonably required in
writing by Lender.
3.6 Notices. Borrower will promptly give notice in
writing to Lender of the occurrence of any event which
constitutes or which with notice or lapse of time, or both, would
constitute an Event of Default hereunder. Borrower will give
Lender written notice of any court or governmental orders,
notices, claims, investigations, litigation and proceedings
affecting Borrower in which the amounts involved exceed $ 10,000
in any one instance or $50,000 in the aggregate and are not
covered by insurance or malpractice trust funds, and of any
dispute which may exist between Borrower and any governmental
regulatory body or any other party.
3.7 Financial Statements and Reports.
a. Borrower will furnish to Lender, within one hundred
twenty (120) days after the close of each fiscal year of
Borrower, a balance sheet of Borrower as at the close of each
such fiscal year and statements of income and retained earnings
and source and application of funds for the year then ended,
prepared in conformity with generally accepted accounting
principles, applied on a basis consistent with that of the
preceding year or containing disclosure of the effect on
financial position or results of operations of any change in the
application of accounting principles during the year and audited
by a firm of independent certified public accountants selected by
Borrower and reasonably acceptable to Lender. Each annual
statement will be accompanied by: (i) a certificate from the
chief financial officer or the ???? executive officer of Borrower
certifying to the accuracy of such statement and further
certifying that Borrower is not in default under any of the
terms, covenants or provisions of this Agreement and that no
events have occurred which, after notice by Lender or lapse of
time or both, would constitute such a default; or (ii) a
statement specifying the nature and period of existence of any
such default or event.
b. Borrower will furnish to Lender, within forty-five
(45) days after the close of each fiscal quarter of Borrower, a
balance sheet of Borrower as at the close of each such fiscal
quarter and statements of income and retained earnings and source
and application of funds for the year to date, prepared in
conformity with generally accepted accounting principles, applied
on a basis consistent with that of the
-6-
<PAGE>
preceding year or containing disclosure of the effect on
financial position or results of operations of any change in the
application of accounting principles during the year. Each
quarterly statement will be accompanied by: (i) a certificate
from the chief financial officer or the chief executive officer
of Borrower certifying to the accuracy of such statement and
further certifying that Borrower is not in default under any of
the terms, covenants or provisions of this Agreement and that no
events have occurred which, after notice by Lender or lapse of
time or both, would constitute such a default; or (ii) a
statement specifying the nature and period of existence of any
such default or event.
c. Borrower shall furnish to Lender at least 30 days prior to the
end of each fiscal year an annual budget for the upcoming fiscal
year of the Borrower in form satisfactory to Lender.
d. Borrower will cause to be furnished to Lender, within one hundred
twenty (120) days . after the close of each fiscal year of
Guarantor, the financial statements required to be delivered
pursuant to the Guaranty.
e. Borrower shall promptly furnish to Lender such other information
as Lender shall reasonably request.
3.8 Minimum Collateral Pledged. The Collateral Value (as defined in
the Pledge Agreement) shall at all times equal or exceed the maximum
permitted principal amount under the Note (including both
outstanding and available amounts).
3.9 Direct Debit of Principal and Interest. Borrower agrees that Lender
may directly debit Borrower's accounts held by Lender for any
principal or interest payment on any Obligation when such Obligation
becomes due and payable.
3.10 Good Standing Certificate of Guarantor. Borrower will furnish to
Lender within 60 days of the date of this Agreement a good standing
certificate for the Guarantor issued by the Connecticut Secretary
of State.
SECTION 4. Negative Covenants. So long as any Obligations remain outstanding
and unpaid, Borrower covenants and agrees that it will not, without the express
written consent of Lender:
4.1. Limitation on Fundamental Changes. Merge or consolidate with or
into any other firm or corporation; dissolve or liquidate; change
substantially its fine of business; change its name; or convey,
sell, lease or otherwise dispose of all or substantially all of
its property, assets or business; provided, however, that Lender
will not unreasonably withhold consent to a name change of Borrower.
-7-
<PAGE>
4.2. Limitation on Liens. Incur or permit to exist any
hen, mortgage, security interest, pledge, charge or other
encumbrance against its Property whether now owned or hereafter
acquired (including, without limitation, any lien or encumbrance
relating to any response, removal or clean-up of any toxic
substances or hazardous wastes), except: (a) hens, mortgages,
security interests, charges or other encumbrances in favor of the
Lender or specifically permitted in writing by the Lender; (b)
pledges or deposits in connection with or to secure worker's
compensation or unemployment insurance; and (c) tax hens which
are being contested in good faith with the prior written consent
of the Lender and against which, if requested by the Lender, the
Borrower shall maintain reserves in amounts and in form (book,
cash, bond or otherwise) satisfactory to Lender.
4.3. Limitation on Advances and Investments. Make or
suffer to exist any advances or loans in excess of $10,000 to, or
any material investments in (by transfers of property,
contributions to capital, purchase of stock or securities or
evidence of indebtedness, acquisition of assets or business or
otherwise but excluding accounts receivable arising in the
ordinary course of Borrower's business) any person, firm or
corporation, including officers or employees of the Borrower.
4.4. Limitation on Other Borrowing. Incur, create, assume
or permit to exist any indebtedness or liability on account of
deposits or advances or any indebtedness or liability for
borrowed money or any other indebtedness or liability evidenced
by notes, bonds, debentures or similar obligations or
incorporated in any lease or license agreement.
4.5. Limitation on Contingent Liabilities. Become liable
as guarantor, surety, endorser or otherwise for, or agree to
purchase, repurchase or assume, any obligation of any person,
firm or corporation, except for endorsement of commercial paper
for deposit, collection, or discount in the ordinary course of
business.
SECTION 5. Events of Default.
5.1 The occurrence of any of the following events with respect to
Borrower will constitute an Event of Default by Borrower under
this Agreement:
a. Failure to make any payment of principal or interest on the
Obligations within 10 days of the date when due.
b. Any warranty or representation or other statement made or
furnished to Lender by or on behalf of Borrower or Guarantor
herein or in any document or instrument furnished in connection
herewith proves to have been false or misleading in any material
respect when made or furnished.
-8-
<PAGE>
c. Dissolution, termination of existence, insolvency,
appointment of a receiver, trustee, custodian or similar
fiduciary, assignment for the benefit of creditors of or the
commencement of any proceedings under any bankruptcy or
insolvency laws by or against Borrower or Guarantor and if
against the Borrower or Guarantor the continuation of such
proceeding for more than sixty (60) days, or the making by
Borrower or Guarantor of any offer of settlement, extension or
composition to its creditors generally.
d. Breach of or failure in the due observance or
performance in any material respect of any covenant condition or
agreement (not otherwise specified in this section 5. 1) on the
part of Borrower to be observed or performed pursuant to this
Agreement or any other agreement or instrument between Lender and
Borrower.
e. The issuance, filing or levy against Borrower of an
attachment, injunction, execution, tax lien or judgment for the
payment of money in excess of $ 1 0,000 which is not discharged
in full or stayed within thirty (30) days after issuance, filing
or levy.
f. Default in the payment of any sum due under any
indebtedness for borrowed money .owed by Borrower to any person
or entity or any other default under such indebtedness which
results in such indebtedness being due prior to its stated
maturity.
g. Any material loss, theft, substantial damage,
destruction, sale (other than in the ordinary course of
business), exchange, or other disposition not in the ordinary
course of business, or any encumbrance on all or substantially
all of the Property, the making of any levy, seizure or
attachment thereof or thereon, or the placing of any lien or
liens thereon by the United States of America or any federal,
state or local government agency or authority.
h. The occurrence of a default beyond any applicable
grace period under or demand for the payment of any other note-
or obligation of Borrower or Guarantor to Lender.
i. The occurrence of a default beyond any applicable
grace period pursuant to the Guaranty or the Pledge Agreement or
any claim by Guarantor that the Guaranty or Pledge Agreement is
no longer in full force and effect.
5.2 Upon the happening of any event of default specified above, the
entire unpaid balance owed under the Note and this Agreement, or any
note or other documents relating to the same, plus any other sums
owed hereunder or under any such note, shall, at Lender's option,
automatically become and shall thereafter be immediately due and
-9-
<PAGE>
payable without presentment, demand, protest, notice of protest, or
other notice of dishonor of any kind, all of which are hereby
expressly waived by Borrower.
SECTION 6. Miscellaneous.
6.1 Setoff. All sums at any time standing to Borrower's
credit on Lender's books and all of Borrower's property at any
time in Lender's possession or upon or in which Lender has a hen
or security interest shall be security for all Obligations. In
addition to and not in limitation of the above, with respect to
any deposits or property of Borrower in Lender's possession or
control, now or in the future, Lender shall have the right after
a default hereunder to setoff all or any portion thereof, at any
time, against any Obligations hereunder, even though unmatured,
without prior notice or demand to Borrower.
6.2 No Waiver. No course of dealing between Borrower and
Lender and no failure to exercise or delay in exercising on the
part of Lender any right, power or privilege under the terms of
this Agreement or under the terms of any other agreements,
instruments or other documents between Lender and Borrower shall
operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder or thereunder
preclude any other or further privilege. The rights and remedies
provided herein or in any other agreement are cumulative and not
exclusive or in derogation of any rights or remedies provided
herein and therein and by law or otherwise.
6.3 Survival of Agreements. All agreements,
representations and warranties made herein, in any agreement and
in any statements, notices, invoices, certificates, schedules,
documents or other instruments delivered to Lender in connection
with this Agreement or any other agreement shall survive the
making of the loans and advances hereunder.
6.4 Further Documents. Borrower agrees that, at any time
or from time to time upon written request of Lender, Borrower
will execute and deliver such further documents and do such other
acts and things as Lender may reasonably request in order to
fully effect the purposes of this Agreement and the documents
referred to herein.
6.5 Entire Agreement. This Agreement and the documents of
even date executed in connection ,with this transaction
constitute the entire agreement of the parties relating to this
transaction, and may not be amended orally but only by a writing
signed by the parties.
6.6 Successors. All rights of Lender hereunder shall inure to the
benefit of its successors and assigns, and all Obligations of
Borrower shall bind its successors and assigns.
6.7 Payments. The acceptance of any check, draft, money order or
preauthorized electronic transfer tendered in full or partial
payment of any Obligation hereunder is conditioned upon and subject
to the receipt of final payment in cash.
-10-
<PAGE>
6.8 Exhibits. All exhibits referred to herein and annexed hereto are
hereby incorporated into this Agreement and made a part hereof.
6.9 Counsel Fees and Expenses. Borrower agrees to pay all fees and
expenses, including reasonable attorneys' fees and recording and
filing fees, which Lender may hereafter incur in reasonably
protecting, enforcing, increasing or releasing any security held
by Lender.
6.10 Descriptive Headings. The descriptive headings of the
several sections of this Agreement are inserted for convenience
only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.
6.11 Notices. Any written notice required or permitted by
this Agreement may be delivered by hand delivery, by overnight
courier service or by United States certified or registered mail,
postage prepaid, return receipt requested. The date of receipt
of any notice shall be deemed to be, and shall be effective from,
the time of actual receipt, if hand delivered or sent by over
night courier and three days after the same is deposited in the
United States mail as provided above if sent by United States
mail. Notices should be sent as follows:
If to the Lender:
Fleet National Bank
777 Main Street - CT MO H04A
Hartford, Connecticut 06115
Attn: Celeste Echlin, Vice President
If to the Borrower:
Physicians Care for Connecticut, Inc.
1520 Highland Avenue
Cheshire, Connecticut 06410
Attn: Joseph R. Coffey, Chief Executive Officer
Any address for notice herein may be changed by a notice in writing
to the other party in accordance with the terms hereof.
6.12 Severability. If any provision of this Agreement or
application thereof to any person or circumstance shall to any
extent be invalid, the remainder of this Agreement or the
application of such provision to persons, entities or
circumstances other than those as to which it is held invalid,
shall not be affected thereby and each provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law.
-11-
<PAGE>
6.13 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Connecticut.
6.14 WAIVER OF RIGHT TO PREJUDGMENT REMEDY NOTICE AND
HEARING BORROWER ACKNOWLEDGES THAT LENDER MAY HAVE RIGHTS AGAINST
BORROWER, NOW OR IN THE FUTURE, IN ITS CAPACITY AS CREDITOR OR IN
ANY OTHER CAPACITIES. SUCH RIGHTS MAY INCLUDE THE RIGHT TO
DEPRIVE BORROWER OF OR AFFECT THE USE OF OR POSSESSION OR
ENJOYMENT OF BORROWER'S PROPERTY, AND IN THE EVENT LENDER DEEMS
IT NECESSARY TO EXERCISE ANY OF SUCH RIGHTS PRIOR TO THE
RENDITION OF A FINAL JUDGMENT AGAINST BORROWER, OR OTHERWISE,
BORROWER MAY BE ENTITLED TO NOTICE AND/OR BEARING UNDER THE
CONSTITUTION OF THE UNITED STATES AND/OR STATE OF CONNECTICUT,
CONNECTICUT STATUTES (TO DETERMINE WHETHER OR NOT LENDER HAS
PROBABLE CAUSE TO SUSTAIN THE VALIDITY OF LENDER'S CLAM, OR THE
RIGHT TO NOTICE AND/OR BEARING UNDER OTHER APPLICABLE STATE OR
FEDERAL LAWS PERTAINING TO PREJUDGMENT REMEDIES, PRIOR TO THE
EXERCISE BY LENDER OF ANY SUCH RIGHTS. BORROWER EXPRESSLY WAIVES
ANY SUCH RIGHT TO PREJUDGMENT REMEDY NOTICE OR BEARING TO WHICH
BORROWER MAY BE ENTITLED. TIES SHALL BE A CONTINUING WAIVER AND
REMAIN IN FULL FORCE AND EFFECT SO LONG AS BORROWER IS OBLIGATED
TO LENDER.
6.15 WAIVER OF RIGHT TO TRIAL BY JURY. BORROWER AND LENDER
KNOWINGLY AND VOLUNTARILY HEREBY WAIVE, AFTER CONSULTATION WITH
LEGAL COUNSEL, TRIAL BY JURY AND THE RIGHT TO TRIAL BY JURY,
WHETHER UNDER THE CONSTITUTION OF THE UNITED STATES AND/OR THE
STATE OF CONNECTICUT, STATUTES OR OTHER APPLICABLE LAW, IN ALL
ACTIONS OR PROCEEDINGS BETWEEN THEM IN ANY COURT ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ITS VALIDITY OR INTERPRETATION.
-12-
<PAGE>
In Witness Whereof, the parties have caused this Agreement to be duly
executed and delivered by the proper and duly authorized officers as of the
date and year first above written.
WITNESS: PHYSICIANS CARE FOR CONNECTICUT, INC.
_______________________________ By____________________________________
Joseph R. Coffey
Its Chief Executive Officer
FLEET NATIONAL BANK
_______________________________
_______________________________ By____________________________________
Celeste Echlin
Its Vice President
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
On this the 25th day of november, 1996, before me, the undersigned
officer, personally appeared Joseph R. Coffey, who acknowledged himself to be
the Chief Executive Officer of PHYSICIANS CARE FOR CONNECTICUT, INC., and
that he, as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation by himself as such officer.
In witness whereof, I hereunto set my hand.
