<PAGE>
Securities and Exchange Commission
Washington, DC 20549
--------------------
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended July 31, 1997.
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------- -------------
Commission file number 0-16235
PHP HEALTHCARE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 54-1023168
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
11440 COMMERCE PARK DRIVE, RESTON, VA 20191
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number including area code
(703) 758-3600
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if
changed since last report.
Indicate by check whether the registrant (i) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $.01 per share, outstanding as of July 31, 1997,
11,549,925 shares.
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Report of Independent Accountants 2
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Results of Operations
and Financial Condition 7
PART II - OTHER INFORMATION 13
SIGNATURES 14
EXHIBIT INDEX 15
</TABLE>
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of PHP Healthcare Corporation:
We have reviewed the Condensed Consolidated Balance Sheets of PHP Healthcare
Corporation and subsidiaries as of July 31, 1997, and the related Condensed
Consolidated Statements of Operations and Cash Flows for the three month periods
ended July 31, 1997 and 1996. These condensed consolidated financial statements
are the responsibility of the company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the Consolidated Balance Sheet as of April 30, 1997, and the related
Consolidated Statements of Operations, Stockholders' Equity, and Cash Flows for
the year then ended (not presented herein), and in our report dated July 25,
1997, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
Condensed Consolidated Balance Sheet as of April 30, 1997, is fairly stated, in
all material respects, in relation to the Consolidated Balance Sheet from
which it has been derived.
Coopers & Lybrand L.L.P.
Washington, D.C.
September 18, 1997
2
<PAGE>
PHP HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues................................................. $55,742 $53,428
Direct costs............................................. 44,883 42,122
------- -------
Gross profit........................................ 10,859 11,306
General and administrative expenses...................... 7,638 7,073
------- -------
Operating income.................................... 3,221 4,233
Other income (expense):
Interest expense............................... (1,492) (1,357)
Interest income................................ 279 655
Miscellaneous expense.......................... (186) (38)
Minority interest in earnings of subsidiaries.. (214) (34)
------- -------
Earnings before income taxes........................ 1,608 3,459
Income tax expense....................................... 563 1,300
------- -------
Net earnings........................................ $ 1,045 $ 2,159
======= =======
Net earnings per share................................... $ 0.08 $ 0.16
======= =======
Weighted average number of common and common
equivalent shares outstanding.......................... 13,662 13,789
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PHP HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1997 AND APRIL 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 31 APRIL 30,
1997 1997
----------- ----------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 11,597 $ 15,765
Accounts receivable, net.................................................. 51,354 45,800
Pharmaceutical and medical supplies....................................... 752 1,460
Receivables from officers................................................. 2,915 4,442
Income tax receivable..................................................... 895 882
Deferred income taxes..................................................... 539 539
Other current assets...................................................... 6,250 4,273
-------- --------
Total current assets.................................................. 74,302 73,161
Property and equipment, net................................................. 59,056 58,444
Intangible assets, net of accumulated amortization of $1,474 in July and
$1,236 in April........................................................ 14,742 14,989
Receivables from officers................................................... 458 1,202
Other assets................................................................ 7,035 5,508
-------- --------
$155,593 $153,304
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank (note 2)............................................ 8,200 9,200
Current maturities of notes payable - other.............................. 2,452 1,716
Accounts payable......................................................... 10,494 12,036
Claims payable - medical services........................................ 7,428 8,739
Accrued salaries and benefits............................................ 12,428 13,219
Income taxes payable..................................................... 563 ---
Billings in excess of costs.............................................. 1,045 1,068
-------- --------
Total current liabilities............................................. 42,610 45,978
Notes payable - other, net of current maturities............................ 4,440 3,964
Convertible subordinated debentures......................................... 66,161 66,032
Deferred income taxes....................................................... 1,274 1,274
Deferred gain on sale of building........................................... 895 916
Other liabilities........................................................... 829 759
-------- --------
Total liabilities..................................................... 116,209 118,923
-------- --------
Minority interest........................................................... 4,517 4,303
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized, none issued.. --- ---
Common stock, $.01 par value, 25,000,000 shares authorized,
14,808,410 shares issued in July and 14,369,849 shares in April........ 148 144
Additional paid-in-capital............................................... 37,686 33,946
Note receivable from sale of stock....................................... (900) (900)
Retained earnings........................................................ 4,505 3,460
Treasury stock, 3,258,485 common shares in July and April, at cost....... (6,572) (6,572)
-------- --------
Total stockholders' equity............................................ 34,867 30,078
Contingencies (Note 3)......................................................
-------- --------
$155,593 $153,304
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PHP HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JULY 31, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................... $ 1,045 $ 2,159
Adjustments to reconcile net earnings to net cash
used in operating activities:
Minority interest in earnings of subsidiaries....... 214 34
Depreciation and amortization....................... 1,798 1,292
Other items, net.................................... (21) (21)
Changes in operating assets and liabilities:
Increase in accounts receivable, net................. (5,554) (4,588)
Decrease in pharmaceutical and medical supplies...... 708 1
Increase in other current assets..................... (1,990) (619)
Increase in other assets............................. (1,527) (371)
Decrease in accounts payable......................... (1,542) (2,203)
Decrease in claims payable........................... (1,311) (1,584)
Decrease in accrued salaries and benefits............ (791) (116)
Decrease in billings in excess of costs.............. (23) (51)
Increase in income taxes payable..................... 563 878
Increase in other liabilities........................ 70 53
------- -------
Net cash used in operating activities............... (8,361) (5,136)
------- -------
Cash flows from investing activities:
Acquisition of property and equipment................ (2,034) (2,541)
------- -------
Cash flows from financing activities:
Net repayments under revolving promissory notes....... (1,000) ---
Borrowing on notes payable............................ 1,863 ---
Repayments on notes payable........................... (651) (133)
Receivables from officers............................. 2,271 (754)
Proceeds from exercise of stock options............... 1,144 57
Proceeds from sale of stock........................... 2,600 ---
------- -------
Net cash provided by (used in) financing
activities.......................................... 6,227 (830)
------- -------
Net decrease in cash and cash equivalents........... (4,168) (8,507)
Cash and cash equivalents, beginning of period......... 15,765 48,647
------- -------
Cash and cash equivalents, end of period............... $11,597 $40,140
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PHP HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
In the opinion of the Company, the interim condensed consolidated financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the results for the interim
periods. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The interim condensed consolidated
financial statements should be read in conjunction with the Company's April 30,
1997 and 1996 audited consolidated financial statements. The year-end condensed
consolidated balance sheet data was derived from audited consolidated financial
statements but does not include all disclosures required by generally accepted
accounting principles. The interim operating results are not necessarily
indicative of the operating results for the full fiscal year.
(B) NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128),
effective for financial statements for both interim and annual periods ending
after December 15, 1997. At that time, the Company will be required to change
the method currently used to calculate earnings per share and to restate all
prior periods. The new requirements will include a calculation of basic earnings
per share, from which the dilutive effect of stock options and warrants will be
excluded. The basic earnings per share are expected to reflect an increase of
$.01 and $.04 per share for the quarters ended July 31, 1997 and July 31,
1996, respectively, over the primary earnings per share reported for these
quarters. A calculation of diluted earnings per share will also be required;
however, this is not expected to differ materially from the Company's reported
primary earnings per share.
(2) NOTE PAYABLE - BANK
The Company has extended the term of its primary banking facility, a $12.2
million revolving promissory note, until October 28, 1997. This credit
facility, previously due to expire in August 1997, was extended at principally
the same terms and conditions.
(3) CONTINGENCIES
The Company is a defendant in various legal actions. The principal actions
allege or involve claims under contractual arrangements, employment matters, and
medical malpractice with an estimated possible range of loss between
approximately $50,000 and $250,000. The Company does not believe that it has a
material, estimable and probable liability related to these various legal
actions and therefore has not recorded any reserves at July 31, 1997.
The Company maintains medical malpractice insurance coverage which provides
for reimbursement of any claim amounts in excess of $250,000 per incident on
Government Managed Care Division projects and $50,000 per incident on Commercial
Managed Care Division projects.
6
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
Over the past four years, the Company has altered its focus from a historic
dependence on government contracts to a focus on commercial managed care
markets. Prior to 1993, over 98% of PHP's revenue came from government-related
contracts. PHP's government service contracts required the Company to manage
health care providers in a variety of delivery settings. In 1992, management
realized that the knowledge, expertise and skills which the Company had acquired
in managing health care providers for government agencies could also be applied
to serve the commercial managed care market. At the same time, management
supplemented the Company's existing competencies with additional skills and
capabilities in order to take full advantage of the opportunities available in
commercial managed care. The Company added to existing capabilities by making
several key acquisitions, investing in information systems and recruiting
experienced managed care executives.
Revenues from the Commercial Managed Care Division have grown, in part as a
result of acquisitions, to $134.9 million or 58.1% of total revenues in 1997
from $1.3 million or 1% of total revenues in 1992. Operations in this division
consist of the Company's integrated health care delivery networks applied in
whole or in part to: (i) the Company's HMOs in the District of Columbia and
Virginia, primarily serving the government assisted Medicaid population, (ii)
the Company's statewide ISOC in New Jersey which contracts to provide services
with HMOs and insurance companies, and (iii) family health centers which are
operated on a contract basis for large employers. Also, in November 1995, PHP
and St. Vincent's Health Services Corporation ("St. Vincent's"), an affiliate of
the Daughters of Charity National Health System East, Inc. (the "Daughters of
Charity"), formed Connecticut Health Enterprises, L.L.C. ("Connecticut Health
Enterprises"), a limited liability company, for the purpose of developing a
provider sponsored integrated health care delivery network in Fairfield County,
Connecticut. Connecticut Health Enterprises commenced operations in April 1996
and functions as an alliance between PHP, St. Vincent's, Fairfield County
physicians and other hospitals and ancillary providers. This health care system
is marketed to insurers, HMOs, and government agencies, which contract for a
total health care delivery system. The Company is compensated for its
commercial managed health care services in a variety of methodologies, including
cost plus fee, percentage of revenue, percentage of savings, fee-for-service,
capitation, or some combination of the foregoing.
Revenues from the Government Managed Care Division have decreased slightly
from a peak of $116.4 million in 1992 to $97.4 million in 1997. Operations in
this division consist of health care services provided to government agencies
across a diverse scope of service groups including ambulatory care, medical
staffing, mental health, and total managed care. The Company generally performs
these services under unit-price, fixed-price, cost-reimbursement-plus-fee, and
fixed-rate-labor hour contracts.
The Company's revenues have increased from $118.0 million in 1992 to $232.3
million in 1997. Gross profit margins increased to 18% and 19% in 1997 and 1996,
respectively, after having
7
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
decreased to 6% and 7% in 1994 and 1993, respectively. The Company incurred a
net loss of $4.1 million in 1997 after earning net income of $9.1 million and
$952,000 in 1996 and 1995, respectively. The 1997 loss resulted from a $9.8
million reserve for Medicaid receivables, $2.6 million in restructuring charges,
and a $2.3 million charge related to the retirement of the Company's former
chairman. In 1994 and 1993 the Company incurred losses of $9.3 million and $3.8
million, respectively, due to a decrease in gross profits resulting from some
significant nonrecurring events including certain contract receivable write-
offs, increased corporate staff costs and increased commercial business
development costs.
The following table sets forth, for the periods indicated, certain items in
the Company's Condensed Consolidated Statements of Operations expressed as a
percentage of revenue:
<TABLE>
<CAPTION>
Three Months
ended July 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Revenues............................. 100.0% 100.0%
Direct costs......................... 80.5 78.8
----- -----
Gross profit......................... 19.5 21.2
General and administrative expenses.. 13.7 13.2
Operating income..................... 5.8 8.0
Other expense........................ (2.9) (1.5)
----- -----
Earnings before income taxes......... 2.9 6.5
Income tax expense................... 1.0 2.5
----- -----
Net earnings......................... 1.9 4.0
===== =====
</TABLE>
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JULY 31, 1997 COMPARED TO
-------------------------------------------------
THE THREE MONTHS ENDED JULY 31, 1996
------------------------------------
The following table indicates revenue by the Company's service divisions
and the related percentage of total revenue:
<TABLE>
<CAPTION>
July 31, 1997 July 31, 1996
--------------- ---------------
Revenue % of Revenue % of
Division (000's) Total (000's) Total
- -------- ------- ----- ------- -----
<S> <C> <C> <C> <C>
Government Managed Care Division $18,619 33.4 $24,654 46.1
Commercial Managed Care Division 37,123 66.6 28,774 53.9
------- ----- ------- -----
Total $55,742 100.0 $53,428 100.0
======= ===== ======= =====
</TABLE>
8
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
The Company's revenue increased by 4.3% or $2.3 million to $55.7 million
for the quarter ended July 31, 1997 compared to $53.4 million for the prior year
quarter. This increase in revenues was the result of an increase in the
Commercial Managed Care Division offset by a decrease in the Government Managed
Care Division.
The Commercial Managed Care Division revenue increased by $8.3 million or
28.8%, to $37.1 million for the quarter ended July 31, 1997, compared to $28.8
million for the quarter ended July 31, 1996. This net increase is the result of
several increases and a decrease. The largest increase in Commercial Managed
Care Division revenue resulted from the BCBSNJ ISOC project. Effective July 1,
1996, this business relationship was modified such that the Company began to
provide services under a global capitation arrangement which significantly
increased the revenues the Company earns as well as the scope of services and
resultant cost of service. The second largest increase was provided by the
Company's subsidiary, Virginia Chartered Health Plan, Inc. ("VACHP"), a Medicaid
HMO operating in selected markets in the Commonwealth of Virginia. VACHP
commenced operations in November 1995, and since then, VACHP has continually
increased its membership enrollment. Commercial Managed Care revenues also
increased as a result of the Company's ISOC development, management and
operations related to its strategic ventures, primarily in Connecticut and
Louisiana.
These Commercial Managed Care Division increases were offset by a decrease
in revenues at Chartered Health Plan, Inc. ("CHP"), the Company's wholly-owned
Medicaid HMO in the District of Columbia. CHP's revenues decreased due to a
gradual decrease in enrollment and a reduction in the contractual premium rate
effective November 1, 1996.
Government Managed Care Division revenue decreased by $6.0 million or 24.4%
to $18.6 million for the quarter ended July 31, 1997, compared to $24.6 million
for the quarter ended July 31, 1996. This net decrease in revenues is the
result of: (1) the completion of five ambulatory care projects, three mental
health projects, and one total managed care correctional facilities project on
various dates since the prior year first quarter, and (2) a revenue decrease
resulting from the Company's decision to terminate its long-term care line of
business. These revenue decreases were offset by increases due to one new total
managed care correctional facilities project, two new ambulatory care projects,
one new mental health project, and one new medical staffing project, which
commenced operations on various dates since the prior year first quarter.
The Company's gross profit decreased by 3.5% or $400,000, to $10.9 million
for the quarter ended July 31, 1997, compared to $11.3 million for the prior
year first quarter. As a percentage of revenue, gross profit decreased to 19.5%
for the current year first quarter compared to 21.2% for the same period in the
prior year. Gross profit increased in the Commercial Managed Care Division and
decreased in the Government Managed Care Division.
9
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
The Commercial Managed Care Division gross profit increase resulted from
the BCBSNJ ISOC project, and also as a result of the Company's ISOC development,
management and operations related to its strategic ventures, as discussed above.
The increase was offset by CHP operations, discussed above.
The Government Managed Care Division gross profit decreased due to the
completion of certain projects as described above and related completion costs,
partially offset by increases due to the commencement of operations on new
projects as described above.
General and administrative expenses increased $500,000 to $7.6 million for
the quarter ended July 31, 1997 from $7.1 million for the prior year first
quarter as a result of the continued growth of the Company. As a percentage of
revenue, general and administrative expenses increased to 13.7% for the current
year first quarter compared to 13.2% during the prior year period.
Operating income decreased by $1.0 million to $3.2 million for the quarter
ended July 31, 1997, from $4.2 million for the prior year first quarter.
Operating margin decreased to 5.8% from 8.0%. Operating income decreased due to
the gross profit decrease in the Government Managed Care Division and the
increased general and administrative expenses, as discussed above.
Interest expense increased by $135,000, to $1,492,000 for the quarter ended
July 31, 1997, from $1,357,000 for the quarter ended July 31, 1996.
Interest income decreased by $376,000, to $279,000 for the quarter ended
July 31, 1997 from $655,000 for the quarter ended July 31, 1996. This decrease
is due to a decrease in cash available for short-term investment as a result of
the BCBSNJ health center acquisition completed in February 1997.
The effective income tax rates of 35.0% in the first quarter of fiscal 1998
and 37.6% in the first quarter of fiscal 1997 represent the combined federal and
state income tax rates adjusted as necessary.
Net earnings decreased by $1.2 million to $1.0 million or $0.08 per share
based on 13,662,190 weighted average shares oustanding, from $2.2 million or
$0.16 per share based on 13,788,777 weighted average shares outstanding, for the
quarters ended July 31, 1997 and 1996, respectively.
10
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Typically, the Company's principal sources of funds are operations and bank
borrowings. In December 1995, however, the Company issued $69.0 million of
convertible subordinated debentures resulting in net proceeds of $65.8 million.
The Company used these proceeds to extinguish all outstanding bank debt and to
fund expansion of its Commercial Managed Care Division.
During the three months ended July 31, 1997 operations used $8.4 million in
cash. This is a $3.3 million increase in cash used by operations compared to
the $5.1 million used by operations in the prior year three month period. This
increase in cash used by operations is primarily due to an increase in accounts
receivable of $5.6 million, and routine fluctuations in other working capital
line items.
The $5.6 million increase in the Company's accounts receivable at July 31,
1997 is attributable to a momentary aberration in the timing of payments on
certain of the Company's projects, particularly the new Commercial Managed Care
Division health enterprise activities.
The Company's number of days revenue in average outstanding receivables was
80 days for the three months ended July 31, 1997 compared to 70 days for the
prior year three month period. This increase is due to increased receivables
related to the Company's commercial ISOC ventures, and a change in the mix of
government contracts such that there are now fewer prepaid contracts.
Investing activities used $2.0 million in cash during the three months
ended July 31, 1997, compared to $2.5 million used during the three months ended
July 31, 1996. These uses of cash were for the acquisition of property and
equipment.
Financing activities provided $6.2 million in cash during the three months
ended July 31, 1997, compared to $830,000 used by financing activities during
the three months ended July 31, 1996. The $6.2 million provided by financing
activities in the current period is mostly due to the sale of 200,000 shares of
the Company's common stock to an investor and the repayment of officers
receivables in conjunction with the recent retirement of the former chairman and
founder of the Company.
11
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
On July 24, 1997, the Company entered into an Asset Purchase Agreement with
Health Insurance Plan of New Jersey, Inc. ("HIP"), a New Jersey not-for-profit
health maintenance organization, to acquire from HIP certain assets constituting
HIP's staff model health center operations in New Jersey. Under the Asset
Purchase Agreement, PHP will acquire the operations of 18 health care centers
and related assets throughout New Jersey for a purchase price of $73 million,
subject to certain adjustments. The Company and HIP have also entered into a
Health Services Agreement pursuant to which the Company will arrange for the
provision of health care services to HIP's members on an exclusive global
capitation basis. The Company has also agreed to purchase from Health Insurance
Plan of Greater New York ("HIP-NY") $40.2 million in aggregate principal amount
of surplus notes (the "Surplus Notes") made by HIP payable to HIP-NY. Under the
Note Purchase Agreement, the Company may require HIP-NY to repurchase the
surplus notes from the Company in equal installments on the first and second
anniversary of the closing. Completion of these transactions is subject to the
approval of the New Jersey Department of Banking and Insurance and the New
Jersey Department of Health and Senior Services, as well as the receipt of other
required consents and approvals. The foregoing description of the HIP
acquisition is qualified in its entirety by reference to the Asset Purchase
Agreement and the Note Purchase Agreement, copies of which are attached hereto
as exhibits.
The Company's current cash and cash equivalents, and its borrowing
capabilities under its current credit arrangements are not sufficient to fund
the transactions contemplated by the Asset Purchase Agreement and Note Purchase
Agreement, as described above. The Company intends to finance the HIP
transaction through a combination of new bank borrowings and the issuance of
additional equity securities. However, there can be no assurance that the
Company will be able to obtain additional debt or equity financing on acceptable
terms. The failure to obtain the additional financing required to fund the
Company's acquisition and working capital needs could have a material adverse
effect on the Company's financial condition and results of operations.
The Company believes that the current cash and cash equivalents, anticipated
cash flow generated by operations and its borrowing capabilities will be
sufficient for known future capital needs of the Company, other than the
completion of the HIP acquisition, which will require additional external
financing as described above. In addition to the HIP acquisition, there may be
further expansion opportunities which require additional external financing and
the Company may, from time to time, consider obtaining such funds through the
public and private issuance of equity or debt securities.
12
<PAGE>
PHP HEALTHCARE CORPORATION
PART II - OTHER INFORMATION
- ------- -----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
A) EXHIBITS
--------
10.1 Asset Purchase Agreement by and between PHP Healthcare Corporation and
HIP of New Jersey, Inc., dated as of July 24, 1997
10.2 Note Purchase Agreement by and among PHP Healthcare Corporation,
Health Insurance Plan of Greater New York, and HIP of New Jersey,
Inc., dated as of July 24, 1997
11.0 Statement re: Computation of per share earnings for the three months
ended July 31, 1997 and 1996
15.1 Letter of Coopers & Lybrand, L.L.P. regarding Unaudited Interim
Financial Statements
13
<PAGE>
PHP HEALTHCARE CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
PHP HEALTHCARE CORPORATION
--------------------------
(Registrant)
By: /s/ Anthony M. Picini
----------------------
ANTHONY M. PICINI
Executive Vice President and
Chief Financial Officer
Date: September 18, 1997
------------------
14
<PAGE>
PHP HEALTHCARE CORPORATION
EXHIBIT INDEX
Exhibit Item Page
- ------- ---- ----
10.1 Asset Purchase Agreement by and between PHP Healthcare
Corporation and HIP of New Jersey, Inc., dated as of
July 24, 1997
10.2 Note Purchase Agreement by and among PHP Healthcare
Corporation, Health Insurance Plan of Greater New York,
and HIP of New Jersey, Inc., dated as of July 24, 1997
11.0 Statement re: Computation of per share earnings for
the three months ended July 31, 1997 and 1996 16
15.1 Letter of Coopers & Lybrand, L.L.P. regarding Unaudited
Interim Financial Statements 17
15
<PAGE>
================================================================================
ASSET PURCHASE AGREEMENT
by and between
PHP HEALTHCARE CORPORATION
and
HIP OF NEW JERSEY, INC.
Dated as of July 24, 1997
================================================================================
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of July 24,
---------
1997 is by and between PHP HEALTHCARE CORPORATION, a Delaware corporation
("PHP"), and HIP OF NEW JERSEY, INC., a New Jersey health maintenance
---
organization (the "Plan").
----
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Plan owns certain assets utilized in the conduct of the
Plan's New Jersey Physician Operations business, a staff model group of primary
care and select specialist physicians providing and arranging medical and
ancillary services at 18 health care centers (the "New Jersey Physician
--------------------
Operations"); and
- ----------
WHEREAS, as part of a restructuring of its New Jersey Physician
Operations, the Plan has agreed to sell, transfer and assign certain assets and
liabilities to PHP, and PHP has agreed to purchase such assets from the Plan and
assume such liabilities, pursuant to the terms and provisions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
-----------
1.1 Defined Terms. As used herein, the terms below shall have the
-------------
following meanings.
"Assigned Contracts" shall mean those Contracts listed or described
------------------
on Schedule 4.5 hereto.
------------
"Acquired Assets" shall have the meaning set forth in Section 2.1
---------------
hereof.
"Affiliate" shall have the meaning set forth in Rule 12b-2 under the
---------
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder. With respect to the Plan, the term "Affiliate" includes Health
Insurance Plan of Greater New York, HIP of Pennsylvania, Inc., HIP of Florida,
Inc. and HIP Insurance Company of New Jersey, Inc.
"Assumed Liabilities" shall have the meaning set forth in Section 2.2
-------------------
hereof.
"Assumption Agreement" shall mean the Assumption Agreement,
--------------------
substantially in the form of Schedule 1.1(a) hereto to be executed and delivered
---------------
by PHP (or its designated Affiliate) to the Plan at the Closing pursuant to
which PHP (or its designated Affiliate) shall assume and agree to discharge and
perform the Assumed Liabilities.
"Books and Records" shall mean all books, records, files, plans,
-----------------
studies, surveys and reports of, or maintained by the Plan and necessary for the
operation of the Health Care Centers.
"Business Day" shall mean any day other than a Saturday, Sunday or a
------------
day on which banks in the State of New Jersey or the Commonwealth of Virginia
are authorized or obligated by law or executive order to close.
<PAGE>
"Center Covered Persons" shall have the meaning ascribed to such term
----------------------
in the Health Services Agreement.
"Closing" and "Closing Date" shall have the meaning set forth in
------- ------------
Section 3.1 hereof.
"Closing Net Asset Statement" shall have the meaning set forth in
---------------------------
Section 2.5(a) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Confidentiality Agreements" shall mean the letter agreements
--------------------------
regarding confidentiality dated February 17, 1997 and July 8, 1997 between the
Plan and PHP.
"Contract" shall mean any agreement, contract, lease, purchase order,
--------
instrument or commitment, whether oral or written, to which the Plan is a party
or by which it is bound and which relates to the Acquired Assets or the
operation of any Health Care Center as of the Closing Date.
"Covered Persons" shall have the meaning ascribed to such term in the
---------------
Health Services Agreement.
"Employee" shall mean any person employed by the Plan immediately
--------
prior to the Closing Date who (i) is employed in one of the Health Care Centers,
(ii) directly performs a Delegated Function (as defined in the Health Services
Agreement) or (iii) performs functions that the parties hereto agree in the
Transition Plan (as defined in Section 6.9 hereof) are needed by PHE to perform
its obligations under the Health Services Agreement. Schedule 4.20(a) hereto
----------------
contains a list of all Employees identified in (i) and (ii) above as of the date
set forth therein.
"Encumbrance" shall mean any claim, lien, pledge, option, charge,
-----------
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, building or use restriction, encumbrance or right or claim of
others of any kind whatsoever whether voluntarily incurred or arising by
operation of law, and includes any existing agreement to give any of the
foregoing in the future, and any contingent sale or other title retention
agreement or lease in the nature thereof.
"Environmental Claims" shall mean all written notices accusations,
--------------------
allegations, notices of violation, liens, claims, demands, civil, criminal or
administrative actions, suits, hearings, investigations, inquiries or
proceedings for any damage, including personal injury, property damage
(including any depreciation of property values), lost use of property or
punitive or consequential damages, arising out of Environmental Conditions or
Environmental Laws.
"Environmental Conditions" shall mean the state of the environment
------------------------
relating to the Acquired Assets or the operations of the Health Care Centers
prior to or as of the Closing Date, including natural resources, soil, surface
water, ground water, any present or potential drinking water supply, subsurface
strata or ambient air, relating to or arising out of the use, handling, storage,
treatment, recycling, generation, transportation, release, spilling, leaking,
pumping, pouring, emptying, discharging, injecting, escaping, leaching,
disposal, dumping or threatened release of Hazardous Substances by the Plan or
its predecessors or successors in interest, or by their employees, contractors
or other agents, the exposure of persons to Hazardous Substances at the work
place or the exposure of persons or property to Hazardous Substances migrating
from or otherwise emanating from or located on property owned, leased or
operated by the Plan.
-2-
<PAGE>
"Environmental Laws" shall mean all Laws, regulations, notices or
------------------
permits relating to pollution or protection of the environment (including
ambient air, (indoor or outdoor) surface, water, ground water, land surface or
subsurface strata), human health or safety, or the use, handling, storage,
treatment, recycling, generation, transportation, release, spilling, leaking,
pumping, pouring, emptying, discharging, injecting, escaping, leaching,
disposing, dumping and threatened release of Hazardous Substances. Environmental
Laws shall include, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Toxic Substances Control Act, as amended, the Hazardous Materials Transportation
Act, as amended, the Resource Conservation and Recovery Act, as amended
("RCRA"), the Clean Water Act, as amended, the Safe Drinking Water Act, as
amended, the Clean Air Act, as amended, the Atomic Energy Act of 1954, as
amended, the Occupational Safety and Health Act, as amended, the New Jersey
Industrial Site Recovery Act (formerly known as the Environmental Cleanup
Responsibility Act) ("ISRA") and all laws promulgated or issued by any federal,
state or other governmental authority.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended, and any regulations promulgated or proposed thereunder.
"Estimated Net Working Capital Balance" shall mean the amount of
-------------------------------------
current assets included within the Acquired Assets, less the amount of all
current liabilities included with the Assumed Liabilities, as reflected on the
Summary Balance Sheet attached hereto as Schedule 4.7 hereto.
"Excluded Assets" shall mean all right, title and interest of the Plan
---------------
in and to (i) the properties, assets and rights which are set forth in Schedule
--------
1.1(b) hereto, (ii) all cash, marketable securities and accounts receivable of
- ------
the Plan, (iii) the Intellectual Property, (iv) all claims, causes of action,
rights of recovery and rights of set-off of any kind against any Person arising
out of or relating to the Acquired Assets to the extent arising prior to the
Closing, (v) the Plan's interest in this Agreement and in any of the Related
Agreements, and (vi) all claims, causes of action, rights of recovery and rights
of set-off of any kind against any Person arising out of or relating to any of
the foregoing.
"Excluded Liabilities" shall have the meaning set forth in Section 2.3
--------------------
hereof.
"GAAP" shall mean U.S. generally accepted accounting principles, as in
----
effect from time to time.
"Governmental Authority" shall mean any federal, state or local court,
----------------------
governmental agency, administrative authority or body, arbitrator or arbitration
panel.
"Hazardous Substances" shall mean any and all pollutants,
--------------------
contaminants, chemicals, wastes, and any other carcinogenic, ignitable,
corrosive, reactive, toxic, radioactive or otherwise hazardous substances or
materials that are now or in the future regulated under Environmental Laws.
"Health Care Centers" shall mean the health care centers operated by
-------------------
the Plan and listed on Schedule 1.1(c) hereto.
---------------
"Health Services Agreement" shall mean that certain Health Services
-------------------------
Agreement entered into concurrently herewith between the Plan and PHE.
-3-
<PAGE>
"HIP Benefit Plan" shall mean each plan, program, policy, payroll
----------------
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits of any kind, whether formal or
informal, funded or unfunded, written or oral, including without limitation,
each "employee benefit plan," within the meaning of Section 3(3) of ERISA and
each "multi-employer plan" within the meaning of Sections 3(37) or 4001(a)(3) of
ERISA which is now or previously has been sponsored, maintained, contributed to,
or required to be contributed to, or with respect to which any withdrawal
liability (within the meaning of Section 4201 of ERISA) has been incurred, by
the Plan for the benefit of any Employee, and pursuant to which the Plan has or
may have any liability, contingent or otherwise.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
-------
of 1976, as amended, and the rules and regulations promulgated thereunder.
"including" or to "include" any item shall mean containing or to
--------- -------
contain such item as part of a whole, without any implied exclusion of other
items.
"Intellectual Property" shall mean all patents, trademarks, service
---------------------
marks, trade names and copy rights and applications or registrations owned or
used by the Plan, including the trademark "HIP" and "HIP Health Plan of New
Jersey" and goodwill associated therewith.
"Laws" shall mean all laws, statutes, ordinances, regulations, rules,
----
codes, orders, consent decrees and governmental requirements (including any
ruling or requirement having the affect of law and applicable to PHP or the
Plan) of any federal, state or local government and any other governmental
department or agency, and any judgment, decision, decree, writ, injunction,
award, ruling or order of any Governmental Authority.
"Leased Real Property" shall mean the real property leased on the date
--------------------
hereof by the Plan as lessee or sublessee, including all buildings, structures
and improvements thereon or appurtenances thereto which are set forth in
Schedule 4.11(e) hereto.
- ----------------
"Material Adverse Effect" or "Material Adverse Change" shall mean any
----------------------- -----------------------
material adverse effect on or change in the assets, properties, condition
(financial or other), business or results of operations, of the Plan and/or the
Acquired Assets or on the ability of the Plan to consummate the transactions
contemplated hereby, excluding, however, continuing operating losses incurred by
the Plan prior to the Closing Date.
"Medical Group" shall mean Pinnacle Medical Group, P.A., a New Jersey
-------------
professional corporation.
"Net Working Capital Balance" shall have the meaning set forth in
---------------------------
Section 2.5(b) hereof.
"Note Purchase Agreement" shall mean that certain Note Purchase
-----------------------
Agreement, dated the date hereof, by and among PHP, the Plan and Health
Insurance Plan of Greater New York.
"Notice of Dispute" shall have the meaning set forth in Section 2.5(d)
-----------------
hereof.
"Order" shall mean any award, decision, injunction, judgment, order,
-----
ruling, subpoena or verdict entered, issued, made or rendered by any court,
administrative agency or other Governmental Authority.
-4-
<PAGE>
"Owned Real Property" shall mean the real property beneficially owned
-------------------
by the Plan, including all buildings, structures and improvements thereon or
appurtenances thereto, described on Schedule 4.11(a) hereto.
"Permits" shall mean all licenses, permits, authorizations,
-------
registrations, certificates, consents or other approvals of any Governmental
Authority owned, used or held for use exclusively in connection with the
operation of the Health Care Centers, excluding, however, any of the foregoing
which relate to the operation of the Plan as a health maintenance organization.
Schedule 4.13 hereto sets forth a list of the Permits as of the date hereof.
- -------------
"Person" shall mean an individual, a partnership, a corporation, a
------
limited liability company, a trust, an unincorporated organization, a government
or any department or agency thereof or any other entity.
"Personal Property" shall mean all fixtures, installations, machinery
-----------------
and equipment, to the extent not constituting real property under applicable
law, and all vehicles, furniture, furnishings, tools, spare parts, supplies,
items historically expensed, office and laboratory equipment, materials and
other personal property of every kind and nature, tangible or intangible, owned,
used or held for use exclusively in connection with the operation of the Health
Care Centers.
"PHE" shall mean Pinnacle Health Enterprises, L.L.C., a Delaware
---
limited liability company.
"Proceeding" shall mean any action, arbitration, audit, hearing,
----------
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, formal or informal) commenced, brought, conducted or heard by or
before, or otherwise involving any Governmental Authority.
"Related Agreements" shall mean the other agreements listed entered
------------------
into on or prior to the Closing Date between or among any of the parties hereto
or thereto in connection with the transaction contemplated hereby which are in
Schedule 1.1(d) hereto and identified as the "Related Agreements."
- ---------------
"Representative" shall mean any officer, director, principal,
--------------
attorney, agent, employee or other representative.
"Summary Balance Sheet" shall have the meaning set forth in Section
---------------------
4.7 hereof.
"Surplus Notes" shall mean the surplus notes in the aggregate
-------------
principal amount of Forty Million One Hundred Seventy Five Thousand Dollars
($40,175,000.00), each made by the Plan and held by Health Insurance Plan of
Greater New York.
"Tax" shall mean any federal, state, local foreign or other tax, levy,
---
impost, fee, assessment or other government charge, including income, estimated
income, business, occupation, property, payroll, personal property, sales,
transfer, use, employment, commercial rent, occupancy, franchise or withholding
taxes, and any premium, including interest, penalties and additions in
connection therewith.
-5-
<PAGE>
ARTICLE II.
PURCHASE AND SALE OF ACQUIRED ASSETS
------------------------------------
2.1 Transfer of Acquired Assets.
---------------------------
(a) Upon the terms and subject to the conditions contained
herein, at the Closing, the Plan will sell, convey, transfer, assign and deliver
to PHP (or its designated Affiliate), and PHP (or its designated Affiliate) will
acquire from the Plan, all right, title and interest of the Plan in and to the
following assets (excluding the Excluded Assets), being referred to herein as
the "Acquired Assets":
(i) All the Owned Real Property and Leased Real
Property;
(ii) All the Personal Property;
(iii) All rights and benefits of the Plan under the
Assigned Contracts;
(iv) All rights and benefits of the Plan under
the Permits, to the extent assignable;
(v) Originals (where available) or copies of all
Books and Records;
(vi) All prepaid charges, expenses and security
deposits, including such charges, expenses and security deposits with
respect to insurance premiums, salaries, leases and rentals and
utilities, in each case, to the extent related to the Acquired Assets
and set forth in the Closing Net Asset Statement;
(vii) All goodwill associated with or attributable to
the operation of the Health Care Centers; and
(viii) All claims and similar rights (and
benefits arising therefrom) of the Plan, including without
limitation, all warranty rights against suppliers, to the extent
related to the Acquired Assets.