_______________________________________
Name:__________________________________
Commissioner of the Superior Court
STATE OF CONNECTICUT )
) ss. Hartford
COUNTY OF HARTFORD )
-13-
<PAGE>
On this the 25th day of November, 1996, before me, the undersigned
officer, personally appeared Celeste Echlin, who acknowledged herself to be a
Vice President of FLEET NATIONAL BANK, a corporation, and that she, as such
officer, being authorized so to do, executed the foregoing instrument for the
purposes therein contained, by signing the name of the corporation by herself
as such officer.
In witness whereof, I hereunto set my hand.
________________________________________
Name: __________________________________
Commissioner of the Superior Court
-14-
<PAGE>
Exhibit 1.1b
LINE OF CREDIT NOTE
$650,000.00 Hartford, Connecticut
November 25, 1996
FOR VALUE RECEIVED, the undersigned, PHYSICIANS CARE FOR CONNECTICUT, INC., a
Connecticut corporation located at 1520 Highland Avenue, Cheshire,
Connecticut 06410 (the "Borrower"), hereby promises to pay to the order of
FLEET NATIONAL BANK, a national banking association, (the "Lender"), at its
office at 777 Main Street Hartford, Connecticut 06115 or at such other place
as the holder hereof may designate, the principal amount advanced hereunder
and remaining unpaid, up to a maximum amount of SIX HUNDRED FlFTY THOUSAND
AND NO/100 DOLLARS ($650,000.00) (the "Principal Amount") in lawful money of
the United States, together with interest on the Principal Amount, beginning
on the date hereof, before and after maturity or judgment, at a per annum
rate determined as provided below.
1. Interest Rate: Each advance under this Note (each a "Loan Advance")
shall bear interest at a per annum rate equal to either (a) a floating rate
equal to Lender's Prime Rate (as hereinafter defined) or (b) a fixed rate
equal to one hundred (100) basis points above the LIBOR Rate (as determined
for each Interest Period applicable thereto) for available Interest Periods
of thirty (3 0), sixty (60) or ninety (90) days. The Borrower shall elect
either option (a) or (b) as provided below.
2. Requests for Advances: Whenever Borrower desires an advance,
Borrower shall notify Lender (which notice shall be irrevocable) by
telephone, facsimile or in writing, of the desired borrowing. Such notice
(the "Notice of Borrowing") shall specify the date of the proposed borrowing,
the amount requested, whether the advance shall be a Prime Rate Loan or a
LIBOR Rate Loan, and, if a LIBOR Rate Loan, the duration of the initial
available Interest Period. Each Notice of Borrowing for advances which are
Prime Rate Loans must be received by Lender no later than 1 1:00 a.m.,
Hartford, Connecticut time on the day such borrowing is requested, and each
Notice of Borrowing for advances which are LIBOR Rate Loans must be received
by Lender no later than 10:00 a.m., Hartford, Connecticut time at least three
(3) Business Days' prior to the day such borrowing is requested. Any Notice
of Borrowing that is not in writing shall be followed by a written
confirmation by the Borrower, provided that if such written confirmation
differs in any respect from the action taken by Lender, the records of Lender
shall control, absent manifest error. Lender shall enter each Loan Advance
as a debit on a loan account maintained by Borrower with Lender (the "Loan
Account"). Lender may also record in the Loan Account, in accordance with
customary banking procedures, all fees, accrued and unpaid interest, late
fees, usual and customary bank charges for the maintenance and administration
of accounts maintained by Borrower and other fees and charges which are
properly chargeable to Borrower in connection
-15-
<PAGE>
with the Loan Advances and all payments, subject to collection, made by
Borrower on account of or to Lender. Borrower may repay and reborrow advances
that are made under this Note, subject, however, to the prepayment terms
contained below. Borrower's right to request advances under this Note shall
terminate on the Termination Date.
3. Election and Continuation of Interest Periods. Any Prime Rate Loan
shall continue as a Prime Rate Loan until the Borrower elects to convert it
to a LIBOR Rate Loan as provided below. Any LIBOR Rate Loan may be continued
as such upon the expiration of the then current Interest Period by the
Borrower giving irrevocable written notice to Lender of the duration of the
next available Interest Period to be applicable to any such LIBOR Rate Loan
not less than three (3) Business Days prior to the last Business Day of the
then current Interest Period with respect to such LIBOR Rate Loan, provided
that no LIBOR Rate Loan may be continued as such: (i) at a time when any
Event of Default (or event or condition which would constitute an Event of
Default but for the giving of notice or passage of time or both) has occurred
and is continuing and (H) after the date that is thirty (30) days prior to
the Termination Date. Unless Borrower elects to convert to a different
interest rate as provided below, if a LIBOR Rate Loan is not continued as a
LIBOR Rate Loan, all as provided above, then any such loan shall
automatically be converted to a Prime Rate Loan on the last day of the then
expiring Interest Period.
4. Conversion of Loans to a Different Interest Rate. The Borrower may
elect from time to time to convert (a) a LIBOR Rate Loan to a Prime Rate Loan
or (b) a Prime Rate Loan to a LIBOR Rate Loan as provided in this section.
Borrower shall exercise such election by giving the Lender not less than
three (3) Business Days prior irrevocable written notice of such election;
provided that any such conversion of a LIBOR Rate Loan to a Prime Rate Loan
shall only be made on the last Business Day of the then current Interest
Period with respect thereto. Any such notice of conversion to a LIBOR Rate
Loan shall specify the length of the available Interest Period applicable
thereto.
5. Payments of Interest. Interest on this Note shall be calculated on
the basis of a 3 60 day year and the actual number of days elapsed. Monthly
payments of interest shall be due and payable in arrears on the first day of
each month, commencing December 1, 1996, until this Note is paid in full.
6. Payments of Principal. If not sooner paid, the aggregate
outstanding Principal Amount of this Note, together with all accrued and
unpaid interest thereon and any other fees or charges then due, shall be due
and payable on the Termination Date.
7. Definitions. As used in this Note and not defined elsewhere in this
Note, the following terms shall have the following meanings:
a. "Business Day" means any day other than a day on which commercial
banks in Hartford, Connecticut are required or permitted by law to close.
-16-
<PAGE>
b. "Interest Period" means with respect to advances bearing interest
at the LIBOR Rate, an available period of thirty (30), sixty (60) or ninety
(90) days, provided that:
(1) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall end on the immediately preceding
Business Day;
(2) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the
last Business Day of a calendar month; and
(3) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date.
c. "LIBOR Rate" means, with respect to any LIBOR Rate Loan for each
applicable Interest Period, the rate per annum determined by the Lender to be
equal to the quotient of (a) the London Interbank Offered Rate for such LIBOR
Rate Loan for such Interest Period, divided by (b) one (1) minus -the Reserve
Percentage for such Interest Period, expressed as follows:
LIBOR Rate = London Interbank Offered Rate
------------------------------
1 - Reserve Percentage
d. "LIBOR Rate Loan" means an advance that bears interest at a rate
equal to the LIBOR Rate plus one hundred (I 00) basis points.
e. "London Interbank Offered Rate" means, with respect to any
applicable Interest Period for a LIBOR Rate Loan, the rate per annum at which
the Eurodollar office of the Lender is offered, in the London interbank
Dollar deposits market, at or about I 1:00 a.m. London time, two (2) business
days prior to the first day of such Interest Period, Dollar deposits, for a
period, and in an amount comparable to such Interest Period and principal
amount of the LIBOR Rate Loan which shall be made by the Lender and
outstanding during such Interest Period.
f. "Prime Rate" means the rate of interest announced from time to
time by Lender at its office in Hartford, Connecticut as its prime rate.
Such Prime Rate may not be the lowest or best rate that is made available by
Lender to its commercial borrowers.
g. "Prime Rate Loan" means an advance that bears interest at a
rate equal to Lender's Prime Rate.. The interest rate on each Prime Rate Loan
shall change, without notice to Borrower, each time that Lender's Prime Rate
changes so that the rate of interest on a Prime Rate Loan is at all times
equal to Lender's Prime Rate.
-17-
<PAGE>
h. "Reserve Percentage" means the maximum marginal percentage as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirement for Lender in respect of
eurodollar deposits having a maturity equal to the Interest Period as the
Borrower may elect pursuant to the terms of this Note. With respect to the
LIBOR Rate, any change in the interest rate because of a change in the
Reserve Percentage shall become effective, without notice or demand, on the
date on which such change in the Reserve Percentage becomes effective.
"Termination Date" means November 22, 1997.
8. Illegality. Notwithstanding any other provisions hereof, if any
applicable law or governmental regulation, guideline, order or directive, or
any change therein or in the interpretation or application thereof by any
governmental authority charged with the interpretation or the administration
thereof (whether or not having the force of law) shall make it unlawful for
the Lender to make or maintain LIBOR Rate Loans as contemplated by this Note:
(i) the obligation of the Lender to continue LIBOR Rate Loans shall forthwith
be cancelled, and (ii) such amounts then outstanding shall be automatically
converted, without notice, to Prime Rate Loans on the last day of the then
current Interest Period or within such earlier time as required by law. If
any such conversion of LIBOR Rate Loans is made on a day that is not the last
Business Day of the then current Interest Period applicable thereto, Borrower
shall pay the Lender such amount or amounts required pursuant to Section 13
below.
9. Basis for Determining LIBOR Inadequate or Unfair. In the event that
the Lender shall have determined (which determination, absent manifest error,
shall be conclusive and binding upon Borrower) that (i) by reason of
circumstances affecting the Interbank LIBOR market, adequate and reasonable
means do not exist for determining the LIBOR Rate, or (H) Dollar deposits in
the relevant amount and for the relevant maturity are no longer available to
the Lender in the Interbank LIBOR market, or (iii) the 'continuation of LIBOR
Rate Loans has been made impractical or unlawful by the occurrence of a
contingency that materially and adversely affects the Interbank LIBOR market,
or (iv) the LIBOR Rate will not adequately and fairly reflect the cost to the
Lender of maintaining LIBOR Rate Loans, or (v) the LIBOR Rate shall no longer
represent the effective cost to the Lender of U.S. Dollar deposits in the
relevant market for deposits in which it regularly participates, the Lender
shall give the Borrower notice of such determination as soon as practicable.
If such notice is given all LIBOR Rate Loans shall be automatically
converted, without notice, to Prime Rate Loans effective on the last Business
Day of the then current Interest Period applicable thereto. Until such
notice has been withdrawn, the LIBOR Rate shall not be continued.
10. Costs and Expenses. The Borrower shall pay a taxes levied or
assessed on this Note or the debt evidenced hereby against the Lender,
together with all costs, expenses and attorneys' and other professional fees
incurred in any action to collect and/or enforce this Note or to enforce the
Loan Agreement between Borrower and Lender dated the same date as this Note
(the "Loan Agreement") or any other agreement relating to this Note or the
Loan Agreement or
-18-
<PAGE>
any other agreement or in any litigation or controversy arising from or
connected with the Loan Agreement or any other agreement, or this Note.
11. Increased Costs. In the event that applicable law, treaty or
regulation or directive from any government governmental agency or regulatory
authority, or any change therein or in the interpretation or application
thereof, or compliance by the Lender with any request or directive (whether
or not having the force of law) from any central bank or government,
governmental agency or regulatory authority, shall:
a. subject the Lender to any tax of any kind whatsoever (except
taxes on the overall net income of the Lender) with respect to the Loan
Agreement, this Note or any of the loans made by it, or change the basis of
taxation of payments to the Lender in respect thereof (except for changes in
the rate of tax on the overall net income of the Lender);
b. impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirements against assets held by, deposits or
other liabilities in or for the account ot advances, loans or other
extensions of credit by, or any other acquisition of funds by, any office of
the Lender, including (without limitation) pursuant to Regulations of the
Board of Governors of the Federal Reserve System; or
c. in the opinion of the Lender, cause this Note, any loan made
under this Note or under the Loan Agreement to be included in any
calculations used in the computation of regulatory capital standards; or
d. impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Lender,
by an amount that the Lender deems to be material, of making, converting
into, continuing and/or maintaining the loans made pursuant to this Note (the
"Loans") or to reduce the amount of any payment (whether of principal,
interest or otherwise) in respect of any of such Loans, then, in any case,
the Borrower shall promptly pay the Lender, upon its demand, such additional
amounts necessary to compensate the Lender for such additional costs or such
reduction in payment, as the case may be (collectively the "Additional
Costs"). The Lender shall certify the amount of such Additional Costs to the
Borrower, and such certification, absent manifest error, shall be deemed
conclusive.
12. Capital Adequacy Protection. If, after the date hereof, the Lender
shall have determined that the adoption of any applicable law, governmental
rule, regulation or order regarding capital adequacy of banks or bank holding
companies, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof,
or compliance by the Lender with any request or, directive regarding capital
adequacy (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful, so long as the Lender believes in good
faith that such has the force of law or that the failure to so comply would
-19-
<PAGE>
be unlawful) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on any of the Lenders
capital as a consequence of the Lender's obligations hereunder to a level
below that which the Lender could have achieved but for such adoption, change
or compliance (taking into consideration the Lender's policies with respect
to capital adequacy immediately before such adoption, change or compliance
and assuming that the Lender's capital was fully utilized prior to such
adoption, change or compliance) by an amount deemed by the Lender in its
judgment to be material, then, promptly upon demand, the Borrower shall
immediately pay to the Lender, from time to time as specified by the Lender,
such additional amounts as shall be sufficient to compensate the Lender for
such reduced return, together with interest on each such amount from the date
of such specification by the Lender until payment in full thereof at the
highest rate of interest (other than the default rate of interest) due on the
Loans. A certificate of the Lender setting forth the amount to be paid to the
Lender shall, in the absence of manifest error, be deemed conclusive. In
determining such amount, the Lender shall use any reasonable averaging and
attribution methods. The Borrower may, however, avoid paying such amounts
for future rate of return reductions if, within the maximum borrowings
permitted herein, the Borrower borrows such amounts as will cause the Lender
to avoid any such future rate of return reductions which would otherwise be
caused by such changed capital adequacy requirements or the Borrower agrees
to a reduction in the Loans to achieve the same result.
13. Indemnity. The Borrower agrees to indemnify the Lender and to hold
the Lender harmless from any loss (including any of the additional costs
referred to above and any lost profits) or expense that it may sustain or
incur as a consequence of (i) a default by the Borrower in the payment of the
principal of or interest due on this Note, or (ii) the making of a prepayment
of the Principal Amount bearing interest at the LIBOR Rate on a day which is
not the last day of the then cur-rent Interest Period applicable thereto,
including, but not limited to, in each case any such loss or expense arising
from the reemployment of funds obtained by it or from fees, interest or other
amounts payable to terminate the deposits from which such funds were
obtained. The Lender shall prepare a certificate as to any additional
amounts payable to it pursuant to this Section 13, which certificate shall be
submitted by the Lender to the Borrower and shall, absent manifest error, be
deemed conclusive.
14. Lawful Interest. Notwithstanding any provisions of this Note, it is
the understanding and agreement of the Borrower and Lender that the maximum
rate of interest to be paid by the Borrower to the Lender shall not exceed
the highest or the maximum rate of interest permissible to be charged by a
commercial lender such as the Lender to a commercial borrower such as the
Borrower under the laws of the State of Connecticut. Any amount paid in
excess of such rate shall be considered to have been payments in reduction of
principal.