(b) To the extent any asset used exclusively in connection
with the operation of the Health Care Centers is owned, used or held for use by
any Affiliate of the Plan, such asset shall be included within the term
"Acquired Assets," and the Plan shall cause such Affiliate, at the Closing, to
convey such asset to PHP (or its designated Affiliate) in accordance with the
provisions of this Agreement.
2.2 Assumption of Liabilities. Subject to Section 2.3, upon the
------------------------- -----------
terms and subject to the conditions contained herein, at the Closing, PHP (or
its designated Affiliate) shall assume the following obligations and liabilities
of the Plan (the "Assumed Liabilities"):
(a) All obligations and liabilities accruing, or arising
out of, or relating to, events or occurrences happening after the Closing under
the Contracts acquired by PHP pursuant to this Agreement, but not including any
liability for any breach by the Plan of any such Contract occurring on or prior
to the Closing;
-6-
<PAGE>
(b) All accounts payable of the Plan as of the Closing
which directly relate to the Acquired Assets and the operation of the Health
Centers but only to the extent of the amount reflected as a liability on the
Closing Net Asset Statement; and
(c) All obligations and liabilities of the Plan for accrued
compensation and employee benefit obligations owed to employees who accept
employment with PHP (other than severance payments as provided in Section 6.7
hereof), but only to the extent of the amount reflected as a current liability
on the Closing Net Asset Statement.
The assumption by PHP (or its designated Affiliate) of the Assumed Liabilities
shall not enlarge the rights of any Person under any Contract. Nothing contained
herein shall prevent PHP (or its designated Affiliate) from contesting any of
the Assumed Liabilities with any third party obligee.
2.3 Excluded Liabilities. Notwithstanding any other
--------------------
provision of this Agreement, PHP shall not assume, or otherwise be responsible
for, any of the following liabilities or obligations of the Plan, whether actual
or contingent, matured or unmatured, liquidated or unliquidated, or known or
unknown ("Excluded Liabilities"):
(a) Liabilities for Taxes;
(b) Liabilities for violation of any Laws, including any
Environmental Laws, including without limitation, liabilities relating to the
alleged exposure of medical group personnel to glutaraldehyde;
(c) Liabilities relating to Excluded Assets;
(d) Liabilities of the Plan under this Agreement and the
Related Agreements;
(e) Liabilities for medical malpractice claims relating to
services provided or omitted to be provided prior to the Closing;
(f) Liabilities incurred prior to the Closing in connection
with medical records;
(g) Liabilities or obligations of the Plan with respect to
incurred but not reported claims as of the Closing Date. For this purpose, a
claim is incurred on the date of service and not the date the claim is submitted
or paid;
(h) Liabilities or obligations for medical services
provided to Covered Persons in any Institutional Care Facility (as defined in
the Health Services Agreement) through the date of discharge (whether before or
after the Closing) for all Covered Persons admitted to such an Institutional
Care Facility on or prior to the Closing Date;
(i) Liabilities or obligations of the Plan with respect to
indebtedness for borrowed money;
(j) Except as set forth in Sections 2.2(c) and 6.7,
liabilities or obligations of the Plan arising out of any HIP Benefit Plan
established or maintained by the Plan or to which the Plan contributes, or any
liability of the Plan relating to the termination of any such HIP Benefit Plan
or the participation of Employees of the Plan in any such HIP Benefit Plan;
(k) Except as specifically set forth in Sections 2.2(c) and
6.7, liabilities or obligations in respect of any Employee or former employee of
the Plan, including without
-7-
<PAGE>
limitation (i) any liability to make payments for accrued sick days, (ii) any
liability to pay any retention bonus, accrued vacation days, unpaid wages or
overtime obligations, (iii) any liability to make severance or similar payments,
(iv) any employment agreement, whether or not written, between the Plan and any
employee and (v) any claim of an unfair labor practice, or any claim under state
unemployment compensation or any federal or state workers' compensation law or
regulation or any claim of harassment or discrimination under any other federal
or state employment law or regulation, or employment policy of the Plan, which
shall have been asserted on or prior to the Closing Date or is based on acts or
omissions which occurred on or prior to the Closing Date;
(l) Liabilities or obligations arising out of any
Proceedings pending or threatened prior to the Closing or based on acts or
omissions which occurred prior to the Closing, including without limitation the
Proceedings described in Schedule 4.8 hereto;
------------
(m) Liabilities to indemnify any person by reason of the
fact that such person was a director, officer, employee or agent of the Plan or
was serving at the request of the Plan as a partner, trustee, director, officer,
employee or agent of another entity; and
(n) Any and all other liabilities and obligations not
expressly assumed under Section 2.2 hereof.
2.4 Purchase Price.
--------------
(a) Purchase Price. Subject to the terms and conditions
--------------
contained herein, and in consideration of the consummation of the transactions
contemplated under the Health Services Agreement and the sale, assignment,
transfer, conveyance and delivery to PHP (or its designated Affiliate) of the
Acquired Assets hereunder, but subject to the adjustments provided for herein,
PHP (or its designated Affiliate) shall pay:
(i) PHP (or its designated Affiliate) will deliver to
the Plan at the Closing, by wire transfer of immediately available
funds to an account designated by the Plan, an amount in cash equal
to $72,600,000 minus the negative amount of the Estimated Net Working
Capital Balance (the "Purchase Price");
(ii) PHP (or its designated Affiliate) will assume the
Assumed Liabilities and deliver to the Plan at the Closing an
executed copy of the Assumption Agreement; and
(iii) PHP (or its designated Affiliate) will pay to the
Plan certain additional payments based upon the number of Plan
members subject to, and in accordance with, the terms and provisions
set forth in Schedule 2.4(a) hereto.
---------------
(b) Purchase Price Allocation. The Purchase Price shall be
-------------------------
allocated among the Acquired Assets and the other transactions described in the
Related Agreements in the manner required by Section 1060 of the Code and
regulations thereunder and in accordance with an allocation to be jointly
prepared on a reasonable basis and in good faith by PHP and the Plan prior to
the Closing, subject to the post-Closing adjustment set forth herein.
2.5 Post-Closing Adjustments.
------------------------
(a) Closing Net Asset Statement. On or before the date
---------------------------
which is 90 days after the Closing Date, the Plan shall prepare and deliver to
PHP a statement (the "Closing Net Asset
-----------------
-8-
<PAGE>
Statement") setting forth the Acquired Assets and Assumed Liabilities as of the
- ---------
Closing. The Closing Net Asset Statement shall be prepared in accordance with
GAAP on a basis consistent with the accounting methodologies, practices and
procedures (including the basis for calculation of both the adequacy and amounts
of accruals and reserves and including valuation methods and practices) used in
the preparation of the Summary Balance Sheet (which methodologies, practices and
procedures are described on Schedule 2.5 hereto) and shall fairly present the
------------
Acquired Assets and Assumed Liabilities as of the Closing Date.
(b) Net Working Capital Balance. Together with the Closing
---------------------------
Net Asset Statement, the Plan shall deliver to PHP a statement setting forth the
Net Working Capital Balance as of the Closing. The "Net Working Capital Balance"
---------------------------
shall mean the amount of current assets included within the Acquired Assets,
less the amount of current liabilities included within the Assumed Liabilities
as of the Closing Date determined in accordance with GAAP.
(c) Purchase Price Adjustment. Upon final determination of
-------------------------
the Net Working Capital Balance, either by agreement between the Plan and PHP or
determination in accordance with Section 2.5(e) hereof,
(i) if the Estimated Net Working Capital Balance is
greater than the Net Working Capital Balance, the Purchase Price
shall be decreased by the amount of such difference; and
(ii) if the Estimated Net Working Capital Balance is
less than the Net Working Capital Balance, the Purchase Price shall
be increased by the amount of such difference.
No later than 10 days following the final determination thereof, the Plan shall
pay to PHP the amount of any decrease in the Purchase Price or PHP shall pay to
the Plan the amount of any increase in the Purchase Price as appropriate, in
each case, together with interest on the amount of such payment at an annual
rate of interest equal to the prime rate of major commercial banks as of the
Closing Date (as reported in the Wall Street Journal) for the period commencing
on the Closing Date through the date of payment. All payments shall be made by
wire transfer of immediately available funds to an account designated by the
recipient.
(d) Adjustment Dispute. PHP shall have 90 days following
------------------
its receipt thereof to review the Closing Net Asset Statement and the
calculation of the Net Working Capital Balance, and the Plan shall promptly
provide for review by PHP and its accountants such documentation, records and
other information used in the preparation of the Closing Net Asset Statement and
the calculation of the Net Working Capital Balance as the Plan shall reasonably
request. If PHP shall disagree with the Closing Net Asset Statement and/or the
calculation of the Net Working Capital Balance, PHP shall notify the Plan in
writing (the "Notice of Dispute") of such disagreement setting forth in
reasonable detail the nature of such disagreement and the basis thereof. In the
event PHP shall fail to deliver a Notice of Dispute within 90 days following its
receipt of the Closing Net Asset Statement and calculation of the Net Working
Capital Balance prepared by the Plan, the same shall be deemed final and
conclusive and binding upon the parties in all respects.
(e) Resolution of Disputed Adjustment Amounts. PHP and the
-----------------------------------------
Plan shall use all reasonable efforts for a period of 60 days after PHP's
delivery of the Notice of Dispute (or such longer period as PHP and the Plan
shall mutually agree upon) to resolve any disagreements raised by PHP with
respect to the Closing Net Asset Statement and the calculation of the Net
Working Capital Balance. If, at the end of such period, PHP and the Plan are
unable to resolve such
-9-
<PAGE>
disagreements, a mutually agreed upon nationally recognized accounting firm
shall be retained to resolve any remaining disagreements. The determination by
such independent accounting firm shall be final, binding and conclusive on the
parties. PHP and the Plan shall use all reasonable efforts to cause such
independent accounting firm to make its determination within 30 days of
accepting its selection. The fees and expenses of such independent accounting
firm shall be borne by PHP and the Plan equally.
2.6 Closing Costs; Transfer Taxes and Fees. The Plan shall be
--------------------------------------
responsible for any documentary and transfer taxes and any sales or use taxes
imposed on the transfer of Acquired Assets provided hereunder and any
deficiency, interest or penalty asserted with respect thereto. PHP shall pay the
fees and costs of recording or filing all applicable conveyancing instruments
arising in connection with the purchase and sale of the Acquired Assets.
ARTICLE III.
CLOSING
-------
3.1 Closing. The Closing of the transactions contemplated herein (the
-------
"Closing") shall be at the offices of Wolff & Samson, P.A., 5 Becker Farm Road,
Roseland, New Jersey 07068 on the earliest possible date; provided that such
date is at least five Business Days following the satisfaction or waiver of all
conditions to the obligations of the parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions to be taken
at the Closing itself), or at such other place, time, and date as the parties
hereto may agree (the "Closing Date").
3.2 Closing Documents.
-----------------
(a) At the Closing, the Plan shall make (or cause to be made) the
following deliveries:
(i) The Plan shall execute and deliver to PHP (or its
designated Affiliate) such bills of sale, endorsements, assignments
and other instruments and documents (collectively, "Instruments of
Assignment"), in each case reasonably satisfactory in form and
substance to PHP and its counsel, as shall vest in PHP (or its
designated Affiliate) on the Closing Date good and marketable title
to the Acquired Assets (other than the Owned Real Property) subject
to no Encumbrances. Simultaneously with such delivery, the Plan shall
take all additional steps as may be necessary to put PHP (or its
designated Affiliate) in possession and operating control of the
Acquired Assets and the operation of the Health Care Centers.
(ii) The Plan shall execute and deliver to PHP the Related
Agreements.
(iii) The Plan shall execute and deliver to PHP the
certificates described in Section 8.4 hereof and the legal opinion
described in Section 8.3 hereof, and such other documents,
instruments and writings as may be reasonably requested by PHP at
least three Business Days prior to the Closing.
(b) At the Closing, PHP shall make (or cause to be made) the
following deliveries:
-10-
<PAGE>
(i) PHP (or its designated Affiliate) shall
execute and deliver to the Plan the Assumption Agreement as shall
evidence such party's assumption of the Assumed Liabilities.
(ii) PHP (or its designated Affiliate) shall pay the
Purchase Price to the Plan.
(iii) PHP (or its designated Affiliate) shall execute and
deliver to the Plan the Related Agreements to the extent not
previously executed and delivered.
(iv) PHP (or its designated Affiliate) shall execute and
deliver to the Plan the certificates described in Section 7.4 hereof
and the legal opinion described in Section 7.3 hereof, and such other
documents, instruments and writings as may be reasonably requested by
the Plan at least three Business Days prior to the Closing.
3.3 Notices of Sale. The Plan (as reasonably requested by PHP) shall
---------------
from time to time, prepare and mail notices to any other party under each of the
Acquired Assets sold, transferred, assigned, delivered and conveyed to PHP (or
its designated Affiliate) pursuant to this Agreement advising such other party
that such Acquired Asset has been sold to PHP (or its designated Affiliate) and
directing such other party to send to PHP all future payments on account,
notices and correspondence relating to the foregoing.
3.4 Owned Real Property. The Plan shall deliver marketable and
-------------------
insurable title as evidenced by a title insurance commitment issued by a New
Jersey title insurer, underwritten by a national insurance carrier, without
exceptions or additional premiums. The Plan agrees to transfer, and PHP (or its
designated Affiliate) agrees to accept, ownership of the subject property free
of all claims and rights of others including liens and/or encumbrances except
for (a) the rights of utility companies to maintain pipes, poles, cables and
wires over, on and under the street, the part of the subject property next to
the street or running to any building, structure or other improvement on the
premises; or (b) recorded agreements, known as restrictive covenants, which
limit the use of property being conveyed unless the agreements: (1) are
presently violated; or (2) provide that the premises would be forfeited if they
are violated; or (3) unreasonably limit PHP's intended use of the premises as a
health care center; and (c) Utility Easement recorded in Middlesex County Deed
Book 324, Page 146; Utility Easement recorded in Middlesex County Deed Book 326,
Page 259, and slope drainage and other rights of the State of New Jersey as set
forth in Middlesex County Deed Book 1024, Page 357 and Middlesex County Deed
Book 2354, Page 421. The Plan shall provide a Survey Affidavit for the 6/26/96
survey of the property prepared by Gregory Prochoren, P.L.S., Inc. confirming no
changes thereto. PHP agrees that it will obtain a current title insurance binder
and report in connection with the property and shall supply same to the Plan's
attorney upon receipt. In the event such title binder or PHP shall raise
objections to title, PHP shall provide written notice to the Plan's attorney. If
the objection is a lien or encumbrance caused or created by the Plan, the Plan
shall take the necessary steps to discharge the lien or encumbrance. If any
other objections cannot be cured or removed by the Plan prior to closing or
within a period of time thereafter reasonably acceptable to PHP, then PHP shall
have the right to 1) delete this property from the transaction (with an
appropriate price abatement), 2) withhold from the Purchase Price the amount
needed to clear the lien or encumbrance, 3) accept the property with the
objection but with an adjustment of the Purchase Price, or 4) lease the premises
from the Plan at market rate. In the event this property is deleted from this
transaction based on title issues, the Plan shall reimburse PHP for its actual
out of pocket cost for its title search and survey costs and any and all
engineering or legal costs actually incurred by PHP in connection with any
application for occupancy or development in addition to
-11-
<PAGE>
the Purchase Price adjustment for the assets purchased hereunder to reflect the
deletion of the property from the assets purchased.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PLAN
------------------------------------------
The Plan hereby represents and warrants to PHP as follows:
4.1 Organization of the Plan. The Plan is a federally qualified and
------------------------
state certified health maintenance organization duly organized and validly
existing under the laws of the State of New Jersey with all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted.
4.2 Authorization. The Plan has full power and authority to enter into
-------------
and perform this Agreement and the other agreements and documents contemplated
herein and to carry out the transactions contemplated herein and therein. This
Agreement has been duly and validly authorized, executed and delivered by the
Plan, and constitutes the legally valid and binding obligation of the Plan,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws and equitable principles relating to or limiting creditors' rights
generally and general principles of equity.
4.3 No Conflict or Violation. Except as set forth in Schedule 4.3
------------------------ ------------
hereto, none of the execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated hereby, and the compliance by the
Plan with any of the provisions hereof, will (a) violate or conflict with any
provision of the Certificate of Authority of the Plan, (b) violate, conflict
with, or result in a breach of any provision of, or constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result in the
creation of any Encumbrance upon any of the Acquired Assets under, any of the
terms, conditions or provisions of any material Contract, indebtedness, note,
bond, indenture, security or pledge agreement, commitment, license, lease,
franchise, permit, agreement, or other instrument or obligation (i) to which the
Plan is a party or (ii) by which the Acquired Assets are bound, or (c) violate
any Laws.
4.4 Ownership of Acquired Assets. Except as set forth in Section 3.4
----------------------------
hereof, or Schedule 4.4 hereto, the Plan has good and marketable title to the
------------
Acquired Assets owned by it, free and clear of any Encumbrances, and, upon the
consummation of the transactions contemplated by this Agreement, PHP will
acquire good and marketable title to such Acquired Assets, free and clear of any
Encumbrances.
4.5 Contracts and Commitments.
-------------------------
(a) Contracts. Schedule 4.5 hereto contains a complete and
--------- ------------
accurate list of all written Contracts and an accurate description of the
material terms of all oral Contracts included in the Acquired Assets. The Plan
has delivered to PHP true, correct and complete copies of all of the Contracts
listed on Schedule 4.5 hereto, including all amendments and supplements thereto.
------------
(b) Absence of Breaches or Defaults. All of the Contracts
-------------------------------
set forth, listed or described on Schedule 4.5 hereto are, with respect to the
------------
Plan, and, to the Plan's knowledge, with
-12-
<PAGE>
respect to all other parties thereto, valid and binding, and in full force and
effect in accordance with all of their material terms. The Plan has duly
performed all of its material obligations under such Contracts to the extent
those obligations to perform have accrued, and no material violation of, or
material default (or condition or event which with notice or lapse of time or
both would constitute a material default) or material breach under any such
Contracts by the Plan or, to the Plan's knowledge, any other party, has occurred
and neither the Plan nor, to the Plan's knowledge, any other party thereto has
repudiated any provisions thereof.