15. Late Charge. Without limiting the Lender's rights and remedies with
respect to the Event of Default that will have occurred, the Borrower hereby
agrees to pay a "late charge" equal to five percent (5%) of any installment
of interest or other amount due to the Lender which is not paid within ten
(10) days of the due date thereof to defray the extra expense involved in
handling such delinquent payment.
-20-
<PAGE>
16. Prepayments.
a. The Borrower may, at its option and upon two (2) Business Days'
prior written notice (which notice shall be irrevocable), prepay the
Principal Amount of a LIBOR Rate Loan or a Prime Rate Loan on the following
conditions: (a) the Borrower shall pay all accrued interest on the Principal
Amount being paid to the date of the prepayment and, in the case of
prepayments in fun, all fees, charges, costs, expenses and other amounts then
due hereunder; and (b) such Principal Amount of a LIBOR Rate Loan shall only
be prepaid on the last Business Day of the then current Interest Period with
respect thereto. In its notice, the Borrower shall specify the date and
amount of the prepayment. In the event that any prepayment of the Principal
Amount of a LIBOR Rate Loan is required or permitted on a date other than the
last Business Day of the then current Interest Period with respect thereto,
the Borrower shall indemnify the Lender therefore as provided in this Note.
b. In the event that Borrower makes a prepayment and does not
specify in its notice of prepayment whether the prepayment is to be applied
to a LIBOR Rate Loan or a Prime Rate Loan, then Lender shall apply such
prepayment in such order as Lender in its sole discretion shall determine.
17. Events of Default. The Borrower agrees that the occurrence of an
Event of Default under the Loan Agreement shall constitute an Event of
Default under this Note. Reference is hereby made to the Loan Agreement for
the other terms and conditions relating to the loan evidenced by this Note
which are incorporated in this Note by reference. Upon the occurrence of any
Event of Default, the availability of advances hereunder shall, at the option
of the Lender, be automatically terminated and the Lender, at its option, may
declare all advances outstanding hereunder, together with accrued interest
thereon and all applicable late charges, other amounts due under this Note
and all other liabilities and obligations of the Borrower to the Lender to be
immediately due and payable, whereupon the same shall become immediately due
and payable; all of the foregoing without demand, presentment protest or
notice or any kind, all of which are hereby expressly waived by the Borrower.
Failure to exercise such option shall not constitute a waiver of the right
to exercise the same in the event of any subsequent default. Upon the
occurrence of any Event of Default, without in any way affecting the Lender's
other rights and remedies, or after maturity or judgment, the interest rate
applicable to the outstanding principal balance of this Note shall
automatically change without notice to a floating per annum rate equal to
five percentage points (5.0%) above the otherwise applicable rate.
18. Lien and Right of Setoff. The Borrower hereby gives the Lender a
lien and right of setoff for all liabilities arising hereunder upon and
against all the deposits, credits and property of Borrower now or hereafter
in the possession, custody, safekeeping or control of the Lender or in
transit to it. Lender may, upon the occurrence of an Event of Default@
without notice and without first resorting to any collateral which may now or
hereafter secure
-21-
<PAGE>
this Note, apply or set off the same, or any part thereof, to any liability
of the Borrower, even though unmatured.
19. No Waiver. Failure by the Lender to insist upon the strict
performance by Borrower of any terms and provisions herein shall not be
deemed to be a waiver of any terms and provisions herein, and the Lender
shall retain the right thereafter to insist upon strict performance by the
Borrower of any and all terms and provisions of this Note or any agreement
securing the repayment of this Note.
20. Governing Law. This Note shall be governed by the laws of the State
of Connecticut.
21. Prejudgment Remedy and Other Waivers. THE BORROWER ACKNOWLEDGES
THAT THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL TRANSACTION AND WAIVES
ITS RIGHT TO NOTICE AND BEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL
STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO
ANY PREJUDGMENT REMEDY WHICH LENDER MAY DESIRE TO USE, AND FURTHER, WAIVES
DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND
NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS OR EXTENSIONS OF THIS NOTE, AND
ALL RIGHTS UNDER ANY STATUTE OF ??????????. THE BORROWER ACKNOWLEDGES THAT IT
MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
22. Jury Waiver. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT
AND IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION
WITH OR IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS NOTE
IS A PART AND/OR THE ENFORCEMENT OF ANY OF THE LENDER'S RIGHTS AND REMEDIES,
INCLUDING WITHOUT LIMITATION, TORT CLAIMS. THE BORROWER ACKNOWLEDGES THAT IT
MAKES THIS WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
this 25th day of November, 1996.
PHYSICIANS CARE FOR CONNECTICUT, INC.
By /s/ Joseph R. Coffey
--------------------------------------
-22-
<PAGE>
Joseph R. Coffey
Title: Chief Executive Officer
-23-
<PAGE>
LINE OF CREDIT NOTE
-------------------
$650,000.00 Hartford, Connecticut
November 25, 1996
FOR VALUE RECEIVED, the undersigned, PHYSICIANS CARE FOR CONNECTICUT, INC., a
Connecticut corporation located at 1520 Highland Avenue, Cheshire,
Connecticut 06410 (the "Borrower"), hereby promises to pay to the order of
FLEET NATIONAL BANK, a national banking association, (the "Lender"), at its
office at 777 Main Street Hartford, Connecticut 06115 or at such other place
as the holder hereof may designate, the principal amount advanced hereunder
and remaining unpaid, up to a maximum amount of SIX HUNDRED FIFTY THOUSAND
AND NO/100 DOLLARS ($650,000.00) (the "Principal Amount") in lawful money of
the United States, together with interest on the Principal Amount, beginning
on the date hereof, before and after maturity or judgment, at a per annum
rate determined as provided below.
1. INTEREST RATE: Each advance under this Note (each a "Loan Advance")
shall bear interest at a per annum rate equal to either (a) a floating rate
equal to Lender's Prime Rate (as hereinafter defined) or (b) a fixed rate
equal to one hundred (100) basis points above the LIBOR Rate (as determined
for each Interest Period applicable thereto) for available Interest Periods
of thirty (30), sixty (60) or ninety (90) days. The Borrower shall elect
either option (a) or (b) as provided below.
2. REQUESTS FOR ADVANCES: Whenever Borrower desires an advance,
Borrower shall notify Lender (which notice shall be irrevocable) by
telephone, facsimile or in writing, of the desired borrowing. Such notice
(the "Notice of Borrowing") shall specify the date of the proposed borrowing,
the amount requested, whether the advance shall be a Prime Rate Loan or a
LIBOR Rate Loan, and, if a LIBOR Rate Loan, the duration of the initial
available Interest Period. Each Notice of Borrowing for advances which are
Prime Rate Loans must be received by Lender no later than 1 1:00 a.m.,
Hartford, Connecticut time on the day such borrowing is requested, and each
Notice of Borrowing for advances which are LIBOR Rate Loans must be received
by Lender no later than 10:00 a.m., Hartford, Connecticut time at least three
(3) Business Days' prior to the day such borrowing is requested. Any Notice
of Borrowing that is not in writing shall be followed by a written
confirmation by the Borrower, provided that if such written confirmation
differs in any respect from the action taken by Lender, the records of Lender
shall control, absent manifest error. Lender shall enter each Loan Advance
as a debit on a loan account maintained by Borrower with Lender (the "Loan
Account"). Lender may also record in the Loan Account, in accordance with
customary banking procedures, all fees, accrued and unpaid interest, late
fees, usual and customary bank charges for the maintenance and administration
of accounts maintained by Borrower and other fees and charges which are
properly chargeable to Borrower in connection with the Loan Advances and all
payments, subject to collection, made by Borrower on account of or to Lender.
Borrower may repay and reborrow advances that are made under this Note,
subject, however, to the prepayment terms
-2-
<PAGE>
contained below. Borrower's right to request advances under this Note shall
terminate on the Termination Date.
3. ELECTION AND CONTINUATION OF INTEREST PERIODS. Any Prime-Rate Loan
shall continue as a Prime Rate Loan until the Borrower elects to convert it
to a LIBOR Rate Loan as provided below. Any LIBOR Rate Loan may be continued
as such upon the expiration of the then current Interest Period by the
Borrower giving irrevocable written notice to Lender of the duration of the
next available Interest Period to be applicable to any such LIBOR Rate Loan
not less than three (3) Business Days prior to the last Business Day of the
then current Interest Period with respect to such LIBOR Rate Loan, provided
that no LIBOR Rate Loan may be continued as such: (i) at a time when any
Event of Default (or event or condition which would constitute an Event of
Default but for the giving of notice or passage of time or both) has occurred
and is continuing and (ii) after the date that is thirty (30) days prior to
the Termination Date. Unless Borrower elects to convert to a different
interest rate as provided below, if a LIBOR Rate Loan is not continued as a
LIBOR Rate Loan, all as provided above, then any such loan shall
automatically be converted to a Prime Rate Loan on the last day of the then
expiring Interest Period.
4. CONVERSION OF LOANS TO A DIFFERENT INTEREST RATE. The Borrower may
elect from time to time to convert (a) a LIBOR Rate Loan to a Prime Rate Loan
or (b) a Prime Rate Loan to a LIBOR Rate Loan as provided in this section.
Borrower shall exercise such election by giving the Lender not less than
three (3) Business Days prior irrevocable written notice of such election;
provided that any such conversion of a LIBOR Rate Loan to a Prime Rate Loan
shall only be made on the last Business Day of the then current Interest
Period with respect thereto. Any such notice of conversion to a LIBOR Rate
Loan shall specify the length of the available Interest Period applicable
thereto.
5. PAYMENTS OF INTEREST. Interest on this Note shall be calculated on
the basis of a 360 day year and the actual number of days elapsed. Monthly
payments of interest shall be due and payable in arrears on the first day of
each month, commencing December 1, 1996, until this Note is paid in full.
6. PAYMENTS OF PRINCIPAL. If not sooner paid, the aggregate
outstanding Principal Amount of this Note, together with all accrued and
unpaid interest thereon and any other fees or charges then due, shall be due
and payable on the Termination Date.
7. DEFINITIONS. As used in this Note and not defined elsewhere in
this Note, the following terms shall have the following meanings:
a. "Business Day" means any day other than a day on which
commercial banks in Hartford, Connecticut are required or permitted by law to
close.
-3-
<PAGE>
b. "Interest Period" means with respect to advances bearing
interest at the LIBOR Rate, an available period of thirty (30), sixty (60) or
ninety (90) days, provided that:
(1) if any Interest Period would otherwise end on a day
that is not a Business Day, such Interest Period shall end on the immediately
preceding Business Day;
(2) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; and
(3) any Interest Period that would otherwise extend
beyond the Termination Date shall end on the Termination Date.
c. "LIBOR Rate" means, with respect to any LIBOR Rate Loan for
each applicable Interest Period, the rate per annum determined by the Lender
to be equal to the quotient of (a) the London Interbank Offered Rate for such
LIBOR Rate Loan for such Interest Period, divided by (b) one (1) minus the
Reserve Percentage for such Interest Period, expressed as follows:
LIBOR Rate = London Interbank Offered Rate
-----------------------------
1 - Reserve Percentage
d. "LIBOR Rate Loan" means an advance that bears interest at a
rate equal to the LIBOR Rate plus one hundred (I 00) basis points.
e. "London Interbank Offered Rate" means, with respect to any
applicable Interest Period for a LIBOR Rate Loan, the rate per annum at which
the Eurodollar office of the Lender is offered, in the London interbank
Dollar deposits market, at or about 1 1:00 a.m. London time, two (2) business
days prior to the first day of such Interest Period, Dollar deposits, for a
period, and in an amount comparable to such Interest Period and principal
amount of the LIBOR Rate Loan which shall be made by the Lender and
outstanding during such Interest Period.
f. "Prime Rate" means the rate of interest announced from time
to time by Lender at its office in Hartford, Connecticut as its prime rate.
Such Prime Rate may not be the lowest or best rate that is made available by
Lender to its commercial borrowers.
g. "Prime Rate Loan" means an advance that bears interest at a
rate equal to Lender's Prime Rate. The interest rate on each Prime Rate Loan
shall change, without notice to Borrower, each time that Lender's Prime Rate
changes so that the rate of interest on a Prime Rate Loan is at all times
equal to Lender's Prime Rate.
-4-
<PAGE>
h. "Reserve Percentage" means the maximum marginal percentage
as prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirement for Lender in respect of
eurodollar deposits having a maturity equal to the Interest Period as the
Borrower may elect pursuant to the terms of this Note. With respect to the
LIBOR Rate, any change in the interest rate because of a change in the
Reserve Percentage shall become effective, without notice or demand, on the
date on which such change in the Reserve Percentage becomes effective.
i. "Termination Date" means November 22, 1997.
8. ILLEGALITY. Notwithstanding any other provisions hereof, if any
applicable law or governmental regulation, guideline, order or directive, or
any change therein or in the interpretation or application thereof by any
governmental authority charged with the interpretation or the administration
thereof (whether or not having the force of law) shall make it unlawful for
the Lender to make or maintain LIBOR Rate Loans as contemplated by this Note:
(i) the obligation of the Lender to continue LIBOR Rate Loans shall forthwith
be cancelled, and (ii) such amounts then outstanding shall be automatically
converted, without notice, to Prime Rate Loans on the last day of the then
current Interest Period or within such earlier time as required by law. If
any such conversion of LIBOR Rate Loans is made on a day that is not the last
Business Day of the then current Interest Period applicable thereto, Borrower
shall pay the Lender such amount or amounts required pursuant to Section 13
below.
9. BASIS FOR DETERMINING LIBOR INADEQUATE OR UNFAIR. In the event that
the Lender shall have determined (which determination, absent manifest error,
shall be conclusive and binding upon Borrower) that (J) by reason of
circumstances affecting the Interbank LIBOR market, adequate and reasonable
means do not exist for determining the LIBOR Rate, or (H) Dollar deposits in
the relevant amount and for the relevant maturity are no longer available to
the Lender in the Interbank LIBOR market, or (iii) the continuation of LIBOR
Rate Loans has been made impractical or unlawful by the occurrence of a
contingency that materially and adversely affects the Interbank LIBOR market,
or (iv) the LIBOR Rate will not adequately and fairly reflect the cost to the
Lender of maintaining LIBOR Rate Loans, or (v) the LIBOR Rate shall no longer
represent the effective cost to the Lender of U.S. Dollar deposits in the
relevant market for deposits in which it regularly participates, the Lender
shall give the Borrower notice of such determination as soon as practicable.
If such notice is given a LIBOR Rate Loans shall be automatically converted,
without notice, to Prime Rate Loans effective on the last Business Day of the
then current Interest Period applicable thereto. Until such notice has been
withdrawn, the LIBOR Rate shall not be continued.
10. COSTS AND EXPENSES. The Borrower shall pay all taxes levied or
assessed on this Note or the debt evidenced hereby against the Lender,
together with all costs, expenses and attorneys' and other professional fees
incurred in any action to collect and/or enforce this Note or to enforce the
Loan Agreement between Borrower and Lender dated the same date as this Note
(the "Loan Agreement") or any other agreement relating to this Note or the
Loan Agreement or
-5-
<PAGE>
any other agreement or in any litigation or controversy arising from or
connected with the Loan Agreement or any other agreement, or this Note.
11. INCREASED COSTS. In the event that applicable law, treaty or
regulation or directive from any government, governmental agency or
regulatory authority, or any change therein or in the interpretation or
application thereof, or compliance by the Lender with any request or
directive (whether or not having the force of law) from any central bank or
government, governmental agency or regulatory authority, shall:
a. subject the Lender to any tax of any kind whatsoever (except
taxes on the overall net income of the Lender) with respect to the Loan
Agreement, this Note or any of the loans made by it or change the basis of
taxation of payments to the Lender in respect thereof (except for changes in
the rate of tax on the overall net income of the Lender);
b. impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirements against assets held by, deposits or
other liabilities in or for the account of, advances, loans or other
extensions of credit by, or any other acquisition of funds by, any office of
the Lender, including (without limitation) pursuant to Regulations of the
Board of Governors of the Federal Reserve System; or
c. in the opinion of the Lender, cause this Note, any loan made
under this Note or under the Loan Agreement to be included in any
calculations used in the computation of regulatory capital standards; or
d. impose on the Bank any other condition;
and the result of any of the foregoing is to increase the cost to the Lender,
by an amount that the Lender deems to be material, of making, converting
into, continuing and/or maintaining the loans made pursuant to this Note (the
"Loans") or to reduce the amount of any payment (whether of principal,
interest or otherwise) in respect of any of such Loans, then, in any case,
the Borrower shall promptly pay the Lender, upon its demand, such additional
amounts necessary to compensate the Lender for such additional costs or such
reduction in payment, as the case may be (collectively the "Additional
Costs"). The Lender shall certify the amount of such Additional Costs to the
Borrower, and such certification, absent manifest error, shall be deemed
conclusive.
12. CAPITAL ADEQUACY PROTECTION. If, after the date hereof, the Lender
shall have determined that the adoption of any applicable law, governmental
rule, regulation or order regarding capital adequacy of banks or bank holding
companies, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof,
or compliance by the Lender with any request or directive regarding capital
adequacy (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful, so long as the Lender believes in good
faith that such has the force of law or that the failure to so comply would
- 6-
<PAGE>
be unlawful) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on any of the Lender's
capital as a consequence of the Lender's obligations hereunder to a level
below that which the Lender could have achieved but for such adoption, change
or compliance (taking into consideration the Lender's policies with respect
to capital adequacy immediately before such adoption, change or compliance
and assuming that the Lender's capital was fully utilized prior to such
adoption, change or compliance) by an amount deemed by the Lender in its
judgment to be material, then, promptly upon demand, the Borrower shall
immediately pay to the Lender, from time to time as specified by the Lender,
such additional amounts as shall be sufficient to compensate the Lender for
such reduced return, together with interest on each such amount from the date
of such specification by the Lender until payment in full thereof at the
highest rate of interest (other than the default rate of interest) due on the
Loans. A certificate of the Lender setting forth the amount to be paid to
the Lender shall, in the absence of manifest error, be deemed conclusive. In
determining such amount, the Lender shall use any reasonable averaging and
attribution methods. The Borrower may, however, avoid paying such amounts
for future rate of return reductions if, within the maximum borrowings
permitted herein, the Borrower borrows such amounts as will cause the Lender
to avoid any such future rate of return reductions which would otherwise be
caused by such changed capital adequacy requirements or the Borrower agrees
to a reduction in the Loans to achieve the same result.
13. INDEMNITY. The Borrower agrees to indemnify the Lender and to hold
the Lender harmless from any loss (including any of the additional costs
referred to above and any lost profits) or expense that it may sustain or
incur as a consequence of (i) a default by the Borrower in the payment of the
principal of or interest due on this Note, or (H) the making of a prepayment
of the Principal Amount bearing interest at the LIBOR Rate on a day which is
not the last day of the then cur-rent Interest Period applicable thereto,
including, but not limited to, in each case any such loss or expense arising
from the reemployment of funds obtained by it or from fees, interest or other
amounts payable to terminate the deposits from which such funds were
obtained. The Lender shall prepare a certificate as to any additional
amounts payable to it pursuant to this Section 13, which certificate shall be
submitted by the Lender to the Borrower and shall, absent manifest error, be
deemed conclusive.
14. LAWFUL INTEREST. Notwithstanding any provisions of this Note, it is
the understanding and agreement of the Borrower and Lender that the maximum
rate of interest to be paid by the Borrower to the Lender shall not exceed
the highest or the maximum rate of interest permissible to be charged by a
commercial lender such as the Lender to a commercial borrower such as the
Borrower under the laws of the State of Connecticut. Any amount paid in
excess of such rate shall be considered to have been payments in reduction of
principal.
15. LATE CHARGE. Without limiting the Lender's rights and remedies with
respect to the Event of Default that will have occurred, the Borrower hereby
agrees to pay a "late charge" equal to five percent (50/6) of any installment
of interest or other amount due to the Lender which
- 7 -
<PAGE>
is not paid within ten (10) days of the due date thereof to defray the extra
expense involved in handling such delinquent payment.
16. PREPAYMENTS.
a. The Borrower may, at its option and upon two (2) Business Days'
prior written notice (which notice shall be irrevocable), prepay the
Principal Amount of a LIBOR Rate Loan or a Prime Rate Loan on the following
conditions: (a) the Borrower shall pay all accrued interest on the Principal
Amount being paid to the date of the prepayment and, in the case of
prepayments in full, all fees, charges, costs, expenses and other amounts
then due hereunder; and (b) such Principal Amount of a LIBOR Rate Loan shall
only be prepaid on the last Business Day of the then current Interest Period
with respect thereto. In its notice, the Borrower shall specify the date and
amount of the prepayment. In the event that any prepayment of the Principal
Amount of a LIBOR Rate Loan is required or permitted on a date other than the
last Business Day of the then current Interest Period with respect thereto,
the Borrower shall indemnify the Lender therefore as provided in this Note.
b. In the event that Borrower makes a prepayment and does not
specify in its notice of prepayment whether the prepayment is to be applied
to a LIBOR Rate Loan or a Prime Rate Loan, then Lender shall apply such
prepayment in such order as Lender in its sole discretion shall determine.
17. EVENTS OF DEFAULT. The Borrower agrees that the occurrence of an
Event of Default under the Loan Agreement shall constitute an Event of
Default under this Note. Reference is hereby made to the Loan Agreement for
the other terms and conditions relating to the loan evidenced by this Note
which are incorporated in this Note by reference. Upon the occurrence of any
Event of Default the availability of advances hereunder shall, at the option
of the Lender, be automatically terminated and the Lender, at its option, may
declare all advances outstanding hereunder, together with accrued interest
thereon and all applicable late charges, other amounts due under this Note
and all other liabilities and obligations of the Borrower to the Lender to be
immediately due and payable, whereupon the same shall become immediately due
and payable; ALL of the foregoing without demand, presentment protest or
notice or any kind, all of which are hereby expressly waived by the Borrower.
Failure to exercise such option shall not constitute a waiver of the right
to exercise the same in the event of any subsequent default. Upon the
occurrence of any Event of Default, without in any way affecting the Lender's
other rights and remedies, or after maturity or judgment, the interest rate
applicable to the outstanding principal balance of this Note shall
automatically change without notice to a floating per annum rate equal to
five percentage points (5.0%) above the otherwise applicable rate.
18. LIEN AND RIGHT OF SETOFF. The Borrower hereby gives the Lender a
lien and right of setoff for all liabilities arising hereunder upon and
against all the deposits, credits and property of Borrower now or hereafter
in the possession, custody, safekeeping or control of the Lender or in
transit to it. Lender may, upon the occurrence of an Event of Default@
without notice and
-8-
<PAGE>
without first resorting to any collateral which may now or hereafter secure
this Note, apply or set off the same, or any part thereof, to any liability
of the Borrower, even though unmatured.
19. NO WAIVER. Failure by the Lender to insist upon the strict
performance by Borrower of any terms and provisions herein shall not be
deemed to be a waiver of any terms and provisions herein, and the Lender
shall retain the right thereafter to insist upon strict performance by the
Borrower of any and all terms and provisions of this Note or any agreement
securing the repayment of this Note.
20. GOVERNING LAW. This Note shall be governed by the laws of the State
of Connecticut.
21. PREJUDGMENT REMEDY AND OTHER WAIVERS. THE BORROWER ACKNOWLEDGES THAT
THE LOAN EVIDENCED BY THIS NOTE IS A COMMERCIAL TRANSACTION AND RESERVES ITS
RIGHT TO NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT GENERAL
STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH RESPECT TO
ANY PREJUDGMENT REMEDY WHICH LENDER MAY DESIRE TO USE, AND FURTHER, WAIVES
DILIGENCE, DEMAND, PRESENTMENT OF PAYMENT, NOTICE OF NONPAYMENT, PROTEST AND
NOTICE OF PROTEST, AND NOTICE OF ANY RENEWALS OR EXTENSIONS OF THIS NOTE, AND
ALL RIGHTS UNDER ANY STATUTE OF LIMITATION. THE BORROWER ACKNOWLEDGES THAT
IT ????? THIS WAIVER KNOWLINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY UNDER
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
22. JURY WAIVER. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY COURT AND
IN ANY SUIT, ACTION OR PROCEEDING ON ANY MATTER ARISING IN CONNECTION WITH OR
IN ANY WAY RELATED TO THE FINANCING TRANSACTIONS OF WHICH THIS NOTE IS A PART
AND/OR THE ENFORCEMENT OF ANY OF THE LENDER'S RIGHTS AND REMEDIES, INCLUDING
WITHOUT LIMITATION, TORT ?????. THE BORROWER ACKNOWLEDGES THAT IT MAKES THIS
WAIVER KNOWINGLY, VOLUNTARILY, WITHOUT DURESS AND ONLY AFTER CONSIDERATION OF
THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
-9-
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly executed
this 25th day of November, 1996.
PHYSICIANS CARE FOR CONNECTICUT, INC.
By
-----------------------------------
Joseph R. Coffey
Title: Chief Executive Officer
- 10 -
<PAGE>
MANAGEMENT AGREEMENT
AGREEMENT made this _ day of_____ 1997, by and between MedServ of
Connecticut, Inc., a Connecticut corporation with offices at 1520 Highland
Avenue, Cheshire, Connecticut 06410 (the "Manager") and Physicians Care for
Connecticut, Inc., a Connecticut corporation with offices at 1520 Highland
Avenue, Cheshire, Connecticut 06410 ("Physicians Care").
WHEREAS, Physicians Care is organized under the laws of the State of
Connecticut and is licensed to do business as a health maintenance
organization ("HMO") and as a third party administrator that operates a
preferred provider and point of service plan ("POS") in Connecticut, and may
apply for similar licensure in other states;
WHEREAS, Physicians Care desires to purchase management and administrative
services to support its insurance business (the "Services");
WHEREAS, Manager has the resources and experience to provide the Services
and Manager desires to provide such Services to Physicians Care; and
WHEREAS, the parties mutually desire to provide or arrange for the
provision of quality and cost effective care to enrollees in Physicians Care's
health plans and to develop and operate Physicians Care on a financially sound
basis.
NOW, THEREFORE, in consideration of the mutual promises herein stated and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
I. AUTHORITY OF THE PARTIES
1.1 Engagement of Manager. Physicians Care hereby engages Manager
as its manager to operate Physicians Care in an efficient and cost-effective
manner and in a manner that promotes quality health care. Manager hereby
accepts the engagement.
1.2 Duties of Manager. Physicians Care, acting through its Board
of Directors in accordance with its Certificate of Incorporation and Bylaws,
shall at all times exercise ultimate authority over the policies, assets and
operations of Physicians Care and shall retain the ultimate authority and
responsibility regarding the powers, duties and responsibilities vested in
Physicians Care by law and regulation. Subject to the foregoing and all
other terms of this Agreement, Physicians Care hereby grants and delegates to
Manager the general authority to supervise and manage Physicians Care.
Manager's specific responsibilities include, but are not necessarily limited
to, those set forth in Section II herein.
<PAGE>
1.3 Physicians Care Approvals. If Physicians Care is required or
permitted hereunder to take any action or give any approval, Manager shall be
entitled to rely upon the statements of one or more representative(s)
designated by resolutions adopted by Physicians Care's Board of Directors, to
act on its behalf. If no representative(s) are so designated, all necessary
actions shall be taken and approvals shall be given by the Board of Directors
or its authorized designees of Physicians Care on a timely basis.
1.4 Maintenance of Sound Operations. Physicians Care shall conduct
its affairs in accordance with the provisions of any state and federal laws
and regulations to which it is subject. Physicians Care shall honor all
legitimate debts and obligations to its creditors.
II. MANAGEMENT SERVICES
2.1 General Responsibilities and Services. Manager shall perform
all management, administrative and other services that are reasonably
necessary for Physicians Care's financial stability, Physicians Care's
competent and efficient operations, and implementation of Physicians Care's
policies as established by Physicians Care's Board of Directors, including
but not limited to those services set forth in the remainder of this Section
II. In addition, Manager shall provide Physicians Care all clerical services
reasonably required. Manager shall use its best efforts to act in a prompt,
competent and businesslike manner to perform its duties hereunder in good
faith. Manager shall cause Physicians Care to retain, in Physicians Care's
name and on Physicians Care's behalf and at Physicians Care's expense, such
accounting, actuarial, legal, and other purchased services as Physicians Care
shall reasonably require from time to time. Manager shall not be excused
from its obligations to provide management services hereunder on behalf of
Physicians Care except to the extent that Physicians Care refuses to expend
funds, execute agreements, or otherwise acts in a manner that prevents
Manager from performing its responsibilities under the Agreement.
2.2 Application for License and Permits/Regulatory Requirements.
Manager shall apply for and use its best efforts to obtain and maintain all
licenses, certificates, registrations and permits required in connection with
the management and operation of Physicians Care. Physicians Care shall
cooperate with Manager in applying for, obtaining, and maintaining such
licenses, certificates, registrations and permits. Manager shall notify
Physicians Care of changes in regulatory requirements applicable to
Physicians Care's business as soon as reasonably possible, which such notice
shall state the actions which must be undertaken by Physicians Care to comply
therewith.
2.3 Subscriber Agreements. Manager shall, in the name of and on
behalf of Physicians Care, negotiate and enter into agreements with employer
groups or individuals as necessary and/or appropriate.
2.4 Underwriting. Manager shall be responsible for providing or
securing underwriting services necessary to establish the annual per capita
revenue requirement for each
-2-
<PAGE>
product offered by Physicians Care and to complete any regulatory filing or
to obtain regulatory approval for the marketing and establishment of premium
for each product, including the rating and underwriting of accounts.
2.5 Member Materials. Manager shall be responsible for preparing
and revising, as appropriate, Physicians Care's member materials as necessary.
2.6 Grievance Procedure. Manager shall be responsible for
developing and implementing a written grievance and complaint procedure for
Physicians Care's members.
2.7 Provider Services and Records. Manager shall be responsible for
providing Physicians Care with necessary services related to provider and
enrollee services and records.
2.8 Marketing and Advertising. Manager shall be responsible for
developing and implementing a marketing plan for Physicians Care, including a
comprehensive public relations and advertising program.
2.9 Sales. Manager shall be responsible for selling Physicians
Care's products whether directly or through a network of brokers and to
document such sales through execution of Subscriber Agreements.