4.6 Governmental Filings. Except as set forth in Schedule 4.6 hereto,
-------------------- ------------
no notice to, declaration, filing or registration with, or permit, waiver or
approval from, any Governmental Authority is required to be made or obtained by
the Plan in connection with the execution, delivery or performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement.
4.7 Summary Balance Sheet. The Plan has provided PHP with a summary
---------------------
balance sheet of the Acquired Assets and Assumed Liabilities as of May 31, 1997
as set forth in Schedule 4.7 hereto (the "Summary Balance Sheet"). The Summary
------------ ---------------------
Balance Sheet has been prepared in accordance with GAAP and fairly presents the
Acquired Assets and Assumed Liabilities as of the date thereof.
4.8 Litigation.
----------
(a) Except as set forth in Schedule 4.8 hereto, there are no
------------
Proceedings with respect to the Plan, pending or threatened in writing against
the Plan or any officers or directors thereof in their capacity as such.
(b) (i) There is no Order to which any of the Health Care
Centers or the Acquired Assets is subject; and (ii) the Plan is not subject to
any Order that relates to the operation of the Health Care Centers or the
Acquired Assets.
(c) Except as set forth in Schedule 4.8 hereto, as of the date
------------
hereof (but not any later date), to the Plan's knowledge, no representation
proceedings or union authorization cards have been filed with the National Labor
Relations Board ("NLRB"), or otherwise communicated to the Plan.
4.9 Compliance with Laws. Except as set forth in Schedule 4.9 hereto:
-------------------- ------------
(a) the Plan is in full compliance in all material respects with
the Laws that are applicable to the conduct or operation of the Health Care
Centers or the ownership or use of any of the Acquired Assets;
(b) with respect to the Acquired Assets, no event has occurred or
circumstance exists that (with or without notice or lapse of time) (A) may
constitute or result in a violation by the Plan of, or a failure on the part of
the Plan to comply with, any Law, or (B) may give rise to any obligation on the
part of the Plan to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature; and
(c) with respect to the Acquired Assets, the Plan has not received
any written notice or other communication from any Governmental Authority
regarding (A) any actual or alleged violation of, or failure to comply with, any
Law, or (B) any actual or alleged obligation on the part of the Plan to
undertake, or to bear all or any portion of the cost of, any remedial
-13-
<PAGE>
action of any nature, nor does the Plan have knowledge of any such violation,
failure or obligation.
4.10 Environmental Matters.
---------------------
(a) Except as set forth in Schedule 4.10 or in the November
-------------
21, 1995 Environmental Site Assessment prepared for HIP Health Plan of New
Jersey by PMK Group, Consulting Engineers, to the best of the Plan's knowledge
and belief, at present and at no time since the Plan has owned, or possessed the
Owned Real Property or Leased Real Property have Hazardous Substance, or other
toxic or hazardous materials, been used, stored or disposed of at or on such
premises, other than deminimus quantities not exceeding levels as set forth in
N.J.S.A. 13:1K-10 and used in the ordinary course of business of a health care
center, and the Plan has no knowledge that such premises were so used prior to
the Plan's acquisition of title to, or interest in, such premises. The Plan has
not received any letter or other written communication from any Governmental
Authority relating to the presence of toxic or other hazardous materials on such
premises.
(b) Except as set forth in Schedule 4.10 or the November
-------------
21, 1995 Environmental Site Assessment prepared for HIP Health Plan of New
Jersey by PMK Group, Consulting Engineers, the Plan has no actual knowledge of
underground fuel or storage tanks or abandoned septic tanks or asbestos, PCB
transformers, or toxic, hazardous or contaminated substances in, on, or about
the Owned Real Property or Leased Real Property.
4.11 Real Property.
-------------
(a) The Plan has no knowledge of, and has received no
notice that, the Owned Real Property and Leased Real Property are not in full
compliance with applicable zoning laws, ordinances, codes and governmental
regulations adopted by any authority having jurisdiction which relate to such
property, nor any violation notices thereof.
(b) The Plan has no knowledge of, and has received no notice of,
condemnation or eminent domain proceedings affecting all or any portion of the
Owned Real Property or Leased Real Property or any access thereto or therefrom.
(c) All liabilities or liens against the Owned Real Property and
the Plan's interest in the Leased Real Property, including mortgages, shall be
paid or otherwise satisfied by the Plan prior to or at the Closing and the Plan
hereby agrees to indemnify and hold PHP harmless from and against any of said
liabilities and/or liens.
(d) The Plan has no knowledge of any material adverse information
regarding the Owned Real Property and Leased Real Property and its ability to
convey marketable title thereto or a valid leasehold interest therein, except as
otherwise disclosed to PHP.
(e) The Plan has valid and subsisting leasehold estates in the
Leased Real Property set forth in Schedule 4.11(e) hereto free and clear of all
----------------
liens and encumbrances except for the encumbrances on the lessor's fee interest.
The Plan hereby warrants and represents that, except as set forth in Schedule
--------
4.11(e):
- -------
(i) There is no notice of cancellation or termination under
any option or right reserved to the lessor, or any notice of default,
under any lease of the Leased Real Properties, and no event has
occurred which, with notice or lapse of time or both, would
constitute a default by the Plan under any lease of the Leased Real
Properties.
-14-
<PAGE>
(ii) The Plan has not assigned any interest in, nor
subleased the premises constituting, any Leased Real Properties.
(iii) There are no restrictions to the assignment or transfer
of, or any other restriction with respect to, the Leased Real
Properties that will affect the rights of PHP (or its designated
Affiliate) with respect thereto as a consequence of the transfer of
the Acquired Assets to PHP (or its designated Affiliate).
4.12 Members. As of July 23, 1997, the Plan had 199,272 Covered
-------
Persons, including 148,230 Center Covered Persons.
4.13 Permits.
-------
(a) Schedule 4.13 hereto contains a complete and accurate
-------------
list of each Permit that is held by the Plan that relates to the operation of
the Health Care Centers or the ownership or use of the Acquired Assets. Each
Permit listed or required to be listed in Schedule 4.13 hereto is valid and in
-------------
full force and effect. Except as set forth in Schedule 4.13 hereto:
-------------
(i) the Plan is and at all times has been, in material
compliance with all of the terms and requirements of each Permit
identified or required to be identified in Schedule 4.13 hereto;
-------------
(ii) no event has occurred or circumstance exists that may
(with or without notice or lapse of time) (A) constitute or result
directly or indirectly in a violation of, or default or deficiency
with respect to, or a failure to comply with any term or requirement
of any Permit listed or required to be listed in Schedule 4.13
-------------
hereto, the violation, default, deficiency or failure of which would
have a Material Adverse Effect, or (B) result directly or indirectly
in the revocation, withdrawal, suspension, cancellation, or
termination of any Permit listed or required to be listed in Schedule
--------
4.13 hereto;
----
(iii) the Plan has not received any written notice or other
communication from any Governmental Authority regarding (A) any
actual or alleged violation of, default or deficiency with respect
to, or failure to comply with any term or requirement of any Permit
listed or required to be listed on Schedule 4.13 hereto, the
-------------
violation, default, deficiency or failure of which would have a
Material Adverse Effect, or (B) any actual or proposed revocation,
withdrawal, suspension, cancellation, termination of any Permit
listed or required to be listed on Schedule 4.13 hereto, nor does the
-------------
Plan have knowledge of any such violation, default, deficiency or
failure to comply; and
(iv) all applications required to have been filed for the
renewal of the Permits listed or required to be listed in Schedule
--------
4.13 hereto have been duly filed on a timely basis with the
----
appropriate Governmental Authorities, and all other filings required
to have been made with respect to such Permits have been duly made on
a timely basis with the appropriate Governmental Authorities.
(b) The Permits listed in Schedule 4.13 hereto collectively
-------------
constitute all of the Permits necessary to permit the Plan to lawfully conduct
and operate the Health Care Centers in the manner that the Health Care Centers
are currently conducted and operated and to permit the Plan to own and use the
Acquired Assets in the manner in which the Plan currently owns and uses such
assets.
-15-
<PAGE>
4.14 Consents. Except as set forth in Schedule 4.14 hereto, the Plan
-------- -------------
is not or will not be required to give any notice to or obtain any consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the transactions contemplated hereby.
4.15 Books and Records. The Books and Records are in all material
-----------------
respects true and complete, are maintained in accordance with good business
practice and all applicable Laws, and accurately present and reflect in all
material respects all of the events and transactions therein described.
4.16 Insurance. Schedule 4.16 hereto sets forth a list of all
--------- -------------
insurance policies or binders which are currently in effect insuring the Health
Care Centers and the Acquired Assets, and true and complete copies thereof have
been delivered or made available to PHP. All such policies and other instruments
are in full force and effect and all premiums with respect to thereto up to the
Closing Date have been paid. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not result in any
violation of or default or loss of any benefit (including the right to receive
any claim) under, or permit the termination of, any of such insurance policies.
The Plan has not failed to give any notice or present any claim under any
insurance policy in due and timely fashion or as required by any of such
insurance policies or has otherwise, through any act, omission or nondisclosure,
jeopardized or impaired full recovery under such policies, and there are no
claims by the Plan under any of such policies as to which any insurance company
is denying liability or defending under a reservation of rights or similar
clause except as set forth in Schedule 4.8. The Plan has not received notice of
------------
any pending or threatened termination of any of such policies or any premium
increases for the current policy period with respect to any of such policies.
4.17 Taxes. The Plan is qualified as a tax-exempt organization as
-----
defined in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended.
The Plan has timely filed or will timely file with the appropriate Governmental
Bodies all tax returns required to be filed before the Closing Date, and will
timely file all tax returns required to be filed after the Closing Date, in
respect of periods ending on or prior to the Closing Date, and has maintained,
or caused to be maintained, and will maintain all required records with respect
to Taxes, and has timely paid, or caused to be paid, or will timely pay in full
all Taxes, if any, shown to be due on such returns, or otherwise due from the
Plan for all periods up to and including the Closing Date. The Plan will pay
when due all Taxes arising out of the transactions contemplated hereby.
4.18 No Material Adverse Change. Since May 31, 1997, no Material
--------------------------
Adverse Change has occurred in the business, assets, liabilities, financial
condition or results of operations of the Plan.
4.19 Brokers and Finders. The Plan has not employed any broker or
-------------------
finder or incurred any liability for any brokerage fees, commissions or finders'
fees in connection with the transactions contemplated hereby, except for
Wasserstein Perella & Co., Inc., the fees and expenses of which shall be paid by
the Plan or its Affiliates.
4.20 Employee Benefits.
-----------------
(a) Employees. Schedule 4.20(a) hereto contains a true and
--------- ----------------
complete list, by Health Care Center, of the position and rate of compensation
of each Employee and the date of commencement of such person's employment with
the Plan. The Plan has no employment
-16-
<PAGE>
agreements with Employees other than employed physicians except as set forth in
Schedule 4.20(a).
- ----------------
(b) Schedule. Schedule 4.20(b) hereto contains a true and
-------- ----------------
complete list of each HIP Benefit Plan. The Plan has no plan or commitment,
whether legally binding or not, to establish any new HIP Benefit Plan or to
modify or to terminate any HIP Benefit Plan (except to the extent required by
law or to conform any such HIP Benefit Plan to the requirements of any
applicable law, in each case as previously disclosed to PHP, or as required by
this Agreement), nor has any intention to do any of the foregoing been
communicated to Employees.
(c) Documents. The Plan has provided, or has caused to be
---------
provided, to PHP current, accurate and complete summaries of all documents
embodying or relating to each HIP Benefit Plan, including all amendments
thereto, written interpretations thereof and trust or funding agreements with
respect thereto.
(d) Compliance. With respect to each HIP Benefit Plan, (i)
----------
the Plan has performed all obligations required to be performed by it under each
HIP Benefit Plan and the Plan is not in default under or in violation of, any
HIP Benefit Plan, (ii) each HIP Benefit Plan has been established and maintained
in accordance with its terms and in compliance with all applicable laws,
statutes, orders, rules and regulations, including but not limited to ERISA and
the Code, including without limiting the foregoing, the timely filing of all
required reports, documents and notices, where applicable, with the IRS and the
Department of Labor, (iii) the Plan has made all payments with respect to all
periods through the date hereof, and will make a pro-rata payment for the period
ending as of the Closing Date, in each case which are required by each HIP
Benefit Plan, each related trust, or by law to be made to, or with respect to
each HIP Benefit Plan (including all insurance premiums or intercompany charges
with respect to each HIP Benefit Plan and (iv) the Plan has no obligation to
contribute to, and has not contributed to, any multiemployer pension plan on
behalf of any Employee of the Plan.
(e) Effect of Transaction. Except as otherwise arising in
---------------------
connection with the termination of Employees as contemplated herein, the
execution of, and performance of the transactions contemplated in, this
Agreement will not (either alone or upon the occurrence of any additional or
subsequent events) constitute an event under any HIP Benefit Plan, trust or loan
that will or may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee.
(f) Employment Matters. The Plan (i) is in compliance in
------------------
all material respects with all Laws respecting employment, employment practices,
labor, terms and conditions of employment and wages and hours, in each case,
with respect to Employees; (ii) has withheld all amounts required by law or by
agreement to be withheld from the wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits for Employees.
(g) Labor. As of the date of this Agreement (and not any
-----
later date) and, except as otherwise set forth in Schedule 4.20(g) hereto: (1)
----------------
no work stoppage or labor strike against the Plan by Employees is pending or
threatened; (2) the Plan (i) is not involved in or threatened with any labor
dispute, grievance, or litigation relating to labor matters involving any
Employees, including, without limitation, violation of any federal, state or
local labor, safety or
-17-
<PAGE>
employment laws (domestic or foreign), charges of unfair labor practices or
discrimination complaints; (ii) has not engaged in any unfair labor practices
within the meaning of the National Labor Relations Act or the Railway Labor Act;
or (iii) is not presently, nor has been in the past a party to, or bound by, any
collective bargaining agreement or union contract with respect to Employees and
no such agreement or contract is currently being negotiated by the Plan or any
of its affiliates; (3) the Plan has fulfilled any bargaining obligation
applicable to the transactions contemplated by this Agreement; and no Employees
are currently represented by any labor union for purposes of collective
bargaining and (4) no activities the purpose of which is to achieve such
representation of all or some of such Employees are threatened or ongoing.
4.21 Financial Statements. The Plan has furnished PHP with true,
--------------------
correct and complete copies of the following financial statements (collectively,
the "HIP Financial Statements"): (i) consolidated financial statements for the
fiscal year ended December 31, 1996 audited by Ernst & Young LLP and (ii)
unaudited consolidated statements of income and cash flows for the five-month
period ended May 31, 1997 and the accompanying consolidated balance sheets as of
such dates. The HIP Financial Statements present fairly, in all material
respects, the consolidated financial position of the Plan and the results of its
operations and its cash flows as of the respective dates and periods thereof in
conformity with GAAP and applied on a consistent basis, except as noted therein
and except that in the case of the unaudited financial statements, no notes are
included and such unaudited financial statements may be subject to normal,
recurring adjustments that would be made in the course of an audit and that
would be not material. Except as set forth in Schedule 4.21 hereto, the Plan has
-------------
no liabilities or obligations of any nature (whether known or unknown and
whether absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the most recent balance sheet
included in the HIP Financial Statements and liabilities incurred in the
ordinary course of business since May 31, 1997.
4.22 Disclosure. No representation or warranty of the Plan contained
----------
in this Agreement, or any Related Agreement, or in any Schedule hereto or
thereto, or in any certificate or related document delivered to PHP pursuant
hereto or thereto, or in connection herewith or therewith, contains a false,
misleading or untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements made, in
the light of the circumstances in which they were made, not misleading.
ARTICLE V.
REPRESENTATIONS OF PHP
PHP hereby represents and warrants to the Plan as follows:
5.1 Organization of PHP. PHP is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the State of Delaware
and is qualified to do business in the State of New Jersey and in each other
jurisdiction in which it is required to be so qualified.
5.2 Authorization. PHP has full power and authority to enter into
-------------
and perform this Agreement and the other agreements and documents contemplated
herein and to carry out the transactions contemplated herein and therein. This
Agreement has been duly and validly authorized, executed and delivered by PHP
and constitutes a legally valid and binding obligation of PHP, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws and
equitable principles relating to or limiting creditors' rights generally and
general principles of equity.
-18-
<PAGE>
5.3 No Conflict or Violation. None of the execution, delivery and
------------------------
performance of this Agreement, the consummation of the transactions contemplated
hereby, and the compliance by PHP with any of the provisions hereof, will (a)
violate or conflict with any provision of its organizational or charter
documents, (b) violate, conflict with or result in a breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, any of the terms, conditions or provisions of any contract,
indebtedness, note, bond, indenture, security or pledge agreement, commitment,
license, lease, franchise, permit, agreement, or other instrument or obligation
to which PHP is a party, or (c) violate any Laws.
5.4 Filings. No notice to, declaration, filing or registration with,
-------
or permit, waiver or approval from, any Governmental Authority is required to be
made or obtained by PHP in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement, except for filings required under the HSR Act
and the Securities Exchange Act of 1934, as amended.
5.5 SEC Documents. PHP has filed all required reports, schedules,
-------------
forms, statements and other documents with the Securities and Exchange
Commission since April 30, 1996 (the "SEC Documents"). All of the SEC Documents
---------------
(other than preliminary material or material which was subsequently amended), as
of their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and, in each case, the rules and
regulations promulgated thereunder applicable to such SEC Documents. None of the
SEC Documents, as of their respective dates, contained any untrue statements of
a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except to the extent
such statements have been amended, modified or superseded by later SEC
Documents. PHP's consolidated financial statements included in the SEC Documents
complied, as to form in all material respects, with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q promulgated under the Exchange
Act) applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly presented, in accordance with the
applicable requirements of GAAP, the consolidated financial position thereof and
the consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal recurring adjustments
that would be made in the course of an audit and that would not be material).
Since April 30, 1997, no Material Adverse Change has occurred in the business,
assets, liabilities, condition (financial or other) or results of operations of
PHP.
5.6 Financial Ability. PHP has, or will obtain prior to the Closing,
-----------------
the funds available to pay the Purchase Price and consummate the transactions
described herein and in the Related Agreements to which it is a party.
5.7 Brokers and Finders. PHP has not employed any broker or finder
-------------------
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby.