2.10 Accounting and Financial Support. Manager shall be responsible
for establishing and administering accounting procedures and controls, and
systems for the preparation of appropriate financial reports for the efficient
management and planning of Physicians Care's business operations, systems for
the billing of accounts and the collection of accounts receivable, and systems
to improve or expedite providers access to relevant enrollment, claims and
clinical information. The foregoing shall include, but shall not be limited to:
a. Manager shall be responsible for preparing and presenting to
Physicians Care an annual operating and capital budget with appropriate
membership, revenue, and detailed cost estimates by product line. Upon its
adoption, the budget shall serve as a guide for the operation of Physicians
Care during the year to which it is related. Final approval of a budget
shall rest with Physicians Care.
b. Manager shall cause to be delivered to Physicians Care certain
financial statements and reports, including the following:
(i) Within forty-five (45) days after the close of each month,
financial statements for the preceding month and the
fiscal year to date (unaudited but consistent with
generally accepted accounting principles ("GAAP"))
containing a statement of income and expenses in
reasonable detail, variances from budget by product line
and in aggregate and such other financial reports as
Physicians Care may reasonably request from time to time;
-3-
<PAGE>
(ii) Within one hundred and fifty (150)
days after the close of a fiscal year, financial
statements prepared in accordance with GAAP for the
preceding fiscal year, which shall be audited by an
independent certified public accounting firm chosen by
Physicians Care with the approval of Manager at
Physicians Care's expense, plus such other financial
reports as Physicians Care may reasonably request from
time to time;
(iii) Within time frames prescribed by
regulatory authorities, financial statements and other
such reports prepared in accordance with standards
prescribed or permitted by such regulatory authorities;
(iv) Monthly and year-to-date summary reports regarding the
utilization and cost of health services and supplies;
(v) Marketing reports; and
(vi) If specifically requested by the
Physicians Care's Board of Directors, report(s)
evaluating and making recommendations regarding the
performance by Manager of its obligations under this
Agreement, which report(s) shall be prepared at
Physicians Care's expense by a certified public
accounting firm chosen by Physicians Care.
c. Manager shall be responsible for developing and implementing
accounting procedures appropriate to Physicians Care's operation.
d. [Manager shall be responsible for preparing clinical reports
to assist providers in the evaluation of practice patterns for the following
categories: (i) by physician, (ii) by Member, (iii) by CPT-4 Code, (iv) by
diagnosis codes or (v) in such other format as may be reasonably requested by
Physicians Care.]
e. Manager shall be responsible for preparing such other reports
as Physicians Care shall reasonably request.
2.11 Claims Analysis and Statistical Reporting. As reasonably
required and requested by Physicians Care, Manager shall prepare and deliver
to Physicians Care reports setting forth various information and statistics
as to the claims filed with Physicians Care.
2.12 Participating Providers and Credentialing.
2.12.1 Manager shall, on behalf of Physicians Care, be
responsible for preparation and implementation of contracts with hospitals
and other Providers of health care services or organizations thereof with
which or with whom Physicians Care contracts, to provide health care services
to enrollees (such contracting Providers are sometimes collectively referred
to herein as
-4-
<PAGE>
"Providers"). Managers shall cause all contracts between Providers and
Physicians Care to contain terms required by law and consistent with the
Subscriber Agreements. Such contracts shall specify that Providers shall
not, under any circumstances, seek payment for covered services provided to
Physicians Care enrollees from such enrollees, except for co-payments,
deductibles or coinsurance amounts specified in an enrollee's agreement with
Physicians Care.
2.12.2 Manager shall coordinate its activities with the
credentialing program for Physicians Care.
2.13 Quality Standards. Manager shall manage Physicians Care and
shall cause other entities, including its subsidiaries and affiliates
providing services to Physicians Care under this Agreement, to perform their
responsibilities in a manner that enables Physicians Care to meet NCQA
accreditation standards and such other accreditation standards as requested
by Physicians Care's Board of Directors.
[2.14 Quality Management and Utilization Management. Manager shall be
responsible for development, recommendation and implementation of quality
management, utilization review, and similar programs.]
2.15 Management Information System. Manager shall be responsible
for providing or arranging for the provision of, a management information
system ("MIS") appropriate for the management of Physicians Care's
operations.
2.16 Planning and Product Development. Manager shall prepare
business plans for the Board of Directors of Physicians Care as requested by
the Board. Manager shall periodically survey the product design and benefits
of competitors and shall make recommendations regarding modification of
product design and introduction of new products.
2.17 Deposit and Disbursement of Funds.
2.17.1 Manager shall open and maintain bank accounts in
Physicians Care's name in accordance with requirements of state and federal
laws, shall deposit in such bank accounts all monies received arising from
the operation of Physicians Care and shall make disbursements from such
accounts on behalf of Physicians Care in such amounts and at such times as
the same are required. Signatories and approvals as to amounts on all checks
shall be in accordance with the duly adopted policies of Physicians Care's
Board of Directors.
2.17.2 Manager shall recommend to the Board of Directors
reasonable and prudent investment guidelines that comply with applicable
state and federal laws and shall have authority to invest any surplus funds
on behalf of Physicians Care subject to guidelines approved by the Board of
Directors of Physicians Care.
-5-
<PAGE>
2.18 Legal Actions and Counsel. Manager shall notify Physicians
Care immediately of any and all legal actions brought against Physicians
Care. In addition, Manager shall provide the services of a General Counsel
for Physicians Care as outlined in Section IV below.
2.19 Reports. Manager shall be responsible for the preparation and
provision of such reports as may be required by any regulatory agency having
jurisdiction over the operations of Physicians Care including, but not
limited to, those required by state governmental agencies, the Health Care
Financing Administration and the Internal Revenue Service.
2.20 Government Regulations. Manager shall use all reasonable
efforts, within the scope of its authority and responsibilities hereunder, to
ensure that Physicians Care complies with the requirements of any applicable
state or federal statute, ordinance, law, rule, regulation, or order of any
governmental or regulatory body having jurisdiction over Physicians Care,
including any applicable requirements relating to federal qualification.
2.21 Ancillary and Other Agreements. In Physicians Care's name and
at Physicians Care's expense, Manager shall negotiate and cause Physicians
Care to enter into such agreements as Manager may deem necessary or advisable
in accordance with Physicians Care Board policy, for the furnishing of those
goods and services necessary and appropriate for the maintenance and
operation of Physicians Care which are Physicians Care's responsibility under
this Agreement. Any such agreement which may involve a conflict of interest
shall be disclosed to and be subject to the prior approval of Physicians
Care's Board of Directors. Provided that such agreements are negotiated,
entered into and administered at arm's length, Manager shall be permitted to
enter into and perform such contracts with Physicians Care.
2.22 Capital Expenditures. Manager shall review and make
recommendations to Physicians Care concerning proposed capital expenditures.
2.23 Cooperation. Manager agrees to cooperate with Physicians Care
or any auditor, consultant, legal counsel, or other party engaged by
Physicians Care relating to Physicians Care products subject to this
Agreement. The Manager agrees to provide such parties at reasonable times
and upon reasonable notice with full and complete access to all books,
records, documents and other information relating to management activities
performed on behalf of Physicians Care.
III. SUPPORT SERVICES
3.1 General Responsibilities and Services. Manager shall provide
all clerical services reasonably required, including, but not limited to,
claims processing, member enrollment, and premium billing for Physicians
Care's HMO products. Manager shall use its best efforts to act in a prompt,
competent and businesslike manner to perform its duties hereunder in good
faith.
-6-
<PAGE>
3.2 Member Enrollment. Manager shall be responsible for
implementation and maintenance of such systems and procedures as directed by
Physicians Care to enroll and disenroll new employer groups and individuals
in a prompt manner, and to maintain a continuous record of enrollment. Such
systems and procedures shall be installed and be operational no later than
the earliest effective date of any Physicians Care Subscriber Agreement.
Such system must permit Physician Care providers to confirm enrollee
eligibility and products status electronically.
3.3 Claims Processing and Administration. Manager shall be
responsible for the development, implementation, and maintenance of such
systems and procedures as may be reasonably directed by Physicians Care and
as may be necessary for the appropriate review and timely payment or
disapproval of all claims, with timing of such payments as directed by
Physicians Care. [Such system shall use claim forms as approved by Physicians
Care and shall capture all information on such forms in the Manager's data
base. The system must also accommodate multiple payment rates for a single
service for a single provider and be capable of instituting multiple withholds
for a single provider based on primary care physician affiliation with a
particular risk unit. Such systems and procedures shall be installed and
operational no later than the earliest effective date of any Physicians Care
Subscriber Agreement. Such system must provide electronic submission and
payment of claims.]
3.4 Referral Authorization. Manager shall be responsible for
implementation and maintenance of such systems and procedures as directed by
Physicians Care to monitor and record authorization by Physicians Care
Primary Care Physicians for delivery of medical services to Physicians Care
enrollees, with the capability of using such authorization, information to
process and approve claims. Such system must permit Physicians Care
providers to submit such referral information to Physicians Care
electronically.
3.5 Data Base Management. Manager shall be responsible for
maintenance and management of a data base of Physicians Care's claims and
enrollment information, which data base shall be the exclusive property of
Physicians Care. Manager shall provide Physicians Care with access to such
data base including reproduction on disks or electronic transmissions to
Physicians Care of data as reasonably requested by Physicians Care.
3.6 Premium Billing and Collection of Accounts. Manager shall be
responsible for the development, implementation, and maintenance of billing
and collection procedures appropriate to Physicians Care's operation.
3.7 Deposit and Disbursement of Funds. Manager shall utilize bank
accounts designated by Physicians Care, shall deposit in such bank accounts
all monies received arising from premium billing on behalf of Physicians Care
and shall make disbursements from such accounts on behalf of Physicians Care
in such amounts and at such times as the same are required for payment of
claims. Signatories and approvals as to amounts on all checks shall be in
accordance with the duly adopted policies of Physicians Care's Board of
Directors.
-7-
<PAGE>
IV. PERSONNEL
4.1 Appointment. Manager shall hire, appoint, and supervise the
personnel specified below, and all other personnel reasonably necessary or
appropriate to carry out its obligations under this Agreement, all of whom
shall be employees or independent contractors of Manager. Such Manager
personnel shall have the authority to act on behalf of Physicians Care within
the scope of authority common to their positions in the industry, and the
authority granted to Manager under this Agreement, provided that they shall
at all times perform their duties in accordance with the Certificate of
Incorporation and Bylaws of Physicians Care and subject to the overall policy
direction established by Physicians Care's Board of Directors. The hiring,
assignment and termination of such personnel shall be solely within the
discretion of Manager.
4.2 [Specific Personnel. Manager shall hire[, or cause Physicians
Care to hire,] individuals to oversee the operations of Physicians Care and
arrange for the performance of services required to be performed by Manager
under this Agreement. Specifically, the parties agree that Manager shall
provide qualified individuals to fill the following positions; among others:
- Chief Executive Officer ("CEO"). The CEO shall be responsible to
Physicians Care's Board of Directors for the overall
administration, growth and performance of the Company.
- Associate Chief Executive Officer. The Associate Chief Executive
Officer shall assist the CEO in the discharge of his duties by
consulting on policies, performance goals, facilities planning
and general operations of the Company.
- Vice-President of Quality Management and
Utilization Management. The Vice-President of Quality
Management and Utilization Management will be responsible for
monitoring quantitative inpatient hospitalization and
outpatient ambulatory care experience and assuring that proper
utilization management techniques are being used. The
Vice-President of Quality Management and Utilization Management
shall also be responsible for the management of statistical
and qualitative information concerning patient outcomes and
physician/hospital practice patterns in accordance with the
Physicians Care's utilization standards.
- General Counsel. The General Counsel shall
concentrate on legal matters concerning procedures, entities,
regulations, and laws relating to the practice and business of
medicine. He shall also provide general legal services
required of corporate counsel on such matters as review,
negotiation, and drafting of contractual obligations, and
addressing members' communications and questions.
- Chief Financial Officer. The Chief Financial Officer shall be
responsible for the Company's overall financial plans, policies,
and accounting practices.
-8-
<PAGE>
- Chief Medical Officer. The Chief Medical Officer shall be
responsible for overseeing the medical practices, medical service
delivery and quality of care for Physicians Care's Members.
- Director of MIS. The Director of MIS shall be responsible for the
operation and maintenance of the in-house computer system and
information services of the Company.
- Vice President of Marketing and Sales. The Vice President of
Marketing and Sales shall be responsible for the overall
administration of marketing and sales activities.]
4.3 Obligations Relating to Management Personnel. Physicians Care
shall cooperate in good faith with the management personnel provided by
Manager pursuant to this Agreement as may be reasonably necessary for such
personnel to perform their duties.
4.4 Coordination of Personnel. At the discretion of Physicians Care
or Manager, provided that the requirements of Manager to operate Physicians
Care can be adequately met, the personnel appointed pursuant to this Section
may also serve another entity.
4.5 Consultative Staff. Manager may, at its discretion, utilize the
consultative services and support of the professional staff at its corporate
offices and may engage the services of consultants or independent contractors
other non-Manager personnel as may be necessary in carrying out Manager's
obligations hereunder. Compensation and expenses of Manager's professional
staff and all independent contractors providing services shall be the
responsibility of Manager and Physicians Care's sole obligation shall be to
pay the Management Fee to Manager and/or the direct costs as specified under
Section VI herein.
V. PROPERTY AND EQUIPMENT
5.1 Acquisition. Manager shall be responsible for purchasing,
leasing, renting, or otherwise acquiring on behalf of Physicians Care such
property, equipment and supplies for Physicians Care's office(s) as Manager
determines to be reasonably necessary to provide the services set forth in
this Agreement and as may be required to carry out Physicians Care's
contractual obligations with providers, enrollees or groups, subject to any
limitations or restrictions imposed by the Physicians Care Board of
Directors. [Title to all such property shall be held by Physicians Care.]
5.2 Repair and Maintenance. Manager shall be responsible for
negotiating, contracting for and supervising such repair and maintenance of
any property and equipment owned by Physicians Care as shall be necessary to
maintain such property and equipment in good working order.
-9-
<PAGE>
5.3 Utilities and Services. Manager shall be responsible for
negotiating and entering into such administrative arrangements and agreements
as it determines to be reasonably necessary or advisable for the furnishing
of utilities, services, concessions and supplies for the maintenance and
operation of Physicians Care, and as may be necessary for Manager to provide
the services set forth in this Agreement.
VI. INSURANCE
6.1 Types of Insurance and Costs. Manager shall be responsible for
purchasing and maintaining on behalf of Physicians Care, at Physicians Care's
expense, the insurance policies set forth in Exhibit 6.1 in such amounts,
with such companies, and on such terms and conditions upon which Manager and
Physicians Care shall mutually agree.
6.2 Manager's Insurance. Manager shall obtain and maintain
throughout the term of this Agreement, at its sole expense, workers'
compensation insurance and other appropriate insurance covering employees of
Manager who are utilized in carrying out Manager's obligations under this
Agreement and the other insurance policies set forth in Exhibit 6.2.
6.3 Notification of Changes in Insurance Coverage. Both parties
agree to provide the other with at least twenty (20) days prior notice of the
cancellation, non-renewal or modification of any of the insurance policies
set forth in either Exhibit 6.1 or Exhibit 6.2.
VII. COMPENSATION OF MANAGER
[7.1 Management Fee. Manager shall be entitled to the Management Fee
set forth in Exhibit 7.1, payable in monthly installments on the first day of
each month. Such Management Fee shall be reevaluated by the parties at least
thirty (30) days before the end of each calendar year and may be adjusted
accordingly for the next calendar year.]
7.2 Responsibility for Costs. Physicians Care shall be responsible
for reimbursement of Manager for costs incurred to start up operations in any
service area, and for certain services directly attributable to Physicians
Care's business and operations as set forth in Exhibit 7.2. Costs reimbursed
to Manager under this section are payable monthly on the last day of each
calendar month.
VIII. RECORDS
8.1 Ownership of Records. All information relating to the
operation of Physicians Care, including but not limited to, all books of
account, enrollment records, general administrative records, account and
Provider files, patient records, and information generated under and/or
contained in the MIS shall be and remain the sole property of Physicians
Care. Manager shall not possess any interest, title, lien or right to any
such data or records.
-10-
<PAGE>
8.2 Confidentiality of Records.
8.2.1 Manager shall use reasonable efforts to protect the
confidentiality of the records of Physicians Care and shall to the extent of
its authority and responsibility hereunder comply in all material respects
with all applicable laws and regulations relating to the records of
Physicians Care. In this connection, medical records and other privileged
enrollee information, and information subject to confidentiality agreements,
will not be disclosed by Manager except (i) with the consent of the
subscriber or the parties to the applicable confidentiality agreement, (ii)
pursuant to a court order, (iii) as necessary for quality assurance and
utilization review programs of Physicians Care, or (iv) when required by
applicable law.
8.3 Computer Programs. Physicians Care covenants and agrees that
any and all computer programs and computer software developed or utilized by
Manager in order to fulfill Manager's responsibilities specified herein shall
remain the property of Manager, or shall be used by Manager pursuant to
appropriate authorization, [and that Physicians Care shall not use such
programs and software for any purpose other than the activities of Physicians
Care without the express written consent of Manager;] provided, however, that
if Physicians Care funds the development cost of any such program, whether in
whole or in part, then such program shall be the property of Physicians Care
and Manager shall have a license to use such program, which license shall
automatically terminate upon termination of this Agreement for any reason.
8.4 Proprietary Material.
8.4.1 Physicians Care acknowledges that Manager, in providing
services under this Agreement, will by necessity divulge to and provide
Physicians Care with confidential proprietary plans, programs, formula,
methods and other products and information ("Proprietary Material") relating
to the business, services and activities of Manager in managing the business
and operations of Physicians Care including Proprietary Material developed in
the course of providing services hereunder. Physicians Care agrees that,
during the term of this Agreement and thereafter, Physicians Care shall take
reasonable steps to maintain the confidentiality of such Proprietary Material
and agrees not to disclose such Proprietary Material to anyone other than
Manager or other than is strictly necessary in the furtherance of Physicians
Care's business and operations. This provision shall not apply to any
information which is now in, or subsequently enters the public domain,
provided that Physicians Care has not, in violation of this provision,
disclosed or caused to be disclosed such information so as to make it enter
the public domain. Proprietary Material shall be and remain the property of
Manager.
8.5 Audit of Records. Manager shall allow auditors designated by
Physicians Care at Physicians Care's expense to audit all of Manager's books
and records relating to Manager's expenses under this Agreement and to the
fees paid to Manager under this Agreement so as to verify the accuracy of the
aggregate amount of fees paid to Manager pursuant to Article VI.
-11-
<PAGE>
IX. TERM OF AGREEMENT, TERMINATION
9.1 Term. The initial term of this Agreement shall commence on
____________ ("Effective Date") and shall continue until _____________ (the
"Initial Term") unless sooner terminated as provided herein. The Agreement
shall thereafter be extended upon the same terms and conditions for a
"Renewal Term" until terminated as provided herein. Notwithstanding the
foregoing, the Management Fee shall be reevaluated for each calendar year in
each Renewal Term pursuant to Section 6. 1.
9.2 Termination.
9.2.1 Termination during Renewal Term. This Agreement may be
terminated by either party by delivering written notice of such termination
to the other party upon [one (1) years prior written notice].
9.2.2 Termination Upon Mutual Consent. This Agreement may be
terminated at any time upon mutual consent of the parties.
9.2.3 Bankruptcy Termination. Either party may terminate this
agreement immediately upon the bankruptcy of the other party. As used in
this Section 9.2.3, bankruptcy of a party hereto shall mean the filing of a
petition commencing a voluntary case against it under the Bankruptcy Code; a
general assignment by it for the benefit of creditors; its insolvency, its
inability to pay its debts as they become due; the filing by it of any
petition or answer in any proceeding seeking for itself or consenting to, any
insolvency, receivership, or similar relief under any law or regulation.
9.3 Termination for Breach or Default. If either party fails
substantially to perform any of its material obligations hereunder (the
"Defaulting Party"), the other party ( the "Non-defaulting Party") shall have
the right to give the Defaulting Party a notice of default ("Notice of
Default"). The Notice of Default shall set forth the nature of the
obligation that the Defaulting Party has not performed. If, within the
thirty (30) day period following the giving of the Notice of Default, the
Defaulting Party in good faith commences to perform such obligation and cure
such default and thereafter prosecutes to completion with diligence and
continuity the curing thereof, it shall be deemed that the Notice of Default
was not given and the Defaulting Party shall lose no rights hereunder. If
within such thirty (30) day period the Defaulting Party does not commence in
good faith the curing of such default or does not thereafter prosecute to
completion with diligence and continuity the curing hereof, the
Non-defaulting Party shall have the right to terminate this Agreement at the
end of that thirty (30) day period. The right to terminate this Agreement
shall be in addition to any other remedy available to the Non-defaulting
Party, on account of any such breach or default. The waiver by either party
of a breach or violation of any provision of this Agreement shall not operate
as or be construed to be a waiver of any subsequent breach thereof
-12-
<PAGE>
9.4 Termination for Suspension or Revocation of Licensed Party.
Manager shall have the right to terminate this Agreement upon written notice
to Physicians Care if Physicians Care's Certificates of Authority to operate
Physicians Care are suspended or revoked or not renewed, except that in the
event that the loss of the Certificates is due to the actions of Manager,
Manager with the full cooperation of Physicians Care shall assume
responsibility for remedying the event which gave rise to the suspension,
revocation, or nonrenewal.
9.5 Cooperation Following Termination. Beginning on the date of
receipt of notice of termination for any reason by either party to this
Agreement, Manager shall upon written request of Physicians Care, continue to
provide services, equipment and supplies to Physicians Care in accordance
with this Agreement for a reasonable period of time, sufficient to enable
Physicians Care to engage another manager. During such period Manager shall
be entitled to payment in accordance with this Agreement.
[X. INDEMNIFICATION]
10.1 Indemnification of Manager. Physicians Care shall indemnify
and hold harmless Manager from and against any and all damages, liabilities,
actions, suits, proceedings, claims, demands, losses, costs and expenses
(including reasonable attorneys' fees) that shall or may arise out of or in
connection with certain acts or omissions by Physicians Care to the extent
not covered by insurance.
10.2 Indemnification of Physicians Care. Manager shall indemnify
and hold harmless Physicians Care from and against any and all damages,
liabilities, actions, suits, proceedings, claims, demands, losses, costs and
expenses (including reasonable attorneys' fees) that shall or may arise out
of or in connection with certain acts or omissions by Manager except where
Manager carries out in good faith the directives or policies of Physicians
Care's Board of Directors without negligence or willful misconduct, to the
extent not covered by insurance.
XI. GENERAL PROVISIONS
11.1 Assignment and Subcontracting. This Agreement shall be binding
upon and inure to the benefit of each of the parties' respective successors
and assigns, provided that such successor and/or assign is capable of
fulfilling and assumes the duties set forth in this Agreement, and the
parties hereto remain primarily liable for performance hereunder. Manager
shall be permitted, in its sole discretion, to fulfill or perform any of its
obligations under this Agreement by or through contracts or subcontracts with
third parties therefor at the sole expense of Manager; provided, however,
that Manager shall remain fully liable and responsible for the performance of
its duties and obligations under this Agreement. Except as set forth in this
Section 10.1 neither party shall in any manner inconsistent with this
Agreement, assign, subcontract or otherwise delegate its rights and
responsibilities under this Agreement unless the other party shall so consent
by prior written consent, which consent shall not be unreasonably withheld.
-13-
<PAGE>
11.2 Nonassumption of Liabilities. Manager shall not by entering
into and performing this Agreement, be or become liable for any of the
existing or future obligations, liabilities or debts of Physicians Care, and
Physicians Care shall not assume or become liable for any of the existing or
future obligations, liabilities or debts of Manager.
11.3 Impossibility of Performance. Neither Manager nor Physicians
Care shall be deemed to be in default of this Agreement if prevented from
performing any obligation hereunder for any reasons beyond its control,
including without limitation governmental laws and regulations, acts of God
or the public, flood or storm or strikes. In such case, the parties shall
negotiate in good faith with the goal or intent of preserving this Agreement
and the respective rights and obligations of the parties.
11.4 Interpretation. The validity, enforceability and
interpretation of any provision of this Agreement determined and governed by
the laws of the State of Connecticut. The invalidity or enforceability of
any terms or provisions hereof shall not unless, otherwise specified herein,
affect the validity or enforceability of any other term or provision of this
Agreement unless the term or provision is material and its invalidity or
unenforceability results in a substantial economic detriment to Physicians
Care or Manager.
11.5 Independent Contractors. Nothing in this Agreement shall affect
the separate identity of Physicians Care and Manager. Other than as provided
in this Agreement or other written agreement, it is not the intention of the
parties hereto to create a partnership or agency relationship. Nothing
contained in this Agreement is intended to cause either party to be the
partner or agent of the other or as limiting in any manner the parties in the
conduct of their respective businesses, ventures or activities.
11.6 Entire Agreement, Amendment. This Agreement, including its
Attachments and riders, contains all the terms and conditions agreed upon by
the parties hereto, and constitutes the entire understanding of the parties.
It supersedes all other agreements of the parties, oral or otherwise,
regarding the subject matter. This Agreement may not be amended or modified
in any material respect except by written instruction duly executed by the
parties hereto.
11.7 Notices. Any notice request, demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be in
writing and shall be deemed given only if delivered personally or sent by
registered or certified mail, postage prepaid, return receipt requested as
follows:
If to Manager:
MedServ of Connecticut, Inc.
1520 Highland Avenue
Cheshire, Connecticut 06410
-14-
<PAGE>
If to Physicians Care:
Physicians Care For Connecticut, Inc.
1520 Highland Avenue
Cheshire, Connecticut 06410
or to such other address as addressee may have specified in a notice duly
given to the sender in the manner provided herein, Such notice, request,
demand, waiver, consent, approval or other communication will be deemed to
have been given as of the date so delivered or mailed.
11.8 Heading. The headings contained herein are for convenience of
reference only and are not intended to define, limit, or describe the scope
or intent of any provision of this Agreement.
11.9 Waiver. The waiver by either party of any of the terms or
provisions of this Agreement shall not be deemed to constitute a waiver of
any of its other terms or provisions. No waiver of the provisions of this
Agreement shall be deemed to constitute a continuing waiver thereof unless
otherwise expressly provided herein.
11.10 Execution in Counterparts. This Agreement may be executed in
counterparts, all of which together shall constitute one and the same
instrument.
11.11 Authority to Execute Agreement. The individual executing this
Agreement on behalf of each party is duly empowered to execute the Agreement
and bind said party to the terms hereof.
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
MEDSERV OF CONNECTICUT, INC.
By:____________________________________
Its:___________________________________
Date:
PHYSICIANS CARE FOR CONNECTICUT, INC.
By:_____________________________________
Its:_____________________________________
Date:
-16-
<PAGE>
Exhibit 6.1
Insurance Policies For Physicians Care
Type of Policy Limits Policy Limits
--------------------- -------------
1. Insolvency Insurance
2. Directors and Officers Liability
Insurance
3. Property and Casualty Insurance
4. Malpractice Insurance
<PAGE>
Exhibit 6.2
Insurance Policies For Manager
Type of Policy Policy Limits
- -------------- -------------
1. Workers' Compensation Insurance
2. Malpractice Insurance
3. Property and Casualty Insurance
4. Business Interruption Insurance
(with Physicians Care listed as a named
insured on such policy)
<PAGE>
IPA SERVICE AGREEMENT
THIS AGREEMENT, effective as of __________________, is by and between
Physicians Care for Connecticut, Inc., a Connecticut corporation having a
principal place of business at 1520 Highland Avenue, Cheshire, Connecticut
("Physicians Care") and MedServ IPA, Inc., a Connecticut corporation, having
its principal place of business at 1520 Highland Avenue, Cheshire,
Connecticut (the "IPA").
WITNESSETH THAT
WHEREAS, Physicians Care desires to arrange for the provision of medical and
surgical services to Physicians Care Members, as hereinafter defined, through
a network of qualified physicians located in the State of Connecticut; and
WHEREAS, the IPA operates a network of physicians in the State of Connecticut
and desires to make such network available to Physicians Care to provide
medical and surgical services to Physicians Care Members; and
WHEREAS, IPA and Physicians Care desire and intend to secure a mutually
productive relationship from the operation of such network;
NOW, THEREFORE, Physicians Care and the IPA agree as follows:
1. Definitions. For the purposes of this Agreement, in the event that
any of the definitions contained or referenced in this Section 1 shall
conflict with the definitions of the same terms set forth in the Subscriber
Agreement or Employer Agreement, as amended from time to time, the
definitions provided in the Subscriber Agreement or Employer Agreement shall
prevail.
1.1. "Authorized Care" means those Covered Services which have been
authorized for a Member by the Member's Primary Care Physician, or which
under the applicable Subscriber Agreement do not require Primary Care
Physician authorization.
1.2. "Covered Services" means those Medically Necessary health care
services and supplies which a Member is entitled to receive under the
Physicians Care's benefit program and which are described and defined in the
Member's Subscriber Agreement and in Physicians Care's provider manual.
1.3. "Dependent" shall have the meaning assigned to it in the Member's
Subscriber Agreement.
1
<PAGE>
1.4. "Emergency Services" means those health care services provided to a
Member in the event of the sudden onset of an illness or injury requiring
immediate medical or surgical care to prevent serious impairment of health,
or where taking the time to call his or her Primary Care Physician might
place the Member's life in danger. Heart attacks, strokes, poisoning, loss of
consciousness, and convulsions are examples of emergencies.
1.5. "Employer Agreement" means the applicable contract between
Physicians Care or any of its affiliates and an employing entity pursuant to
which designated persons (usually employees and retirees) may become
Subscribers on a group basis.
1.6. "Fiscal Year" means the fiscal year of Physicians Care, commencing
on each January 1st and ending on each December 31st.
1.7. "IPA Physician" means a physician who is a member in good standing
of the IPA.
1.8. "IPA Services" means those Covered Services which the IPA is
required to arrange for the provision to a Member and pay for, and for which
the IPA is entitled to compensation under this Agreement. IPA Services shall
include those packages of Covered Services listed on Exhibit A, attached
hereto, as amended or added to from time to time in the sole discretion of
Physicians Care, and shall include such other health care services incident
thereto as may be determined to be medically necessary by the Member
Patient's treating Physician in accordance with generally accepted medical
and surgical practices and standards then prevailing in the applicable
professional community.