5.8 Disclosure. No representation or warranty of PHP contained in
----------
this Agreement, or any Related Agreement, or in any Schedule hereto or thereto,
or in any certificate or related document delivered to the Plan pursuant hereto
or thereto, or in connection herewith or therewith, contains a false, misleading
or untrue statement of a material fact or omits to state a
-19-
<PAGE>
material fact required to be stated therein or necessary to make the statements
made, in the light of the circumstances in which they were made, not misleading.
ARTICLE VI.
COVENANTS OF THE PLAN AND PHP
-----------------------------
The Plan and PHP each covenant with the other as follows:
6.1 Further Assurances. Upon the terms and subject to the conditions
------------------
contained herein, each of PHP and the Plan agrees, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to take, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, (ii) to execute any documents, instruments or conveyances of any kind
which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing, including using all reasonable efforts (A) to
obtain all necessary waivers, consents and approvals from other parties to the
Contracts to be assumed by PHP (or its designated Affiliate); provided, however,
-------- -------
that neither PHP nor the Plan shall be required to commence litigation or agree
to material modifications of the terms thereof in order to obtain any such
waivers, consents or approvals; provided, further, that the cost of obtaining
such waivers, consents and approvals shall be borne by the Plan, (B) to obtain
all permits or licenses required to be obtained under any applicable Laws, (C)
to effect all necessary registrations and filings, including submissions of
information requested by Governmental Authorities and all filings required under
the HSR Act, and (D) to fulfill all conditions to this Agreement. The Plan and
PHP will commence all action required under clauses (A) and (B) above (including
submitting all filings required under the HSR Act) as soon as reasonably
practicable following the execution and delivery of this Agreement. The HSR Act
filing fee shall be shared equally by the parties.
6.2 Notification of Certain Matters. From the date hereof through
-------------------------------
the Closing, each of PHP and the Plan shall give prompt notice to the other of
(i) the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate in any material respect and (ii) any
material failure of such party to comply with any covenant to be complied with
by it under this Agreement; provided, however, that such disclosure shall not be
-------- -------
deemed to cure any breach of a representation, warranty, covenant or agreement
or to satisfy any condition. The Plan shall give prompt notice to PHP of all
pending or threatened matters before the NLRB including the events which may
lead to the filing of representation petitions at any Health Care Centers. No
notice given pursuant to this Section 6.2 will contain any false, misleading or
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein or in this Agreement, in the light of the
circumstances in which they were made, not misleading.
6.3 Inspections. Subject to the provisions of the Confidentiality
-----------
Agreements, the parties agree that, prior to the Closing, each party will have
full access to such business, books, records, management, facilities and
operations of the other as may be reasonably necessary to evaluate the
transactions contemplated by this Agreement. PHP and the Plan will exercise
reasonable efforts to minimize interference with each other's businesses. Each
party further agrees to provide the other with reasonable notice before visiting
the other's facilities or contacting the other's employees, practitioners or
allied health professionals for the purposes of inspecting and conducting the
due diligence contemplated by this Section.
-20-
<PAGE>
6.4 Conduct of Business. Except as specifically contemplated by this
-------------------
Agreement and the Related Agreements, from the date hereof until the earlier of
the Closing or the termination of this Agreement, or as otherwise approved in
writing by PHP, the Plan shall:
(a) operate the Health Care Centers and conduct its business
in, and not take any action except in, the ordinary course of business;
(b) perform in all material respects its obligations under all
Contracts;
(c) use its reasonable best efforts to preserve intact its
corporate existence, goodwill and business organization, to keep available the
services of its present officers and employees and to preserve its relationships
with patients, physicians, hospitals, landlords, suppliers, customers,
subcontractors and others having material business relations with it;
(d) in connection with the continuing operation of the Health
Care Centers between the date of this Agreement and the Closing, use all
reasonable best efforts to consult in good faith on a regular and frequent basis
with representatives of PHP to report material operational developments and the
general status of ongoing operations. The Plan acknowledges that any such
consultation shall not constitute a waiver by PHP of any rights it may have
under this Agreement and that PHP shall have no liability or responsibility for
any actions of the Plan or any of its officers or directors with respect to
matters which are the subject of such consultations;
(e) maintain all of the tangible fixed assets included in the
Acquired Assets in good operating condition and repair in order to enable them
to be operated after the Closing in the manner in which they are currently
operated (ordinary wear and tear excepted);
(f) maintain the Health Care Center books and records in the
usual, regular and ordinary manner, on a basis consistent with prior years;
(g) not vary or amend the terms of any Assumed Liability
except in the ordinary course of business;
(h) not enter into, modify, terminate, amend or grant any
waiver in respect of any Assigned Contract, except in the ordinary course of
business;
(i) duly comply in all material respects with all Laws
applicable to the Health Care Centers and the Acquired Assets;
(j) not take, or agree to take, any of the actions prohibited
in this Section 6.4 or, any action which would make any representation or
warranty of the Plan contained in this Agreement untrue or incorrect in any
material respect as of the date when made or as of any future date on or prior
to the Closing; and
(k) inform PHP promptly of any development which may interfere
with the consummation of the transactions contemplated by this Agreement or the
Related Agreement or may interfere with the operation of the Health Care
Centers.
6.5 No Solicitation of Transactions. The Plan will not, and will
-------------------------------
cause its employees, representatives, investment bankers, consultants, advisors,
agents and affiliates not to, directly or indirectly, (a) initiate contact with,
solicit or encourage submission of any inquiries, proposals or offers by, or (b)
participate in any discussions or negotiations with, or disclose any information
-21-
<PAGE>
concerning Health Care Centers to, or afford any access to the properties, books
or records of the Health Care Centers to, or otherwise assist, facilitate or
encourage, any Person (other than PHP, its affiliates, agents and
representatives) in connection with any possible proposal (an "Acquisition
Proposal") regarding a sale or acquisition of any interest in the Health Care
Centers, or a merger, consolidation or business combination involving Health
Care Centers or a sale of all or (other than in the ordinary course of business
consistent with past practice) any portion of the assets of Health Care Centers
or any similar transaction. The Plan represents that as of the date hereof it
has ceased any and all existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
6.6 Rights to Confidentiality. The Plan shall not, without the prior
-------------------------
consent of PHP, modify, terminate, amend or grant any waiver in respect of any
confidentiality agreement entered into with any other party in connection with
or relating to a possible sale of the New Jersey Physician Operations or the
Health Care Centers.
6.7 Employee Matters.
----------------
(a) Prior to the Closing Date, PHP may offer (or cause its
designated Affiliate to offer) employment to certain Employees (the "Continuing
Employees") on terms and conditions to be determined by PHP on the basis of an
open application process in which the Plan will encourage Employees to
participate. From and after the Closing Date, PHP will provide benefits to the
Continuing Employees which will, in the aggregate, be no less favorable than
those provided by PHP to its similarly situated employees from time to time.
With respect to the employee plans and welfare plans of PHP, PHP shall grant the
Continuing Employees, from and after the Closing Date, credit for all service
with the Plan prior to the Closing Date for all purposes for which such service
was recognized by the Plan. To the extent PHP's benefit plans (or any new
benefit plans entered into for the Continuing Employees) provide medical or
dental welfare benefits after the Closing Date, PHP shall use its reasonable
efforts to cause such plans to waive any pre-existing conditions and
actively-at-work exclusions and shall use reasonable efforts to provide that.
Any expenses incurred on or before the Closing Date shall be taken into account
under any PHP benefit plans for purposes of satisfying applicable deductible,
co-insurance and maximum out-of-pocket provisions. Nothing in this
Section 6.7(a) shall create any third party beneficiary rights.
(b) The Plan shall use its reasonable efforts to encourage
those Employees who receive employment offers to accept PHP's or its designated
Affiliate's offer of employment. The Plan shall also release such Continuing
Employees who accept such employment with PHP from any covenant not to compete
to which it is a party.
(c) With respect to any Employee who does not receive an offer
of employment from PHP or its designated Affiliate, if such Employee's
employment is terminated on or prior to the Closing Date in connection with the
transactions contemplated by this Agreement, and the Plan is obligated to pay
severance to such Employee, PHP agrees to indemnify the Plan and hold it
harmless for the amount of such severance payments. Any amounts paid by PHP to
the Plan under this Section 6.7(c) shall be treated for all purposes as an
increase to the Purchase Price.
(d) Prior to the Closing, PHP will advise the Plan in writing
of the identity of Employees to whom PHP (or its designated Affiliate) intends
to offer employment effective upon the Closing. Notwithstanding anything herein
to the contrary, PHP shall offer employment to a sufficient number of Employees
such that the termination of employment of Employees who do
-22-
<PAGE>
not receive an employment offer will not, in and of itself, trigger a notice
obligation under the Workers Adjustment Retaining and Notification Act at any of
the Health Care Centers.
(e) From the date of this Agreement until the Closing Date,
the Plan agrees to make available to PHP all books and records, statistics and
other data regarding Employees in accordance with applicable law. To the extent
required in order to provide such access to personnel files, the Plan will
request permission from Employees and seek a written waiver of applicable law
which might otherwise prohibit such access. If any Employee refuses to grant
such a waiver, the Plan shall have no obligation to make personnel files
available in the absence of an indemnity from PHP.
6.8 Continuing Relationship. The parties recognize and agree that as
-----------------------
part of the restructuring of the New Jersey Physician Operations, the parties
will implement a continuing relationship designed to further their mutual growth
and advancement. Accordingly, the parties have agreed that PHP and its
Affiliates will offer their employees the opportunity to be the Plan members at
the same premium rate that the Plan charges its employees for becoming the Plan
members.
6.9 Transition Plan. Between the date of this Agreement and the
---------------
Closing, PHP and the Plan shall identify all assets and services which are
currently being provided by the Plan to the New Jersey Physician Operations but
with respect to which the related personnel and assets are not included among
Employees and/or the Acquired Assets, including, without limitation, computer
and data processing services and associated hardware and software (the "Shared
Services and Shared Assets"). Prior to the Closing, PHP and the Plan shall agree
upon a mutually acceptable transition plan (the "Transition Plan") pursuant to
---------------
which for a period of up to six months after the Closing, the Plan shall make
available to PHP (or its designated Affiliate) the Shared Assets and Shared
Services on a basis substantially consistent with the Plan's recent historical
practice.
6.10 Use of Purchase Price. The Purchase Price to be paid by PHP to
---------------------
the Plan under this Agreement shall not be used for any purpose other than for
working capital purposes in the ordinary course of the operation of the Plan's
HMO business in the State of New Jersey and for any other purpose expressly
permitted under the Health Services Agreement, excluding repayment of the
Surplus Notes or other indebtedness for borrowed money except the repayment of
up to $6 million of outstanding indebtedness.
ARTICLE VII.
CONDITIONS TO THE PLAN'S OBLIGATIONS
------------------------------------
The obligations of the Plan to consummate the transactions provided
for by this Agreement are subject, in the discretion of the Plan, to the
satisfaction, on or prior to the Closing, of each of the following conditions,
any of which may be waived by the Plan.
7.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of PHP contained in this Agreement or any Related Agreement shall
be true and correct in all material respects at and as of the date of this
Agreement and any Related Agreement and at and as of the Closing Date, and PHP
shall have performed in all material respects all covenants required by this
Agreement to be performed by it prior to the Closing.
-23-
<PAGE>
7.2 No Proceedings, Litigation or Laws. No Proceeding by any
----------------------------------
Governmental Authority or other Person shall have been instituted or threatened
which questions the validity or legality of the transactions contemplated by
this Agreement, or any Related Agreement, nor shall there be any Law which makes
the purchase of any material portion of the Acquired Assets contemplated by this
Agreement illegal or otherwise prohibited.
7.3 Opinion of Counsel. PHP shall have delivered to the Plan an
------------------
opinion of Fried Frank Harris Shriver & Jacobson, counsel to PHP, dated as of
the Closing Date, covering the substantive matters referred to in Sections 5.1,
5.2, 5.3 and 5.4, in form reasonably satisfactory to the Plan.
7.4 Certificates and Corporate Documents. PHP shall furnish the Plan
------------------------------------
with certificates of its officers and others to evidence compliance with the
conditions set forth in this Article VII as may be reasonably requested by the
Plan. The Plan shall have received from PHP resolutions adopted by the board of
directors of PHP approving this Agreement and the transactions contemplated by
this Agreement, certified by PHP's corporate secretary.
7.5 Assumption Agreement. PHP (or its designated Affiliate) shall
--------------------
have executed the Assumption Agreement.
7.6 HSR Act. The applicable waiting period, including any extension
-------
thereof under the HSR Act shall have expired.
7.7 Governmental Approvals. The Department of Banking and Insurance
----------------------
and the Department of Health and Senior Services of the State of New Jersey,
and/or such other New Jersey or federal governmental or regulatory authority as
may be required, shall have received notice of, or applications or other filings
with respect to, the transactions contemplated by this Agreement and the Related
Agreements and, where required, shall have approved same.
7.8 Related Agreements. PHP shall have executed and delivered the
------------------
Related Agreements.
7.9 Note Purchase Agreement. The closing of the purchase and sale of
-----------------------
the Surplus Notes pursuant to the Note Purchase Agreement shall have been
completed.
ARTICLE VIII.
CONDITIONS TO PHP'S OBLIGATIONS
-------------------------------
The obligations of PHP to consummate the transactions provided for by
this Agreement are subject, in the discretion of PHP, to the satisfaction, on or
prior to the Closing, of each of the following conditions, any of which may be
waived by PHP.
8.1 Representations, Warranties and Covenants. All representations
-----------------------------------------
and warranties of the Plan contained in this Agreement or any Related Agreement
shall be true and correct in all material respects at and as of the date of this
Agreement or any Related Agreement and at and as of the Closing Date, and the
Plan shall have performed in all material respects all covenants required by
this Agreement to be performed by it prior to the Closing.
8.2 No Proceedings, Litigation or Laws. No Proceeding by any
----------------------------------
Governmental Authority or other Person shall have been instituted or threatened
which questions the validity or legality of the transactions contemplated by
this Agreement, or any Related Agreement, nor shall there be any
-24-
<PAGE>
Laws which make the purchase of any material portion of the Acquired Assets
contemplated by this Agreement illegal or otherwise prohibited.
8.3 Opinion of Counsel. The Plan shall have delivered to PHP an
------------------
opinion of Wolff & Samson, P.A., counsel to the Plan, covering the substantive
matters referred to in Sections 4.1, 4.2, 4.3 and 4.6, in form reasonably
satisfactory to PHP.
8.4 Certificates and Corporate Documents. The Plan shall furnish PHP
------------------------------------
with such certificates of its officers and others to evidence compliance with
the conditions set forth in this Article VIII as may be reasonably requested by
PHP. PHP shall have received from the Plan resolutions adopted by the board of
directors of the Plan approving this Agreement and the transactions contemplated
by this Agreement, certified by the Plan's corporate secretary.
8.5 Other Documents. The Plan shall have executed and delivered each
---------------
of the documents required by Section 3.2 hereof so as to effect the transfer and
assignment to PHP of all right, title and interest in and to the Acquired Assets
as provided in this Agreement, which documents shall be in a form reasonably
satisfactory to PHP's counsel.
8.6 HSR Act. The applicable waiting period, including any extension
-------
thereof, under the HSR Act shall have expired.
8.7 Governmental Approvals. All New Jersey or federal governmental
----------------------
or regulatory authority as may be required, shall have received notice of, or
applications or other filings with respect to, the transactions contemplated by
this Agreement and the Related Agreements and, where required, shall have
approved same.
8.8 Related Agreements. The Plan shall have executed and delivered
------------------
the Related Agreements.
8.9 Note Purchase Agreement. The closing of the purchase and sale of
-----------------------
the Surplus Notes pursuant to the Note Purchase Agreement shall have been
completed.
8.10 Consents. Each of the consents identified or referred to in
--------
Schedule 4.14 hereto shall have been obtained in form and substance reasonably
- -------------
satisfactory to PHP and must be in full force and effect, and PHP shall have
obtained all consents or Permits necessary to operate the Health Care Centers
after the Closing as contemplated in the Related Agreements.
8.11 Title Insurance; Surveys. PHP shall have received title
------------------------
insurance commitments, policies and riders and surveys with respect to the Owned
Real Property, in accordance with Section 3.4.
8.12 Estoppel Certificates. With respect to each of the Leased Real
---------------------
Properties, PHP shall have received estoppel certificates executed on behalf of
the landlord, dated as of a date no more than ten days prior to the Closing
Date, substantially in the form attached to Schedule 1.1(d).
---------------
8.13 Employment Agreements. PHP shall have received executed
---------------------
employment agreements, in form and substance reasonably satisfactory to PHP, as
described in Schedule 8.13 hereto.
-------------
-25-
<PAGE>
8.14 Schedules. PHP shall have received final and complete copies of
---------
all Schedules to this Agreement, in form and substance reasonably acceptable to
PHP. Within 10 Business Days after the date of this Agreement, the Plan shall
have delivered to PHP final copies of the Schedules to this Agreement, it being
understood that, without the prior consent of PHP, such Schedules shall not
contain references to any matter which was not disclosed to PHP prior to the
execution and delivery of this Agreement. PHP shall have 10 Business Days
following its receipt thereof to review such Schedules and notify the Plan of
any disagreement with the contents thereof.
ARTICLE IX.
RISK OF LOSS; CERTAIN ASSIGNMENTS
---------------------------------
9.1 Risk of Loss. From the date hereof through the Closing, all risk
------------
of loss or damage to the Acquired Assets (other than the Owned Real Property)
shall be borne by the Plan, and thereafter shall be borne by PHP (or its
designated Affiliate).
9.2 Risk of Loss of Owned Real Property. The Plan assumes the risk
-----------------------------------
of any material loss or damage to the Owned Real Property beyond ordinary wear
and tear until transfer and delivery to PHP of possession of the Owned Real
Property. If the Owned Real Property is destroyed or damaged as a result of fire
or other casualty, PHP shall have the right to: 1) require that the Plan repair
the destruction or damage; or 2) in the event the cost to repair the damage
exceeds $100,000.00, delete the Owned Real Property from the transaction in the
manner provided in Section 3.4 hereinabove; or 3) accept the Owned Real Property
subject to an agreed upon price reduction. If PHP elects to accept the Owned
Real Property, the Plan shall pay over or assign to PHP all insurance proceeds
recovered by the Plan or available to the Plan and not theretofore used to
repair or restore the Owned Real Property in the amount of any deductible, less
any expenses incurred by the Plan in seeking recovery of such insurance
proceeds, in which event PHP shall not be entitled to a price reduction.
9.3 Condemnation. If prior to Closing all or substantially all of
------------
the Owned Real Property shall be condemned or taken as the result of the
exercise of the power of eminent domain, PHP may elect to delete the Owned Real
Property from the transaction in the manner provided in Section 3.4 hereinabove.
If prior to the Closing, less than all or substantially all of the Owned Real
Property shall be condemned or taken as the result of the exercise of the power
of eminent domain and PHP in its reasonable judgment shall determine that
(i) the remaining portion of the Owned Real Property is not suitable for the
continued use of the Owned Real Property as a health care facility, then PHP may
elect to delete the Owned Real Property from the transaction (with an
appropriate price abatement in the manner provided in Section 3.4 hereinabove),
or (ii) if the remaining portion of the Owned Real Property is suitable for the
continued use of the Owned Real Property, then the Plan shall be entitled to any
award resulting from any condemnation proceeding, but PHP shall be entitled to a
credit in the amount of such award against the Purchase Price unless such
condemnation proceedings shall be pending on the day of closing, in which event
there shall be no such credit and, at Closing, the Plan shall assign all of its
right and interests in said proceedings to PHP.
9.4 Assessments. If at the Closing the Owned Real Property or any
-----------
part thereof shall be or shall have been affected by any assessments which are
or may become payable in annual installments of which the first installment is
then due or has been paid, then for the purposes of this Agreement all the
unpaid installments of any such assessment, including those which are to become
due and payable after the delivery of the deed shall be assumed by PHP. The cost
of all other assessments for work commenced after the date of this Agreement
will be borne by PHP.
-26-
<PAGE>
9.5 Adjustments at Closing. With respect to the Owned Real Property
----------------------
and to the extent not otherwise set forth on the Closing Net Asset Statement,
PHP and the Plan agree to adjust the following expenses as of the Closing Date:
municipal water and sewer charges, if any, and real estate taxes. The Plan or
PHP may require that any person with a claim or right affecting the Owned Real
Property be paid off from the Purchase Price. The Plan shall pay the realty
transfer fee for the transfer of the Owned Real Property.
9.6 Certain Assignments. Anything in this Agreement to the contrary
-------------------
notwithstanding, this Agreement shall not constitute an agreement to assign or
transfer to PHP (or its designated Affiliate) any Acquired Asset if an attempted
assignment thereof, without the consent of a third party, would constitute a
breach thereof or a breach of any Laws or in any way adversely affect the rights
of PHP (or its designated Affiliate) with respect thereto. If such consent is
not obtained, or if any attempted assignment thereof would be ineffective or
would affect the rights with respect thereto so that PHP (or its designated
Affiliate) would not receive all such rights, the Plan will cooperate with PHP
(or its designated Affiliate), in all reasonable respects, to provide to PHP (or
its designated Affiliate) the benefits with respect to any such Acquired Asset,
including enforcement for the benefit of PHP (or its designated Affiliate) of
any and all rights of the Plan against a third party arising out of the breach
or cancellation by such third party or otherwise.
ARTICLE X.
ACTIONS BY THE PARTIES AFTER THE CLOSING
----------------------------------------
10.1 Books and Records. PHP and the Plan each agree to cooperate with
-----------------
and make available to the other, during normal business hours, all books and
records of such party, information and employees (without substantial disruption
of employment) retained and remaining in existence after the Closing which are
necessary or useful in connection with any tax inquiry, audit, investigation or
dispute, any litigation or investigation or any other matter requiring any such
books and records, information or employees for any reasonable business purpose
related to the transactions described herein. The party requesting any such
books and records, information or employee shall bear all of the out-of-pocket
costs and expenses (including attorneys' fees, but excluding reimbursement of
salaries and employee benefits) reasonably incurred in connection with providing
such books and records, information or employees. Each of PHP and the Plan will
retain such books and records in accordance with its corporate records retention
policy or as required by law, whichever requires retention for a longer period.
All information received pursuant to this Section 10.1 shall be subject to the
terms of the Confidentiality Agreements.
10.2 Indemnifications.
----------------
(a) By the Plan. From and after the Closing, the Plan shall
-----------
indemnify, save and hold harmless PHP, its Affiliates and subsidiaries, and its
and their respective Representatives, from and against any and all Damages
incurred by PHP, its Affiliates and subsidiaries and its and their respective
Representatives in connection with, arising out of, resulting from or incident
to (i) any breach of any representation or warranty made by the Plan in or
pursuant to this Agreement; (ii) any breach of any covenant or agreement made by
the Plan in or pursuant to this Agreement; (iii) any Excluded Liability or
(iv) the use, ownership or operation of the Acquired Assets prior to the Closing
(except to the extent the same constitutes an Assumed Liability).
(b) By PHP. From and after the Closing, PHP shall indemnify,
------
save and hold harmless the Plan, its Affiliates and subsidiaries, and its and
their respective Representatives, from and against any and all Damages incurred
by the Plan, its Affiliates and subsidiaries and its and
-27-
<PAGE>
their respective Representatives in connection with, arising out of, resulting
from and incident to (i) any breach of any representation or warranty made by
PHP in or pursuant to this Agreement; (ii) any breach or any covenant or
agreement made by PHP in or pursuant to this Agreement; (iii) any Assumed
Liability or (iv) the use, ownership or operation of the Acquired Assets after
the Closing (except to the extent the same constitutes an Excluded Liability).
(c) Damages; Remedies Cumulative. The term "Damages" shall
----------------------------
mean all actual costs, losses (including diminution in value), Taxes,
liabilities, obligations, damages, lawsuits, deficiencies, claims, demands, and
expenses, including interest, penalties, costs or mitigation or remedial action,
lost profits, response costs and other losses resulting from any shutdown or
curtailment of operations, reasonable attorneys' fees and all amounts paid in
defense or settlement of any of the foregoing and shall be net of any insurance
proceeds received by the indemnified party. The term "Damages" is not limited to
matters asserted by third parties against the Plan or PHP, but includes Damages
incurred or sustained by the Plan or PHP in the absence of third party claims;
provided, however, that other than with respect to third party claims, the
- -------- -------
component of "Damages" incurred or sustained by either party to this Agreement
in order to comply with applicable Laws will include only those Damages that are
reasonably necessary costs of such compliance. The Plan's obligations to
indemnify PHP, and PHP's obligations to indemnify the Plan, shall not limit any
right of contribution which either party may have under statute or common law.
(d) Cooperation. The indemnified party shall cooperate in all
-----------
reasonable respects with the indemnifying party in the investigation, trial and
defense of any lawsuit or action that may be subject to this Section 10.2 and
any appeal arising therefrom; provided, however, that the indemnified party may,
-------- -------
at its own cost, participate in the investigation, trial and defense of such
lawsuit or action and any appeal arising therefrom. The parties shall cooperate
with each other in any notifications to insurers.
(e) Defense of Claims. If a claim for Damages (a "Claim") is
-----------------
to be made by a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such indemnification shall give written
notice (a "Claim Notice") to the indemnifying party as soon as practicable after
the party entitled to indemnification becomes aware of any fact, condition or
event which may give rise to Damages for which indemnification may be sought
under this Section 10.2. If any lawsuit or enforcement action is filed against
any party entitled to the benefit of indemnity hereunder, written notice thereof
shall be given to the indemnifying party as promptly as practicable (and in any
event with fifteen (15) business days after the service of the citation or
summons). The failure of any indemnified party to give timely notice hereunder
shall not affect rights to indemnification hereunder, except to the extent that
the indemnifying party demonstrates actual damage caused by such failure. After
such notice, if the indemnifying party shall acknowledge in writing to the
indemnified party that the indemnifying party shall be obligated under the terms
of its indemnity hereunder in connection with such lawsuit or action, then the
indemnifying party shall be entitled, if it so elects, (i) to take control of
the defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys of its own choice to handle and defend the same, at the
indemnifying party's cost, risk and expense unless the named parties to such
action or proceeding include both the indemnifying party and the indemnified
party and the indemnified party has been advised in writing by counsel that
there may be one or more legal defenses available to such indemnified party that
are different from or additional to those available to the indemnifying party,
and (iii) to compromise or settle such claim, which compromise or settlement may
not be made without the consent of the indemnified party. If the indemnifying
party fails to assume the defense of such claim within fifteen (15) calendar
days after receipt of the Claim Notice, the indemnified party against which such
claim has been asserted will (upon delivering notice to such effect to the
indemnifying party) have the right to undertake, at the indemnifying party's
cost and expense, the
-28-
<PAGE>
defense, compromise or settlement of such claim on behalf of and for the account
and risk of the indemnifying party and such Claim may be compromised or settled
without the consent of the indemnifying party. In the event the indemnified
party assumes the defense of the Claim, the indemnified party will keep the
indemnifying party reasonably informed of the progress of any such defense,
compromise or settlement. The indemnifying party shall be liable for any
settlement of any action effected pursuant to and in accordance with this
Section 10.2 and for any final judgment (subject to any right of appeal), and
the indemnifying party agrees to indemnify and hold harmless an indemnified
party from and against any Damages by reason of such settlement or judgment.
(f) Brokers and Finders. Pursuant to the provisions of this
-------------------
Section 10.2, each of PHP and the Plan shall indemnify, hold harmless and defend
the other from the payment of any and all broker's and finder's expenses,
commissions, fees or other forms of compensation which may be due or payable
from or by the indemnifying party, or may have been earned by any third party
acting on behalf of the indemnifying party in connection with the negotiation
and execution hereof and the consummation of the transactions contemplated by
this Agreement.
(g) Limitations.
-----------
(i) The Plan shall not be required to make any
indemnification payments pursuant to Section 10.2(a)(i) unless the
aggregate of all amounts for which indemnity would otherwise be payable
by the Plan under Section 10.2(a)(i) exceeds $150,000, and in such
event, the Plan shall be responsible only for the amount in excess of
$150,000.
(ii) PHP shall not be required to make any
indemnification payments pursuant to Section 10.2(b)(i) unless the
aggregate of all amounts for which indemnity would otherwise be payable
by PHP under Section 10.2(b)(i) exceeds $150,000, and in such event,
PHP shall be responsible only for the amount in excess of $150,000.
(h) Survival. All statements contained in this Agreement or
--------
any Schedule delivered by or on behalf of PHP or the Plan specifically pursuant
to this Agreement shall be deemed to be representations and warranties by such
party hereunder. Except as otherwise set forth in this Section 10.2, the
representations and warranties of the Plan and PHP contained herein shall
survive the consummation of the transactions contemplated by this Agreement
without regard to any investigation made by either of such parties. The
representations and warranties contained in Sections 4.1, 4.2, 4.3, 4.4, 4.17,
5.1, 5.2, 5.3 and 5.4 shall remain in full force and effect indefinitely, the
representations and warranties contained in Sections 4.10 and 4.11(a) shall
survive and remain in full force and effect for a period of three years after
the Closing, and all other representations and warranties shall survive and
remain in full force and effect for a period of two years after the Closing. Any
matter as to which a Claim has been asserted by notice to the other party that
is pending or unresolved at the end of any applicable limitation period shall
continue to be covered by this Article X notwithstanding any applicable statute
of limitations (which the parties hereby waive) until such matter is finally
terminated or otherwise resolved by the parties under this Agreement or by a
court of competent jurisdiction and any amounts payable hereunder are finally
determined and paid.
10.3 Taxes. The Plan shall pay, or cause to be paid, when due all
-----
Taxes for which the Plan is or may be liable or that are or may become payable
with respect to all periods ending on or prior to the Closing. PHP shall pay, or
cause to be paid, when due all Taxes for which PHP is or may be liable or that
are or may become payable with respect to all periods ending subsequent to the
Closing.
-29-
<PAGE>
ARTICLE XI.
MISCELLANEOUS
-------------
11.1 Termination.
-----------
(a) Termination. This Agreement may be terminated at any time
-----------
prior to Closing:
(i) By mutual written consent of PHP and the Plan;
(ii) By PHP if there is a material breach of any
representation or warranty set forth in Article IV hereof or any
covenant or agreement to be complied with or performed by the Plan
pursuant to the terms of this Agreement which would render impossible
the satisfaction of a condition set forth in Article VIII (and such
condition is not waived in writing by PHP);
(iii) By the Plan if there is a material breach of any
representation or warranty set forth in Article V hereof or of any
covenant or agreement to be complied with or performed by PHP pursuant
to the terms of this Agreement which would render impossible the
satisfaction of a condition set forth in Article VII (and such
condition is not waived in writing by the Plan);
(iv) By PHP or the Plan if the Closing has not occurred
within six months of the date hereof; provided that the terminating
party is not otherwise in default or in breach of the Agreement.
(b) In the Event of Termination. In the event of termination
---------------------------
of this Agreement:
(i) Each of PHP and the Plan will redeliver all
documents, work papers and other material of the other relating to the
transactions contemplated by this Agreement, whether so obtained
before or after the execution hereof, to the party furnishing the
same;
(ii) The provisions of the Confidentiality Agreements
shall continue in full force and effect;
(iii) In the event that this Agreement is terminated by
PHP pursuant to Section 11.1(a)(ii) and all other conditions to the
obligations of the Plan (other than conditions with respect to actions
to be taken at the Closing) have been satisfied, then the Plan shall
pay PHP a termination fee equal to $2,500,000 in cash;
(iv) In the event this Agreement is terminated by the
Plan pursuant to Section 11.1(a)(iii) and all other conditions to the
obligations of PHP (other than conditions with respect to actions to
be taken at the Closing) have been satisfied, then PHP shall pay the
Plan a termination fee equal to $2,500,000 in cash; and
(v) No party hereto shall have any liability or
further obligation to any other party to this Agreement, except (x) as
stated in subsections (i), (ii), (iii) and (iv) of this Section
11.1(b), and (y) for any breach of this Agreement occurring prior to
the proper termination of this Agreement (other than any termination
pursuant to Section 11.1(a)(ii) or Section 11.1(a)(iii), in which
event the termination fee provided for in Section 11.1(b)(iii) or
Section 11.1(b)(iv) shall be in the nature of liquidated damages).
-30-
<PAGE>
11.2 Assignment and No Third Party Beneficiaries. Neither this
-------------------------------------------
Agreement nor any of the rights or obligations hereunder may be assigned by any
party without the prior written consent of the other; except that PHP may,
without such consent, assign all such rights and obligations to any direct or
indirect wholly owned subsidiary (or a partnership directly or indirectly
controlled by it), so long as, in each case, PHP also remains liable for all of
its obligations and liabilities under this Agreement. Subject to the foregoing,
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, and no other
person shall have any right, benefit or obligation under this Agreement as a
third party beneficiary or otherwise.
11.3 Notices. All notices, requests, demands and other
-------
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when received if
personally delivered; when transmitted if transmitted by facsimile; the day
after being sent, if sent for next day delivery by recognized overnight delivery
service (e.g., Federal Express); and upon receipt, if sent by certified or
----
registered mail, return receipt requested. In each case notice shall be given as
follows:
If to the Plan, addressed to:
HIP Health Plan of New Jersey
One HIP Plaza
North Brunswick, New Jersey 08902
Facsimile Number: (908) 937-7792
Attention: Frederick S. Title, Vice President &
General Counsel
With a copy to:
Wolff & Samson, P.A.
5 Becker Farm Road
Roseland, New Jersey 07068
Facsimile Number: (973) 740-1407
Attention: Martin L. Wiener, Esq.
If to PHP, addressed to:
PHP Healthcare Corporation
11440 Commerce Park Drive
Reston, Virginia 20191
Facsimile Number: (703) 758-7232
Attention: Jerrold J. Hercenberg, Senior Vice
President and Counsel
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
1001 Pennsylvania Avenue, N.W., Suite 800
Washington, D.C. 20004-2505
Facsimile Number: (202) 639-7003
Attention: Andrew P. Varney, Esq.
or to such other place and with such other copies as a party may designate as to
itself by written notice to the others.
-31-
<PAGE>
11.4 Choice of Law. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with the laws of the
State of New Jersey (without reference to the choice of law provisions of New
Jersey law), except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, and as to those matters the law of the jurisdiction under which
the respective entity derives its powers shall govern.
11.5 Entire Agreement; Amendments and Waivers. This Agreement and
----------------------------------------
the Related Agreements to which the parties hereto are parties, together with
all exhibits and schedules to be attached hereto and thereto, constitute or will
constitute the entire agreement among the parties pertaining to the subject
matter hereof and supersede or will supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, other than the Confidentiality Agreement which shall remain in full
force and effect. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto. No amendment,
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be bound thereby. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
of other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
11.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 Expenses. Except as otherwise specified in this Agreement, each
--------
party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in
preparation for carrying this Agreement into effect.
11.8 Invalidity. In the event that any one or more of the provisions
----------
contained in this Agreement, shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, then to the maximum extent permitted by
law, such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or any other such instrument.
11.9 Publicity. Except as may be required by law, regulation or
---------
stock exchange rules, neither PHP nor the Plan shall issue any press release or
make any public statement regarding the transactions contemplated hereby,
without prior written approval of the other. In the event either party shall be
required by law to issue any press release or make any public statement or
disclosure regarding the transaction contemplated herein, such party shall
consult with the other party regarding such disclosure and shall not issue or
release the same without the prior written consent of the other party (which
shall not be unreasonably withheld or delayed).
11.10 Knowledge Convention. Whenever any statement herein or in any
--------------------
schedule, exhibit, certificate or other document delivered to any party pursuant
to this Agreement is made "to the Plan's or PHP's knowledge" or words of similar
intent or effect of any party or its Representative, such statement shall be
deemed to be made to the best knowledge of the designated officers of PHP and
the Plan set forth in Schedule 11.10 hereto, as the case may be, and shall be
--------------
deemed to include a representation that a reasonable investigation of the
subject matter thereof has been conducted.
-32-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
HIP OF NEW JERSEY, INC.