1.9. "Medically Necessary" means medical treatment required by a Member
as determined in accordance with accepted medical and surgical practices and
standards prevailing at the time of treatment and in conformity with the
professional and technical standards adopted by the Quality Care Committee.
1.10. "Member" means a person entitled to receive medical and
hospital services and financing of such services through Physicians Care.
For purposes of this Agreement, a Member includes any person for whom
Physicians Care provides, arranges, and/or finances managed health care or
administrative services.
1.11. "Member Co-payment" means the amount that may be charged by
Physicians to a Member at the time of providing IPA Services to the Member as
provided in the Member's Subscriber Agreement.
1.12. "Member Patient" means a Member who has elected to receive IPA
Services from a Physician associated with the IPA and for whom the IPA, when
necessary, has agreed to arrange for the provision of IPA Services.
2
<PAGE>
1.13. "Non-Covered Services" means health care services which are not
Covered Services.
1.14. "Physician" means any person duly licensed under applicable
laws and regulations to practice medicine.
1.15. "Physicians Care Hospital Administrative Manual" or "Manual"
means the manual that this Agreement incorporates by reference as if fully
set forth herein, which is appended hereto as Exhibit B. The Manual contains
claims submission procedures, discharge planning procedures, Hospital
recredentialing criteria, and other information. Physicians Care reserves
the right, at its sole discretion, to modify the Manual. If any provision of
the Manual is inconsistent with the terms of this Agreement, the terms of
this Agreement shall prevail. The IPA hereby acknowledges receiving a copy
of the Manual.
1.16. "Primary Care Physician" means a person licensed to practice
medicine by the applicable state licensing board who (a) (i) is board
eligible or board certified in internal medicine, family medicine, general
practitioner, or pediatrics, or (ii) meets such other standards as determined
by the Board of the Company from time to time, and (b) devotes significant
practice time to providing primary care services or managing the delivery of
other medical services with a capability to make preliminary diagnoses or to
provide treatment of medical and health care needs, without limitation by
problem origin, organ system or gender, to arrange for delivery of all
necessary care and to satisfy other requirements as established in Board
policy recording relating to qualifications of Primary Care Physicians.
1.17. "Service Area" means the State of Connecticut, or such other
areas or locales in which Physicians Care may be licensed to do business as a
Health Maintenance Organization.
1.18. "Subscriber" means the person who signs the application for
membership in the Plan and in whose name the subscription premium is paid. A
Subscriber signs for himself or herself and any Dependents.
1.19. "Subscriber Agreement" means the individual or family contract
with Physicians Care or any of its affiliates, including all amendments
thereto, under which a Subscriber and his or her Dependents are entitled to
receive Covered Services.
2. Network Development. IPA agrees to develop a network of qualified
physicians in each county of the Service Area as provided in Exhibit C. In
the event IPA fails to meet its network development obligations hereunder
then Physicians Care may, upon ninety (90) days notice to IPA, take such
steps as it deems necessary to develop such network.
3. Provision of Covered Services. Subject to the provisions of this
Agreement, the IPA agrees to establish a network of qualified physicians in
the Service Area covering all medical
3
<PAGE>
specialties and shall cause IPA Participating Physicians to provide IPA
Services to Physicians Care Members as follows:
(a) subject to reasonable policies, procedures, and payment standards
developed by Physicians Care, (i) to provide or to arrange to provide to
Members, IPA Services and (ii) to authorize, where appropriate, the provision
of IPA Services to Physicians Care Members by other Physicians Care Providers;
(b) where medically appropriate and practicable, to authorize, manage,
and review services provided outside the Service Area which are provided to
Physicians Care Members;
(c) except as may be otherwise agreed to by Physicians Care and the IPA,
to authorize, manage, and review the provision of appropriate prescription
drugs and Covered Services other than IPA Services including, without
limitation, durable medical equipment, home health care, skilled nursing
facility, and inpatient hospital services;
(d) to participate in the medical management, review, and coordination
programs developed by Physicians Care to administer and deliver Covered
Services to Members; and
(e) to ensure that IPA Physicians provide or arrange for the provision
of Covered Services without discriminating among Members, or between Members
and other patients on the basis of race, color, age, religion, gender,
national origin, sexual preference, or HMO membership, and to provide
services to its patients with the highest regard for personal dignity.
4. Utilization Management and Quality Management Programs. The parties
agree to develop mutually agreeable Utilization Management and Quality
Management Programs which the IPA shall adopt and implement in connection
with services rendered by IPA Physicians. The IPA shall periodically make
recommendations to Physicians Care concerning the types of Utilization
Management and Quality Management Programs which the IPA believes are
desirable.
5. Compensation to IPA Physicians for Medical Services. Except for Member
Co-payments or any other charges specifically permitted by this Agreement or
the applicable Subscriber Agreement including, without limitation, missed
appointment charges and charges to Members for Non-Covered Services, the IPA
agrees that it will cause IPA Physicians to accept the compensation paid by
Physicians Care as payment in full and to look solely to Physicians Care for
compensation for Covered Services provided to Members except in the case of
health benefit plans subject to ERISA wherein the Plan sponsor shall be
responsible for payment of claims. Except as provided herein, the IPA shall
not assert, nor will it permit any of its IPA Physicians to assert, any claim
or demand on Members or employers of Members, for compensation for IPA
Services provided to Members hereunder. Physicians Care will use its best
efforts to give the IPA notice of material defaults in payment of premiums by
self-funded employers that may have adverse consequences on the IPA. This
provision shall survive the termination or expiration of
4
<PAGE>
this Agreement with respect to services provided prior to the effective date
of such termination or expiration.
The amount due to IPA Physicians for services rendered shall be the fee
schedule, case rate or capitation payment amounts customarily paid by
Physicians Care and in effect from time to time net of any co-payment,
coinsurance or deductibles, provided, however, that if Physicians Care has a
risk arrangement contract (the "Alternative Contract") which is applicable to
such IPA Participating Physicians, then the financial terms of such
Alternative Contract shall control.
6. IPA Physician Credentialing and Qualifications. The IPA shall be
responsible for assuring that its IPA Physicians meet the following
qualifications:
(a) Licensure. The IPA will ensure that all professional health care
services (other than Emergency Services) provided to Members
under this Agreement will be provided by health care providers
acting within the scope of their licenses or certifications. The
IPA will ensure that all IPA Physicians meet continuing education
and other similar requirements established by the professional
organizations overseeing licensure in their fields. The IPA
will cooperate with Physicians Care to establish and maintain an
auditable system to ensure that the requirements of licensure are
met in a timely manner by all IPA Physicians.
(b) Credentialing. The IPA shall credential all IPA Physicians
pursuant to Physicians Care policies and in accordance with all
NCQA standards and guidelines. IPA shall maintain a full and
complete credentialing file for each IPA Physician and shall
provide Physicians Care with access to or copies of such file on
its reasonable request.
(c) Privileges. The IPA shall ensure that each IPA Physician providing
inpatient services under this Agreement has taken or will take
all steps necessary to obtain and maintain hospital privileges at
the appropriate hospitals listed on Exhibit D and at such other
health care facilities as Physicians Care and the IPA are agree
are necessary to the proper provision of services pursuant to
this Agreement.
(d) Censure or Suspension. The IPA shall immediately notify Physicians
Care in the event that any IPA Physician is disciplined by the
applicable state licensing agency charged with licensing
physicians or any health care facility, is censured by or
expelled from any county medical society, or has his or her
privileges at any health care facility suspended, revoked,
restricted, made probationary, or otherwise diminished in any
way, including resignation or non-renewal.
(e) Peer Group Monitoring. In addition to ensuring that all IPA
Physicians comply with the above requirements evidencing
licensure, the IPA shall, with the assistance of Physicians Care,
develop peer group monitoring systems to ensure
5
<PAGE>
that all IPA Physicians function in a competent and professional
manner when providing IPA Services and comply with professionally
recognized quality of care standards.
The IPA shall also maintain all licenses, permits and registrations
which may be required by law in order for the IPA to provide services under
this Agreement.
7. IPA Compensation for Services. The IPA shall be compensated pursuant to
Exhibit E for administrative services provided pursuant to this Agreement.
8. Member Selection of Primary Care Physician. The IPA shall require
each Member Patient to select a Primary Care Physician to be primarily
responsible for the coordination of the Member Patient's overall health care
as his or her "Care Manager," and to allow reasonable changes to such
selection. To the extent it is consistent with the reasonable and efficient
allocation of the resources of its IPA Physicians, the IPA shall permit each
Member Patient to select the Primary Care Physician of said Member Patient's
choice.
9. Notification of Changes. The IPA agrees to provide Physicians Care
with reasonable notice of any material change to be made in the structure or
operation of the IPA.
10. Insurance. The IPA shall have and maintain policies of general and
professional liability insurance in amounts and on terms reasonably
satisfactory to Physicians Care, and the IPA shall have and maintain adequate
casualty insurance on its real and personal property. Currently, the IPA
maintains insurance in the amount of two (2) million dollars per occurrence
and four (4) million dollars in the aggregate. The IPA shall notify
Physicians Care of any material changes in this coverage and shall provide
Physicians Care, upon request, with evidence of such coverage.
11. Financial Reporting. The IPA shall have annual financial statements
which accurately reflect the financial condition of the IPA prepared and
delivered to Physicians Care within 120 days after the end of each of the
IPA's fiscal years. Upon request, Physicians Care shall permit a reasonable
extension of the deadline. The annual financial statements shall be prepared
in accordance with generally accepted accounting principles and shall be
audited or reviewed by a firm of certified public accountants reasonably
acceptable to Physicians Care. The IPA's annual financial statements shall
include at least the following elements:
(i) Balance Sheet;
(ii) Income Statement;
(iii) Statement of Changes in Cash.
12. Insolvency.
(a) Payments or Distributions While Insolvent. With the consent of
Physicians Care,
6
<PAGE>
which consent shall not be unreasonably withheld, the IPA will not make any
form of payment or distribution to IPA Physicians if the IPA is at that time
not generally meeting its debts as they come due, or if making such payment
or distribution would render the IPA unable generally to meet its debts as
they come due or render it unable to meet its obligations under this
Agreement.
(b) Physicians Care Insolvency. Notwithstanding anything to the
contrary contained herein, in the event that Physicians Care becomes unable
generally to meet its debts as they come due or is insolvent as determined by
the Insurance Commissioner, the IPA agrees that it shall cause IPA Physicians
to continue to provide or to arrange for the provision of Covered Services to
Member Patients in accordance with the terms of this Agreement for the period
for which premiums have been paid to Physicians Care by or on behalf of
Member Patients.
13. Compensation. In consideration of the IPA's performance of its
obligations under this Agreement, the IPA shall receive compensation the
amounts set forth in Exhibit F.
14. Other Payments.
14.1 Member Payments. IPA Physicians may charge Members to whom they
provide services any Member Co-payments permitted by the applicable
Subscriber Agreement. The IPA Physicians may also bill Member Patients a
reasonable charge for missed appointments in accordance with the applicable
Subscriber Agreement and may bill for Non-Covered Services in accordance with
the Manual.
14.2 Coordination of Benefits and Subrogation. Physicians Care shall be
entitled to any amount Physicians Care collects from other insurers on
account of IPA Services provided to Member Patients by IPA Physicians. The
IPA shall cause IPA Physicians to cooperate with Physicians Care's
coordination of benefits and subrogation policies and procedures.
15. Physicians Care Obligations and Rights.
(a) Administer Plan. Physicians Care agrees that the maintenance of
appropriate administrative, marketing, and actuarial systems and
the employment of qualified personnel are essential parts of its
obligations under this Agreement.
(b) Member Orientation and Education. Physicians Care shall be
responsible for advising Member Patients of their rights and
obligations under the applicable Subscriber Agreement as promptly
as practicable after they become Members.
(c) Licenses and Permits. At its sole cost and expense, Physicians Care
shall obtain and keep in full force and effect throughout the
term hereof all necessary licenses and permits with respect to
the operation of Physicians Care and, if requested by IPA,
provide copies thereof to the IPA at Physicians Care's expense.
7
<PAGE>
(d) Management Information Data. Physicians Care agrees to provide the
IPA with computer hardware adequate to access directly the
IPA-specific database maintained by Physicians Care and to
provide direct access to said database, including enrollment
status data and data on referral accounts payable. Physicians
Care also agrees to provide the IPA with the management
information reports listed in Exhibit G.
(e) Coordination of Benefits and Subrogation. Physicians Care will be
the exclusive provider of coordination of benefits and
subrogation services for all of the IPA's Member Patients. The
IPA agrees to cause its IPA Physicians to provide all data
reasonably necessary to enable Physicians Care to provide such
services under this Agreement.
(f) Member Satisfaction Surveys. Physicians Care and the IPA agree to
jointly develop and the IPA shall administer and utilize a
regular program of member satisfaction surveys to analyze Member
perception of the quality of services provided by Physicians Care
and its Participating Providers and to take such reasonable steps
as may be necessary to correct any deficiencies revealed by such
surveys.
16. Indemnifications.
16.1 Indemnification by Physicians Care. Physicians Care agrees to
indemnify, defend, and save harmless the IPA, its officers, directors and
employees, from and against any and all claims, costs, liabilities, losses
and damages made against or suffered by them, or any or all of them, arising
out of or in any way connected with the operation or administration of
Physicians Care, except those arising out of the conduct, acts, or omissions
of the IPA, its officers, directors, employees, or agents, or of IPA
Physicians.
16.2 Indemnification by the IPA. The IPA agrees to indemnify,
defend, and save harmless Physicians Care, its affiliates and their officers,
directors and employees, from and against any and all claims, costs,
liabilities, losses, and damages made against or suffered by them, or any or
all of them, arising out of or in any way connected with by the conduct,
acts, or omissions of the IPA, its officers, partners, directors, employees,
agents, independent contractors, or IPA Physicians.
17. Confidentiality.
17.1 By Physicians Care. Physicians Care agrees to comply with all
applicable state and federal laws respecting the confidentiality of
proprietary information, data, and other confidential or personal information
concerning the medical, personal, or business affairs of Members acquired in
the course of providing or arranging for Physicians Care benefits.
Physicians Care agrees to maintain the confidentiality of this Agreement and
all financial,
8
<PAGE>
operating, proprietary or business information relating to the IPA which is
not otherwise public information and shall respect the confidentiality of any
information, not described above, specified in writing by the IPA as
confidential information. Physicians Care shall exercise its best efforts to
prevent any of its agents, employees, legal counsel, independent contractors
or any other person involved in doing business with or controlled by
Physicians Care from disclosing, using or transmitting to any other person or
entity any of the above described information. Nothing herein shall prohibit
Physicians Care from making any use, disclosure, or transmission of
information to the extent that such use, disclosure, or transmission is
necessary and appropriate to enable Physicians Care to perform its
obligations under this Agreement, or is required by law. Physicians Care
shall include the substantive provisions of this paragraph in all written
contracts for amounts in excess of ten thousand dollars ($10,000) between
Physicians Care and its subcontractors, independent contractors, and agents.