By:
----------------------
Name:
Title:
PHP HEALTHCARE CORPORATION
By:
----------------------
Name:
Title:
-33-
<PAGE>
SCHEDULES TO ASSET PURCHASE AGREEMENT
-------------------------------------
<TABLE>
<S> <C>
Schedule 1.1(a) - Form of Assumption Agreement
Schedule 1.1(b) - Excluded Assets
Schedule 1.1(c) - Health Care Centers
Schedule 1.1(d) - Related Agreements
Schedule 2.4(a) - Membership Incentive Payments
Schedule 2.5 - Closing Net Asset Statement Accounting Methods
Schedule 4.3 - Conflicts and Violations
Schedule 4.4 - Encumbrances
Schedule 4.5 - Assigned Contracts
Schedule 4.6 - Governmental Filings
Schedule 4.7 - Summary Balance Sheet
Schedule 4.8 - Litigation
Schedule 4.9 - Compliance with Laws
Schedule 4.10 - Environmental Matters
Schedule 4.11(a) - Owned Real Property
Schedule 4.11(e) - Leased Real Property
Schedule 4.13 - Permits
Schedule 4.14 - Consents
Schedule 4.16 - Insurance
Schedule 4.20(a) - Employees
Schedule 4.20(b) - HIP Benefit Plans
Schedule 4.20(g) - Labor Matters
Schedule 4.21 - Undisclosed Liabilities
Schedule 8.13 - Employment Agreements
Schedule 11.10 - Knowledge of Officers
</TABLE>
-34-
<PAGE>
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT, dated as of July 24, 1997 (this
"Agreement"), is by and among PHP Healthcare Corporation, a Delaware corporation
- ----------
(the "Purchaser"), Health Insurance Plan of Greater New York, a New York
---------
not-for-profit corporation ("Seller"), and HIP of New Jersey, Inc. ("HIP-NJ"), a
------ ------
New Jersey non-profit corporation.
RECITALS
--------
A. Seller owns Forty Million One Hundred Seventy-Five Thousand
Dollars ($40,175,000.00) aggregate principal amount of surplus notes (the
"Surplus Notes"), each made by HIP-NJ payable to Seller or its order, and held
- --------------
by Seller, the Surplus Notes are more fully described on Exhibit A hereto.
---------
B. Simultaneously with the execution of this Agreement, an Asset
Purchase Agreement of even date herewith (the "Asset Purchase Agreement") is
------------------------
being executed by HIP-NJ and Purchaser, and certain of the "Related Agreements"
(as defined in the Asset Purchase Agreement) are being executed as well.
C. Seller desires to sell, and Purchaser desires to purchase, the
Surplus Notes on the terms and conditions hereinafter set forth.
AGREEMENT
---------
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions. The following terms, as used herein, have the
-----------
following meanings:
"Asset Purchase Agreement" shall have the meaning given to such
------------------------
term in recital B.
"Business Day" shall mean any day on which banks in New York, New
------------
York are open for commercial banking purposes.
"Closing" shall have the meaning given such term in Section 1.1 of
-------
the Asset Purchase Agreement.
"Closing Date" shall have the meaning given such term in Section
------------
1.1 of the Asset Purchase Agreement.
"HIP Parties" shall mean HIP-NJ and Seller.
-----------
"Lien" shall mean a lien, pledge, security interest, restriction,
----
encumbrance or claim of any third party.
<PAGE>
"Obligations" shall mean the payment obligations of Seller under
-----------
this Agreement and the Series 1997A Note.
"Provider Operations Transaction" shall have the meaning given to
-------------------------------
such term in Section 8.
"Put" shall have the meaning given to such term in Section 4(a).
---
"Put Acceleration Event" shall mean any of the events specified in
----------------------
clauses (a) through (g) of Section 14.
"Put Closing Date" shall have the meaning given to such term in
----------------
Section 4(b).
"Put Period I" shall have the meaning given to such term in
------------
Section 4(a).
"Put Period II" shall have the meaning given to such term in
-------------
Section 4(a).
"Put Purchase Price" shall have the meaning given to such term in
------------------
Section 4(c).
"Return Equivalent Fee" shall have the meaning given to such term
---------------------
in Section 5.
"Return Fee Payment Date" shall mean each date on which a payment
-----------------------
of the Return Equivalent Fee is due, as provided in Section 5.
"Return Fee Rate" shall have the meaning given to such term in
---------------
Section 5.
"Series 1997A Note" shall have the meaning given to such term in
-----------------
Section 6.
"Sixth Trust Supplement" shall have the meaning given to such term
----------------------
in Section 6.
"Surplus Notes" shall have the meaning given to such term in
-------------
recital A.
"Thirty-Day Period" shall have the meaning given to such term in
-----------------
Section 8.
"Trust Agreement" shall have the meaning given to such term in
---------------
Section 6.
"Trustee" shall have the meaning given to such term in Section 6.
-------
"Unpaid Seller Obligations" shall have the meaning given to such
-------------------------
term in Section 6.
2. Sale of the Surplus Notes. On the Closing Date, Seller shall
-------------------------
sell, transfer, assign, convey and deliver to Purchaser, and Purchaser shall
purchase and acquire from Seller, all right, title and interest of Seller, legal
or equitable, in and to the Surplus Notes, against payment of the purchase price
therefor, as provided in Section 3(b).
-2-
<PAGE>
3. Deliveries on the Closing Date.
------------------------------
(a) Deliveries of Seller on the Closing Date. On the Closing
----------------------------------------
Date, Seller shall deliver to Purchaser (i) the Surplus Notes, accompanied by
proper instruments of transfer duly executed by Seller, and (ii) the Series
1997A Note, as provided in Section 6.
(b) Payment to Seller on the Closing Date. On the Closing Date,
-------------------------------------
Purchaser shall pay, or cause to be paid, in immediately available funds, by
wire transfer to the bank account of Seller designated by Seller in writing at
least two days before the Closing Date, $40,175,000 (i.e., the aggregate
----
principal amount of the Surplus Notes).
4. Put to Seller.
-------------
(a) The Put. If the Purchaser purchases the Surplus Notes
-------
pursuant to this Agreement, Purchaser shall have the irrevocable right and
option (the "Put") to require Seller to repurchase from Purchaser (i) during the
---
period ("Put Period I") commencing on the first anniversary of the Closing Date
------------
and ending at 5:00 p.m. on the thirtieth day following the first anniversary of
the Closing Date (or, if such day is not a Business Day, the first Business Day
thereafter), outstanding Surplus Notes in an aggregate principal amount of up to
Twenty Million Dollars ($20,000,000.00), (ii) during the period (the "Put Period
----------
II") commencing on the second anniversary of the Closing Date and ending at 5:00
- --
p.m. on the thirtieth day following the second anniversary of the Closing Date
(or, if such day is not a Business Day, the first Business Day thereafter), all
or a portion of the remaining outstanding aggregate principal amount of the
Surplus Notes, and (iii) upon and during the continuance of a Put Acceleration
Event, all or a portion of the remaining outstanding aggregate principal amount
of the Surplus Notes; provided that Purchaser may require Seller to purchase
--------
less than all of the outstanding Surplus Notes only in an aggregate principal
amount of One Million Dollars ($1,000,000) or integral multiples thereof.
(b) Put Procedures. The Purchaser may exercise the Put at any
--------------
time during Put Period I or Put Period II by giving written notice to Seller
stating that the Put is being exercised. Such notice shall set forth (i) the
aggregate principal amount of the Surplus Notes being sold, and (ii) the date
for the sale of the Surplus Notes, which date shall be not less than five nor
more than fifteen days after the date of such notice (the "Put Closing Date").
----------------
The sale shall occur on the Put Closing Date at the offices of Seller commencing
at 10:00 a.m. or at such other time, date or location as may be agreed by the
parties hereto. The Purchaser may exercise the Put only once during each Put
Period. If the Put is not exercised in full during Put Period II, the Put shall
expire and be of no further force or effect.
(c) Put Purchase Price. On each Put Closing Date, Seller shall
------------------
pay, or cause to be paid, by wire transfer to the bank account designated by
Purchaser an amount equal to the outstanding aggregate principal amount of the
Surplus Notes being sold (the "Put Purchase Price"). On each Put Closing Date,
------------------
Purchaser shall deliver to Seller the Surplus Notes being sold, accompanied by
proper instruments of transfer duly executed by Purchaser and Purchaser's
warranty that it owns such notes free and clear of any Lien and that good and
marketable title to such notes shall pass to Seller.
-3-
<PAGE>
(d) Exchange of Surplus Notes. At the option of Purchaser, Surplus
-------------------------
Notes may be exchanged for other Surplus Notes, payable to Purchaser, with the
same tenor and terms and the same outstanding aggregate principal balance upon
surrender to HIP-NJ of the Surplus Notes to be exchanged.
5. Return Equivalent Fee. Seller shall pay Purchaser a fee (the
---------------------
"Return Equivalent Fee") for each day from and including the Closing Date to but
- ----------------------
excluding (i) the date on which the Surplus Notes are fully paid or repurchased
by Seller pursuant to Section 4 or (ii) if the Put is not exercised in full
during Put Period II, the date on which Put Period II expires. The Return
Equivalent Fee shall be equal to the product of (i) the "Return Fee Rate" (as
defined below) and (ii) the average daily aggregate outstanding principal
balance of the Surplus Notes held by Purchaser during the period for which such
fee is being calculated. The Return Equivalent Fee shall be payable quarterly
on the last Business Day in December, March, June and September which
corresponds to the Closing Date and on each Put Closing Date or, in the event
that the Put is not exercised during Put Period I or Put Period II, on the last
day of Put Period I or Put Period II, as the case may be. Each payment of the
Return Equivalent Fee shall be reduced by any payments of the Return Equivalent
Fee and by any interest payments made by HIP-NJ on the Surplus Notes on or prior
to the date of such payment. The "Return Fee Rate" shall mean a rate per annum
equal to the greater of (i) 7.50% per annum, and (ii) the rate per annum equal
to 1.5% in excess of the arithmetic average of the yields on U.S. Treasury
securities having a maturity most closely corresponding to the first anniversary
of the Closing Date and such securities having a maturity most closely
corresponding to the second anniversary of the Closing Date, in each case as set
forth in the Statistical Release designated H.15 (519) of the Federal Reserve
System most recently published prior to the Closing Date.
6. Evidence of Put Obligations and Return Equivalent Fee. In order
-----------------------------------------------------
to evidence the obligations of Seller under the Put and for the Return
Equivalent Fee, Seller shall deliver to Purchaser on the Closing Date a demand
note substantially in the form of Exhibit B attached hereto (the "Series 1997A
--------- ------------
Note") issued pursuant to a Sixth Supplemental Trust Agreement dated as of July
- ----
1, 1997 (the "Sixth Trust Supplement") by and between Seller and The Bank of New
----------------------
York (the "Trustee"), as trustee under the Trust Agreement (the "Trust
------- -----
Agreement") dated as of February 1, 1990 by and between Seller and the Trustee.
Copies of the Trust Agreement and the Sixth Trust Supplement have been delivered
to Purchaser. Any part of the Return Equivalent Fee or the Put Purchase Price
not paid by Seller on a Return Fee Payment Date or Put Closing Date (each, an
"Unpaid Seller Obligation") shall become an obligation of Seller evidenced by
- -------------------------
the Series 1997A Note and shall bear interest, payable on demand, for each day
from and including the related Return Fee Payment Date or the related Put
Closing Date, as the case may be, to but excluding the date of actual payment
thereof , at an interest rate equal to the Return Fee Rate.
7. Best Efforts. HIP-NJ will use its best efforts to obtain for time
------------
to time after the Closing Date the written approval from the Insurance
Commissioner of the State of New Jersey to permit payments of principal of and
interest on the Surplus Notes in accordance with their respective terms.
Permitted payments of principal shall be made on the Surplus Notes in the order
of their date of execution, or pro rata among Surplus Notes executed as of the
--------
same date, as HIP-NJ may elect. HIP-NJ will make all such payment to Purchaser
until notified to the
-4-
<PAGE>
contrary by Purchaser and Seller, but HIP-NJ shall give Seller notice of the
date and amount of each such payment.
8. Right of First Offer. Seller, prior to the second anniversary of
--------------------
the Closing Date, shall not (a) initiate contact with, solicit or encourage
submission of any inquiries, proposals or offers by, or (b) participate in any
discussions or negotiations with, or disclose any information concerning its
operations to, or otherwise assist, facilitate or encourage any person (other
than Purchaser) in connection with any possible proposal with respect to the
management of the provision of health care services to its subscribers and other
provider and ancillary operations (collectively, a "Provider Operations
-------------------
Transaction") similar to the Provider Operations Transaction contemplated by the
- -----------
Asset Purchase Agreement and the Related Agreements, unless it first notifies
Purchaser on a confidential basis of the terms of such a transaction which would
be acceptable to it, provides Purchaser (subject to an appropriate confidential
agreement) with a descriptive memorandum or similar evaluation materials, if
any, prepared by or for it in connection with the contemplated transaction, and
offers Purchaser the opportunity to enter into negotiations with Seller
regarding terms under which Purchaser would enter into a Provider Operations
Transaction with Seller, provided that Seller may have such discussions with,
and disclose such information to, its accountants, its counsel and its financial
and other advisers. If Purchaser does not notify Seller with the period (the
"Thirty-Day Period") of 30 days after its receipt of Seller's notice that it
- ------------------
wishes to enter into negotiations with Seller for a Provider Operations
Transaction on the terms described in Seller's notice or on different terms
proposed by Purchaser that are no less favorable to Seller than those described
in Seller's notice, then Seller shall have the right to enter into an agreement
or agreements with one or more third parties for a Provider Operations
Transaction. If Purchaser notifies Seller within the Thirty-Day Period that it
wishes to enter into negotiations with Seller for a Provider Operations
Transaction on terms no less favorable to Seller than those described in
Seller's notice, then for a period beginning on the date of Purchaser's notice
and ending on the date 120 days after the date Seller's notice is received (the
"First Offer Period") the parties shall negotiate in good faith with respect to
------------------
a Provider Operations Transaction; but if Seller and Purchaser do not enter into
an agreement or agreements for a Provider Operations Transaction prior to the
expiration of the First Offer Period, then Seller shall have the right to do so
with one or more third parties. If Seller does not do so (a) within 180 days
after the expiration of the Thirty-Day Period in the event that Purchaser does
not notify Seller within such period that it wishes to enter into negotiations
as contemplated in the second preceding sentence, or (b) within 180 days after
the expiration of the First Offer Period in the event that Purchaser does so
notify Seller within the Thirty-Day Period, but Seller and Purchaser do not
enter into an agreement or agreements for a Provider Operations Transaction
within the First Offer Period, then the preceding provisions of this Section 8
shall again become effective. Seller's right to enter into a Provider
Operations Transaction under either the second or the third preceding sentence
shall be subject to the economic terms of such transaction being, in Seller's
reasonable, good faith judgment, no less favorable to Seller than those
discussed with Purchaser. Notwithstanding the foregoing, if, on or prior to the
expiration of the Put, the Surplus Notes are paid in full, and, immediately
following such payment, HIP-NJ's unrestricted fund balance meets all applicable
regulatory requirements, the reference to "second anniversary of the Closing
Date" in the first sentence of this Section 8, shall automatically be changed to
the third anniversary of the Closing Date.
-5-
<PAGE>
9. Representations and Warranties of Seller. Seller represents and
----------------------------------------
warrants to the Purchaser that:
(a) Organization of Seller. Seller is a not-for-profit corporation
----------------------
duly incorporated, validly existing and in good standing under the laws of the
State of New York.
(b) Authorization. Seller has full right, power and authority to
-------------
enter into this Agreement, the Series 1997 A Note and the Sixth Trust
Supplement, and to sell, transfer, assign and deliver the Surplus Notes and the
Series 1997A Note to Purchaser pursuant to this Agreement. The execution,
delivery and performance by Seller of its obligations under this Agreement, the
Series 1997A Note and the Sixth Trust Supplement and the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Seller. Each of this Agreement and the Sixth
Trust Supplement has been duly executed and delivered by Seller and, assuming
due authorization, execution and delivery by the parties hereto and thereto, is
a legal, valid and binding obligation of Seller enforceable against Seller in
accordance with its terms (except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally). The Series 1997A Note when duly executed and delivered by Seller
will be, assuming due authentication by the Note Registrar, as defined in the
Trust Agreement, a legal, valid and binding obligation of Seller entitled to the
benefits of the Sixth Trust Supplement.
(c) No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement nor the consummation of the transactions contemplated hereby will
result in (i) a violation of or a conflict with any provision of the Certificate
of Incorporation or By-laws of Seller, (ii) a breach of, or a default under, any
term or provision of any contract, agreement, evidence of indebtedness or lease
to which Seller is a party or by which Seller or any of its assets are bound or
(iii) a violation by Seller of any statute, rule, regulation, ordinance, code,
order, judgment, writ, injunction, decree, or award applicable to Seller.
(d) Consents and Approvals. No consent, approval or authorization of,
----------------------
or declaration, filing or registration with, any governmental entity, or any
other person or entity, is required to be made or obtained by Seller in
connection with the execution, delivery and performance of this Agreement, the
Sixth Trust Supplement or the Series 1997A Note and the consummation of the
transactions contemplated hereby and thereby.
(e) Title of Seller. The Surplus Notes are owned by Seller free and
---------------
clear of any Lien and on the Closing Date good and marketable title to the
Surplus Notes shall pass to Purchaser.
10. Representations and Warranties of HIP-NJ. HIP-NJ represents and
----------------------------------------
warrants to each of Purchaser and Seller that:
(a) Organization of HIP-NJ. HIP-NJ is a non-profit corporation duly
----------------------
organized, validly existing and in good standing under the laws of the State of
New Jersey.
(b) Authorization. HIP-NJ has full right, power and authority to
-------------
enter into this Agreement. The execution, delivery and performance by HIP-NJ of
its obligations under
-6-
<PAGE>
this Agreement and the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of HIP-NJ. This
Agreement has been duly executed and delivered by HIP-NJ and, assuming due
authorization, execution and delivery by the other parties hereto, is a legal,
valid and binding obligation of HIP-NJ enforceable against HIP-NJ in accordance
with its terms (except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
generally).
(c) No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement nor the consummation of the transactions contemplated hereby will
result in (i) a violation of or a conflict with any provision of the Certificate
of Authority of HIP-NJ, (ii) a breach of, or a default under, any term or
provision of any contract, agreement, evidence of indebtedness or lease to which
HIP-NJ is a party or by which HIP-NJ or any of its assets are bound or (iii) a
violation by HIP-NJ of any statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award applicable to HIP-NJ.
(d) Consents and Approvals. No consent, approval or authorization of,
----------------------
or declaration, filing or registration with, any governmental entity, or any
other person or entity, is required to be made or obtained by HIP-NJ in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby.
11. Representations and Warranties of Purchaser. Purchaser represents and
-------------------------------------------
warrants to Seller:
(a) Organization of Purchaser. Purchaser is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware.