17.2 By the IPA. The IPA agrees to comply with all applicable state and
federal laws respecting the confidentiality of proprietary information, data,
and other confidential or personal information concerning the medical,
personal, or business affairs of Members acquired in the course of providing
or arranging for the provision of services hereunder and agrees to maintain
the confidentiality of this Agreement and all financial, operating,
proprietary or business information relating to Physicians Care which is not
otherwise public information. The IPA shall respect the confidentiality of
any information, not described above, specified in writing by Physicians Care
as confidential information, and shall exercise its best efforts to prevent
any of its agents, employees, legal counsel, independent contractors or any
other person involved in doing business with or controlled by the IPA from
disclosing, using or transmitting to any other person or entity any of the
above described information. Nothing herein shall prohibit the IPA from
making any use, disclosure, or transmission of information to the extent that
such use, disclosure, or transmission is necessary and appropriate to enable
the IPA to perform its obligations under this Agreement, or is required by
law. The IPA shall include the substantive provisions of this paragraph in
all written contracts for amounts in excess of ten thousand dollars ($10,000)
between the IPA and its subcontractors, independent contractors, and agents.
18. Term and Termination.
18.1 Term. The term of this Agreement shall begin on
and shall remain in effect for a period of ten (10) years (the
"Initial Term"), unless terminated as provided herein. Thereafter, this
Agreement shall be automatically renewed for a term of ten (10) years (the
"Renewal Term"), unless terminated as provided herein. The word "term" as
used in this Agreement without any modifier shall mean the Initial Term and
the Renewal Term.
18.2 Termination.
(a) For cause termination. This Agreement may be terminated at any time
for breach hereof upon thirty (30) days prior written notice, provided that
no breach shall be deemed to have occurred if the breaching party has cured
said breach prior to the expiration of the notice period.
9
<PAGE>
(b) Failure to maintain adequate provider network. In the event
Physicians Care finds that the number of IPA Physicians in any geographic
area is insufficient to meet Physicians Care's needs for any insurance
product, Physicians Care will provide the IPA with written notice to that
effect, and, unless cured as set forth below, Physicians Care may terminate
this Agreement upon sixty (60) days prior written notice. Physicians Care
will judge the number of IPA Physicians in a particular geographic area to be
sufficient if Members have access to IPA Physicians in the full range of
medical specialties, or if the IPA agrees to recruit and credential, within
six (6) months of receipt of a written request from Physicians Care, a
reasonable number of additional IPA Physicians in the particular geographic
region in any specialty or service where Physicians Care in good faith finds
that Members need additional access to IPA Physicians.
(c) Termination of IPA Physicians.
i. Termination With Cause. This Agreement may be terminated with
cause by Physicians Care upon thirty (30) days prior written notice to an IPA
Physician if the IPA Physician violates or fails to comply with any of the
material requirements of this Agreement. The IPA Physician shall be given an
opportunity to cure such breach during the thirty (30) day notice period. If
the breach is cured during such notice period, then this Agreement shall
remain in effect.
ii. Immediate Termination. Notwithstanding any other provision of
this Agreement to the contrary, Physicians Care shall have the right to
terminate the participation of an individual IPA Physician immediately in the
event that the Physician:
- shall have his or her license to practice medicine revoked or
subject to sanction;
- is subject to the loss, suspension, or reduction of medical
staff privileges at a hospital or federal or state controlled substance
registrations; or
- undertakes any activity which results or may be reasonably
considered to place in jeopardy the life, health, or safety of patients,
whether acting pursuant to this Agreement or otherwise.
18.3 Effects of Notice of Termination.
(a) Physicians Care and the IPA will work together in good faith to
plan cooperatively the manner in which the IPA will be phased out as
Physicians Care's provider network, including, but not limited to, the
procedure and timing of notice to existing and potential Member Patients that
this Agreement has been terminated.
(b) Upon termination, the IPA shall turn over to Physicians Care
all tangible personal property, if any, belonging to Physicians Care and
shall further make available to Physicians Care, at Physicians Care's
expense, such information and copies of records as
10
<PAGE>
Physicians Care may reasonably request concerning Physicians Care Members.
Original medical records of Member Patients shall remain the property of IPA
Physicians. Physicians Care shall turn over to the IPA all tangible personal
property, if any, belonging to the IPA.
19. Dispute Resolution. Physicians Care and the IPA agree that the creation
of a system for resolving disputes arising from performance under or
interpretation of this Agreement is essential to the continuation of their
relationship. Both parties agree to use good faith efforts to resolve such
disagreements in the context of the following system:
(a) Informal Dispute Resolution. The parties agree that a
representative of the IPA will meet with a representative of Physicians Care
to seek to resolve the issue or dispute. If an issue or dispute is not
resolved within 30 days after the commencement of such a meeting, any party
to the dispute may request the appointment of a mediator to assist the
parties to resolve the issue.
(b) Mediation. The parties agree to complete the selection of a
mediator within 10 days following the receipt of the request for mediation by
a party. The parties agree to cooperate in good faith in the mediator's
efforts to assist the parties to resolve the issue. The parties agree to
split the costs of mediation services equally between the two sides of the
dispute. If the issue is not resolved within 45 days of the commencement of
mediation, any party to the dispute may request arbitration.
(c) Arbitration. A party requesting arbitration will do so in writing
addressed to the other party. The parties agree to complete the selection of
the arbitrator(s) within 10 days following receipt of the request by a party.
If the parties fail to complete selection of the arbitrator(s) within the
above time limits, the party requesting arbitration may request the American
Arbitration Association to appoint an arbitrator. Immediately following the
selection of an arbitrator, the parties will meet with the mediator to frame
the issues to be placed before the arbitrator. The parties agree to be
guided by the mediator in the process of framing the issues. The parties
agree that arbitration proceedings will be commenced within 45 days of
selection of the arbitrator(s) and concluded within 90 days of selection of
the arbitrator(s). Unless otherwise agreed by the parties in writing, the
arbitration hearings shall not last more than one day, with each party
receiving equal time to present its case before the arbitrator. The
arbitrator shall render a decision within 10 days after conclusion of the
hearings. The decision of the arbitrator(s) shall be final and conclusive of
the issue in dispute. The cost of the arbitrator's services will be
allocated between the two sides of the dispute by the arbitrator(s). An
arbitrator shall not be authorized to award punitive damages to any of the
parties. All arbitration proceedings shall be conducted in the State of
Connecticut.
MISCELLANEOUS
20. IPA's Compliance with Law. The IPA agrees to comply with all federal,
state, and municipal laws, statutes, ordinances, orders, and regulations
applicable to the conduct of its business and with professionally recognized
quality of care standards.
11
<PAGE>
21. Physicians Care's Compliance with Law. Physicians Care shall
establish and operate the Plan in accordance with all laws, rules and
regulations applicable thereto.
22. Relationship of Parties. Each party is and shall continue to be an
independent entity hereunder. Neither party is the agent or representative
of the other, nor shall either party have any express or implied right or
authority to assume or create any obligation on behalf of or in the name of
the other, unless specifically authorized for the purpose.
23. Force Majeure. Each party will make a good faith effort to meet its
obligations under this Agreement in the case of an event beyond its control.
These events include, but are not limited to, war, riot, civil insurrection,
epidemic, public emergency, and natural disaster. Other causes include the
partial or complete destruction of Physicians Care or IPA facilities. For
the purposes of this Section 26, an event is not within the control of either
Physicians Care or the IPA if neither one can exercise influence or control
over its occurrence.
24. Governmental Action. Both parties recognize the existence or
potential existence of legislation or administrative rules and regulations or
actions which may affect or impair the delivery of the services described
herein by the IPA and/or IPA Physicians. The obligations of the IPA, the IPA
Physicians and Physicians Care pursuant to the Agreement shall be subject to
such legislation, rules, regulations and actions.
25. Rights of Members. The rights and benefits of Members shall arise solely
from the Subscriber Agreement. No rights or causes of action shall accrue to
any Member from the terms of this Agreement. The parties agree that no
Member is a third-party beneficiary hereof.
26. Assignment. This Agreement and the respective rights and obligations of
the parties hereto may not be assigned or transferred in any manner without
the prior express written consent of both parties, and, in the absence of
such consent, any purported assignment shall be wholly void.
27. Notices. Any notice required under the terms of this Agreement shall be
in writing and shall be sent by overnight mail addressed to each party at the
address set forth below the signature of its officer affixed to the
Agreement, or transmitted by facsimile to the officer who signed this
Agreement on behalf of the respective parties. Any such notice shall be
effective upon receipt.
28. Integration Clause. This Agreement constitutes the entire contract
between the parties hereto and supersedes any prior agreements between the
IPA and Physicians Care with respect to the arrangement of the provision of
Covered Services to Members after the date of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on this ______ day of __________________, 1996 in two or more copies
for themselves and their successors by their duly authorized officers.
PHYSICIANS CARE FOR CONNECTICUT, INC.
By:________________________________
MEDSERV IPA, INC.
By:________________________________
13
<PAGE>
ESCROW AGREEMENT
Fleet National Bank, as escrow agent (the Escrow Agent), ________________
_____________ (the Seller), and _________________________________ (the Buyer)
enter into this Escrow Agreement (the Agreement) as of (date).
A. The defined terms used in this Agreement and not defined herein
shall have the meanings indicated in the Loan Servicing Purchase and Sale
Agreement (the "Agreement") a copy of which is attached.
B. As provided in the Agreement, the Buyer is required from time to
time to deposit in escrow an aggregate amount of _____________. Subject to
the terms and conditions in this Agreement, money in the escrow is to be
released and paid over to the Seller upon the Escrow Agent's receipt of joint
written instructions from the Seller and the Buyer. The Buyer and Seller
have agreed to establish the escrow with the Escrow Agent pursuant to the
terms set forth herein.
NOW THEREFORE, the Escrow Agent, the Seller and the Buyer, in
consideration of the covenants herein contained, agree as follows:
1. ESCROW AGENT. The Escrow Agent, having as of the date of this
Agreement, an office at 777 Main Street, Hartford, Connecticut, is hereby
appointed by the Seller and the Buyer and agrees to have as the Escrow Agent
hereunder.
2. ESCROW FUND. The Escrow Agent hereby agrees to deposit all
monies from time to time, provided by the Buyer hereunder, into an escrow
fund (the Escrow Fund) to be held in the custody of the Escrow Agent separate
and apart from all other funds and accounts of the Seller, the Buyer or the
Escrow Agent. Upon three (3) Business Days prior to notice of the Escrow
Agent, the Buyer shall have the right to deliver additional monies to the
Escrow Agent for deposit in the Escrow Fund. The Escrow Agent agrees to
accept such monies, such monies becoming apart of the Escrow Fund subject to
the terms and conditions herein.
3. ESCROW FUND INVESTMENTS. All monies delivered by the Buyer to
the Escrow Agent for deposit in the Escrow Fund shall be invested by the
Escrow Agent in such fund or funds as Buyer and Seller shall specify in
writing. Such investment shall be deemed to be part of the Escrow Fund. The
Escrow Agent shall not be liable for any loss resulting from the making or
retention of any investment in accordance with this Agreement.
4. RELEASE OR RETURN OF ESCROW. The escrow hereby created shall be
released upon receipt by the Escrow Agent of joint written instructions from
the Seller and the Buyer (the Escrow Release Condition).
Upon the occurrence of the Escrow Release Condition, the Escrow Agent
shall wire transfer the Escrow Fund, less any amounts which may be subtracted
as provided for in this Agreement, in accordance with wire transfer
instructions then provided.
<PAGE>
After the Escrow Funds have been released or returned, the Escrow Agent
shall have no further liability to either the Seller or the Buyer.
5. LIABILITY OF ESCROW AGENT LIMITED. The acceptance by the Escrow
Agent of its duties under this Agreement is subject to the following terms
and conditions, which parties to this Agreement agree shall govern and
control with respect to its rights, duties, liabilities and immunities.
a. The Escrow Agent shall be protected in acting upon any
written notice, request, waiver, consent, receipt, or other paper or document
furnished to it, not only as to its due execution and validity and
effectiveness of its provisions, but also as to the truth and acceptability
of any information therein contained which the Escrow Agent in good faith
believes to be genuine and what it purports to be.
b. The Escrow Agent shall not be liable for any error of
judgment, or for any act done or steps taken or omitted by it in good faith,
or for any mistake of fact or law, or for anything which it may do or refrain
from doing in connection herewith, except its own gross negligence or willful
misconduct and the parties shall indemnify and hold the Escrow Agent harmless
against any and all claims, liability, loss, costs, and expenses (including
attorneys' fees and court costs) arising out of the performance of this
Agreement excepts its own lack of good faith, gross negligence or willful
misconduct. In the event that such costs, or expenses are incurred by the
Escrow Agent, the Escrow Agent shall be entitled to reimburse itself out of
the Escrow Funds.
c. The Escrow Agent may consult with, or obtain advice from,
legal counsel in the event of any question as to any of the provisions hereof
or its duties hereunder, and it shall incur no liability and shall be fully
protected in acting in good faith in accordance with the opinion and
instructions of such counsel.
d. The Escrow Agent is only a stake holder with respect to any
funds deposited hereunder, and in the event of a dispute among the parties
hereto, the Escrow Agent may continue to hold the money from the Escrow Fund
until joint instructions from the Seller and the Buyer or an order of court
of jurisdiction directs disposition of the money; or the Escrow Agent may, at
the expenses of the Seller and the Buyer, deposit by appropriate procedure
the money into court.
6. ESCROW AGENT'S DUTIES. The Escrow Agent shall perform such
duties in the administration of this Agreement, and only such duties, as are
specifically set forth in this Agreement.
7. NOTICES. All notices, requests, demands or instructions to the
Seller, the Buyer or to the Escrow Agent which are given hereunder shall be
in writing and shall be deemed sufficiently given if sent by registered or
certified mail, postage prepaid or delivered during the
-2-
<PAGE>
business hours as follows: (i) to the Buyer at its office at (name and
address) (ii) to the Seller at its office at (name and address) and (iii) to
the Escrow Agent at its office at 777 Main Street, Hartford, Connecticut,
06115, attention of the Corporate Trust Department.
8. ESCROW AGENT COMPENSATION. The Buyer shall pay when billed
compensation to the Escrow Agent for its services under this Agreement. The
Buyer also agrees to pay when billed Escrow Agent's costs and expenses, the
including fees and expenses of counsel to the Escrow Agent incurred in
connection with its duties hereunder. To secure payment of the Escrow
Agent's compensation under this Agreement, the Escrow Agent shall have a lien
(legal and equitable) prior to the Seller's and the Buyer's on all money or
property held under this Agreement by the Escrow Agent.
9. SUCCESSORS ASSIGNS. The rights and obligations of the parties
to this Agreement shall insure to and be binding upon their respective
successors and assigns.
10. SEVERABILITY. If any one or more of the covenants or agreements
provided for this Agreement on the part of the Seller, the Buyer or the
Escrow Agent to be performed should be determined by a court or competent
jurisdiction to be contrary to law, such covenant or agreement shall be
deemed and construed to be severable from the remaining covenants and
agreements herein contained and shall in no way affect the validity of the
remaining provisions of this Agreement.
11. GOVERNING LAW. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Connecticut and any
suits and actions arising out of this Agreement shall be instituted in a
court of competent jurisdiction in said State.
12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original; but such
counterparts together shall constitute one and the same instrument.
IN WITNESS WHEREFOR, this Agreement has been signed as of the day and
year shown above.
By:
----------------------------
Title:
-------------------------
By:
----------------------------
Title:
-------------------------
-3-
<PAGE>
FLEET NATIONAL BANK,
AS ESCROW AGENT
By:
----------------------------
Title:
-------------------------
-4-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Hartford, Connecticut
March 6, 1997