(b) Authorization. Purchaser has full right, power and authority to
-------------
enter into this Agreement and to purchase the Surplus Notes from Seller pursuant
to this Agreement. The execution, delivery and performance by Purchaser of its
obligations under this Agreement and the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Purchaser. This Agreement has been duly executed and delivered by Purchaser
and, assuming due authorization, execution and delivery by the other parties
hereto, is a legal, valid and binding obligation of Purchaser enforceable
against Purchaser in accordance with its terms (except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to creditors' rights generally).
(c) No Conflict or Violation. Neither the execution and delivery of
------------------------
this Agreement nor the consummation of the transaction contemplated hereby will
result in (i) a violation of or a conflict with any provision of the Certificate
of Incorporation or By-laws of Purchaser, (ii) a breach of, or a default under,
any term or provision of any contract, agreement, evidence of indebtedness or
lease to which Purchaser is a party or by which Purchaser or any of its assets
are bound or (iii) a violation by Purchaser of any statute, rule, regulation,
ordinance, code, order, judgment, writ, injunction, decree or award applicable
to Purchaser, excluding any such violation, conflict, breach or default which
would not, individually or in the aggregate, have a material adverse effect on
the Purchaser's business or financial condition or on its ability to perform its
obligations hereunder.
-7-
<PAGE>
(d) Consents and Approvals. No consent, approval or authorization of,
----------------------
or declaration, filing or registration with, any governmental entity, or any
other person or entity, is required to be made or obtained by Purchaser in
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby.
(e) Investment Representation. The Surplus Notes will be acquired by
-------------------------
Purchaser for its own account and not with a view to the sale or distribution
thereof within the meaning of the Securities Act of 1933, as amended; the
Surplus Notes will not be sold, transferred or otherwise disposed of, except
pursuant to this Agreement or in compliance with the provisions of such Act.
12. Affirmative Covenants. From the date of this Agreement and thereunder
---------------------
until the payment of all Obligations in full or the expiration of the Put while
no such Obligations are outstanding under the Series 1997A Note:
Section 12.1 Financial Statements and Reports. Seller will deliver
--------------------------------
to the Purchaser in duplicate:
(a) as soon as available, but in any event within one hundred twenty
days after the end of each fiscal year of Seller a copy of its audited balance
sheet at the end of such year and the related consolidated statement of
operations reported on by Ernst & Young, L.L.P., or other independent certified
public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 60 days
after the end of each of the first three quarterly periods of such fiscal year
of Seller the unaudited balance sheet of Seller as at the end of each such
quarter and the related unaudited statement of operations and statement of
shareholders' equity for such quarter and the portion of the fiscal year through
such date, each certified by the Vice President of Finance as fairly presenting
the financial condition of Seller as of such date.
All such financial statements required by this Section 12.1(a) and
(b) are to be prepared in reasonable detail and in accordance with generally
accepted accounting principles applied consistently throughout the periods
reflected therein (except as approved by such accountants or the Vice President
of Finance, as the case may be, and disclosed therein);
(c) promptly after Seller submits other financial information
(excluding business plans, budgets, projections and forecasts) to its bank or
other institutional lenders or to the Trustee, a copy of such information to
Purchaser (subject to Purchaser's agreement to make appropriate protection for
confidential information);
(d) a copy of each annual report submitted by Seller to the New York
Department of Insurance within 10 Business Days after each such submission; and
(e) from time to time, such other information concerning Seller's
performance of its obligations under this Agreement as Purchaser may reasonably
request.
-8-
<PAGE>
Section 12.2 Discussion and Further Financial Information. Seller
--------------------------------------------
will make its financial officers, or other knowledgeable personnel, available to
discuss with Purchaser, upon reasonable prior notice to Seller, the finances and
accounts of Seller insofar as they are reasonably related to Seller's
performance of its obligations under this Agreement, all at such reasonable
times and as often as the Purchaser may reasonably request (and subject to the
Purchaser's agreement to make appropriate protection for proprietary
information).
Section 12.3 Maintenance of Records. Seller will keep, at all times,
----------------------
books of record and account to which full, true, and correct entries will be
made of all dealings or transactions in relation to its business and affairs.
Seller will provide adequate protection against loss or damage to such books of
record and account.
Section 12.4 Litigation. Seller will promptly give Purchaser notice
----------
in writing of all litigation (other than personal injury or profession liability
claims which are adequately insured) and all proceedings before any Governmental
Authority (as defined in the Asset Purchase Agreement) or arbitrator affecting
Seller which singly or in the aggregate involves a claim or claims against
Seller in excess of $50,000 or which seeks injunctive or other equitable relief.
Section 12.5 Insurance. Seller shall maintain in effect insurance
---------
coverage with responsible companies against casualty and other losses and
liabilities customarily obtained to cover comparable businesses and assets in
amounts, scope and coverage which are reasonable in light of the circumstances.
Section 12.6 Compliance with Law. Seller will comply with all
-------------------
applicable laws, rules and regulations except to the extent that failure to
comply therewith would not, in the aggregate, have a material adverse affect on
the business, operations, financial or other condition of Seller or on the
ability of Seller to perform its Obligations under this Agreement.
13. Negative Covenants. From the date of this Agreement and thereafter
------------------
until the payment of all Obligations in full or the expiration of the Put while
no such Obligations are outstanding under the Series 1997A Note:
Section 13.1 Merger and Consolidation. Neither Seller nor HIP-NJ
------------------------
will enter into a transaction for the termination, dissolution or winding up of
such HIP Party.
Section 13.2 Transactions and Affiliates. Neither Seller nor HIP-NJ
---------------------------
will enter into any material transaction, including, without limitation, the
purchase, sale or exchange of property or the rendering of any service, with any
Affiliates (as defined in the Asset Purchase Agreement) except (i) in the
ordinary course of, and pursuant to the reasonable requirements of, such
person's business and on arms' length terms, or (ii) for the purchase from an
Affiliate of surplus notes or other surplus transactions by Seller or the
formation and capitalization of subsidiaries or Seller, or (iii) for business
combination or similar corporate reorganization transactions which do not in any
one case or in the aggregate materially and adversely affect Seller's ability to
perform its obligations hereunder.
-9-
<PAGE>
Section 13.3 Sale of Assets. Neither Seller nor HIP-NJ will sell,
--------------
transfer or otherwise dispose of substantially all of its assets as an entirety,
except to a party which assumes the obligations of Seller or HIP-NJ, as the case
may be, pursuant to an instrument of assumption reasonably satisfactory to
Purchaser.
Section 13.4 Use of Proceeds. Seller shall not permit HIP-NJ to use,
---------------
and HIP-NJ shall not use, the proceeds payable to it under the Asset Purchase
Agreement except for working capital purposes and in the ordinary course of its
business and operations (including but not limited to the expansion thereof),
but excluding repayment of Surplus Notes or other indebtedness for borrowed
money (except for the repayment of up to $6 million of outstanding
indebtedness).
14. Put Acceleration Events. Upon the occurrence of any of the following
-----------------------
events:
(a) Seller's failure to pay when due any costs or other amounts due
under this Agreement and such default continues for more than five (5) Business
Days after the Purchaser's notice to Seller of such default; or
(b) any representation or warranty made by Seller herein or which is
contained in any exhibit, schedule or certificate furnished at any time under or
in connection with this Agreement shall prove to have been incorrect in any
material respect on or as of the date made; or
(c) any HIP Party shall default in the observance or performance of
any agreement contained in Section 13 hereof, or
(d) any HIP Party shall default in the observance or performance of
any agreement (other than as set forth in paragraphs (a), (b) and (c) above)
contained in this Agreement, and such default continues for 30 days after
Seller's receipt of notice from Purchaser to the HIP Parties specifying such
default in reasonable detail; or
(e) Seller shall (i) default in any payment of principal of or
interest on any indebtedness for borrowed money or in the payment of any
contingent obligation, in either case in the aggregate principal amount of more
than $500,000 beyond the period of grace, if any, provided in the instrument or
agreement under which such indebtedness for borrowed money or contingent
obligation was created or (ii) default in the observance or performance of any
other agreement or condition relating to any such indebtedness or contingent
obligation of more than $500,000 or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition shall exist, the result of which default or other event or condition
is to cause, such indebtedness for borrowed money to become due prior to its
stated maturity or such contingent obligation to become immediately payable, or
(f) (i) any HIP Party shall commence a case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeing to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
-10-
<PAGE>
other relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or shall make a general assignment for the
benefit of its creditors; or (ii) there shall be commenced against any HIP Party
any case, proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order or relief or any such adjudication
or appointment or (B) remains undismissed, or undischarged for a period of 60
days; or (iii) there shall be commenced against any HIP Party, any case,
proceeding or other action seeking issuance of a warrant of attachment,
exemption, distraint, or similar process against all or any substantial part of
its assets, as the case may be, which results in the entry of an order for any
such relief which shall not have been vacated, discharged or stayed pending
appeal within 60 days from the entry thereof; or (iv) any HIP Party shall take
any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii) or (iii) above,
or (v) any HIP Party shall generally not, or shall be unable to, or shall admit
in writing its inability to, pay its debts as they become due, or
(g) one or more judgments, decrees, arbitration awards or rulings
shall be entered against Seller or involving in the aggregate a liability (not
paid or fully covered by insurance) of $500,000 or more and all such judgments,
decrees, awards and rulings shall not have been vacated, paid, discharged,
stayed or bonded pending appeal within 60 days from the entry thereof;
then, and in any such event and during the continuance thereof, the Put will
become automatically exercisable as to all or a portion (at Purchaser's option)
of the outstanding aggregate principal amount of Surplus Notes then held by
Purchaser and the accrued Return Equivalent Fee shall become immediately due and
payable without notice or demand of any kind. The Put shall be exercised
pursuant to this Section 14 in accordance with Section 4(b) without regard to
any reference in the first sentence thereof to "Put Period I" or "Put Period
II."
15. Conditions of Purchaser's Obligations. The obligations of Purchaser
-------------------------------------
under this Agreement to purchase the Surplus Notes on the Closing Date are
subject to the fulfillment on or prior to such date of the following conditions:
(a) Representations, Warranties and Covenants. The representations,
-----------------------------------------
warranties and covenants of Seller contained herein shall be true and correct in
all respects on and as of the Closing Date, with the same effect as though made
on and as of the Closing Date and Seller shall have performed and complied with
all agreements and conditions required hereunder to be performed or complied
with by it on or prior to the Closing Date.
(b) No Proceedings, Litigation or Laws. No investigations, suit,
----------------------------------
action or other proceeding, or injunction or final judgment relating thereto,
shall be threatened or pending before any court or governmental agency, body or
authority which questions the validity or legality of the transactions
contemplated by this Agreement, nor shall there be any law which makes the
purchase of the Surplus Notes contemplated by this Agreement illegal or
otherwise prohibited.
-11-
<PAGE>
(c) Opinion of Counsel of Seller. Purchaser shall have received an
----------------------------
opinion of counsel dated the Closing Date of Stroock & Stroock & Lavan LLP, the
attorneys for Seller, with respect to the matters described in Section 9.
(d) Opinion of Counsel of HIP-NJ. Purchaser shall have received an
----------------------------
opinion of counsel dated the Closing Date of Wolff & Samson, the attorneys for
HIP-NJ, with respect to the matters described in Section 10.
(e) Closing. The Closing shall have occurred under the Asset Purchase
-------
Agreement.
16. Conditions of Seller's Obligations. The obligations of Seller under
----------------------------------
this Agreement to sell the Surplus Notes on the Closing Date are subject to the
fulfillment on or prior to such date of the following conditions:
(a) Representations, Warranties and Covenants. The representations,
-----------------------------------------
warranties and covenants of Purchaser contained herein shall be true and correct
in all respects on and as of the Closing Date, with the same effect as though
made on and as of the Closing Date and Purchaser shall have performed and
complied with all agreements and conditions required hereunder to be performed
or complied with by it on or prior to the Closing Date.
(b) No Proceedings, Litigation or Laws. No investigation, suit,
----------------------------------
action or other proceeding, or injunction or final judgment relating thereto,
shall be threatened or pending before any court or governmental agency, body or
authority which questions the validity or legality of the transactions
contemplated by this Agreement, nor shall there be any law which makes the
purchase of the Surplus Notes contemplated by this Agreement illegal or
otherwise prohibited.
(c) Consents and Approvals. Each party shall have received the
----------------------
consent, approval or authorization of, or declaration, filing or registration
with, any governmental entity, or any other person or entity, which is required
to be made or obtained by such party in connection with the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby.
(d) Opinion of Counsel of Purchaser. Seller shall have received an
-------------------------------
opinion of counsel dated the Closing Date of Fried, Frank, Harris, Shriver &
Jacobson, the attorneys for Purchaser, with respect to the matters described in
clauses (a), (b), (c) and (d) of Section 11.
(e) Closing. The Closing shall have occurred under the Asset Purchase
-------
Agreement.
17. Miscellaneous.
-------------
(a) Brokers. Each party shall be solely and exclusively responsible
-------
for any fee, commission or other compensation payable to any broker or finder
which has been employed or retained by it in connection with the transactions
contemplated by this Agreement.
-12-
<PAGE>
(b) Entire Agreement. This Agreement sets forth the entire
----------------
agreement and understanding among the parties hereto, and merges and supersedes
all prior discussions, agreements and understandings of every kind and nature
among them, as to the subject matter hereof. This Agreement shall not be
modified or amended except by a writing signed by the party to be charged and
shall not be discharged except by performance in accordance with its terms or by
a writing signed by the party to be charged.
(c) Governing Law; Jurisdiction. This Agreement and its validity,
---------------------------
construction and performance shall be governed in all respects by the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of laws provision (whether of the State of New York or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New York.
(d) Notices. Any notices to be given pursuant to this Agreement
-------
shall be in writing and shall be deemed to have been given at the time when
mailed by registered or certified mail, return receipt requested, or when
delivered in person or upon receipt of a facsimile transmission, provided that
the recipient has specifically acknowledged by telephone receipt of such
facsimile transmission, addressed to the address below stated of the party to
which notice is given, or to such changed address as such party may have fixed
by notice:
To Seller: Health Insurance Plan of Greater New York
Seven West 34th Street
New York, New York 10001
Attention: Maxine Fass, Esq.
facsimile number: (212) 630-0675
Copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: Melvin Epstein, Esq.
facsimile number: (212) 806-6006
To Purchaser: PHP Healthcare Corporation
11440 Commerce Park Drive
Reston, Virginia 20191
Attention: Jack M. Mazur
facsimile number: (703) 758-3724
Copy to:
Fried, Frank, Harris, Shriver & Jacobson
Suite 800
1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Andrew P. Varney, Esq.
facsimile number: (202) 639-7003
provided, however, that any notice of change of address shall be effective only
upon receipt.
-13-
<PAGE>
(e) Benefit of Parties; Assignment. This Agreement shall be binding
------------------------------
on and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement may not be assigned or
transferred by any party without the prior written consent of the other parties;
provided, however, that Purchaser may, upon written notice to Seller, assign its
rights hereunder to institutional investors (other than competitors of Seller or
HIP-NJ), except that Seller may not assign its rights under Section 8 without
Seller's prior written consent.
(f) Counterparts. This Agreement may be signed in any number of
------------
counterparts, which together shall constitute one and the same instrument.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the day and year first above written.
HEALTH INSURANCE PLAN OF GREATER
NEW YORK
By:
--------------------------------------------
Name:
Title:
PHP HEALTHCARE CORPORATION
By:
--------------------------------------------
Name:
Title:
HIP OF NEW JERSEY, INC.
By:
--------------------------------------------
Name:
Title:
-15-
<PAGE>
Exhibit A
---------
List of Surplus Notes
---------------------
<PAGE>
HEALTH INSURANCE PLAN OF GREATER NEW YORK
SERIES 1997A NOTE
No. BR-1 New York, New York
September __,. 1997
FOR VALUE RECEIVED, Health Insurance Plan of Greater New York, a New
York not-for-profit corporation ("HIP"), promises to pay, five business days
after demand, to the order of PHP HEALTHCARE CORPORATION or its assigns ("PHP"),
each Unpaid Seller Obligation (as defined in the Note Purchase Agreement
referred to below). HIP promises to pay interest on each Unpaid Seller
Obligation on the dates and at the rate provided for in the Note Purchase
Agreement. All such payments of Unpaid Seller Obligations and interest thereon
shall be made in lawful money of the United States in Federal or other
immediately available funds at the office of PHP Healthcare Corporation, 11440
Commerce Park Drive, Reston, Virginia 20191.
All Unpaid Seller Obligations and all repayments of principal thereof
shall be recorded by PHP on the schedule attached on page 3 of this note;
provided that the failure of PHP to make any such recordation shall not affect
the obligations of HIP hereunder or under the Note Purchase Agreement.
This note is one of the Series 1997A Notes referred to in the Note
Purchase Agreement dated as of July 24, 1997, by and among PHP, HIP and HIP of
New Jersey, Inc. (the "Note Purchase Agreement") and one of the Health Insurance
Plan of Greater New York Notes, Series 1997A, referred to in the Sixth Trust
Supplement. Terms defined in the Note Purchase Agreement are used herein with
the same meaning.
This Series 1997A Note is one of a duly authorized series of notes of
HIP issued under the Trust Agreement, as amended, and supplemented by the Sixth
Trust Supplement.
This Series 1997A Note is included in the term Bonds as such term is
defined and used in the Trust Agreement.
This Series 1997A Note shall not be entitled to any benefit of the
Trust Agreement or be valid for any purpose until authenticated by the Bond
Registrar, as defined in the Trust Agreement.
This Series 1997A Note and its validity, construction and performance
shall be governed in all respects by the internal laws of the State of New York,
without giving effect to any choice of law or conflict of laws provision
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York.
<PAGE>
IN WITNESS WHEREOF, HIP has caused this Series 1997A Note to be duly
executed.
HEALTH INSURANCE PLAN OF GREATER
NEW YORK
By:
-------------------------------------
Name:
Title:
Date of authentication:
This Note is one of the Series 1997A Notes referred to in the within-
mentioned Trust Agreement.
THE BANK OF NEW YORK, as Note Registrar
By:
----------------------------------
Name:
Title:
-2-
<PAGE>
SCHEDULE OF UNPAID PUT OBLIGATIONS AND PAYMENTS
<TABLE>
<CAPTION>
DATE OF AMOUNT AMOUNT UNPAID
ADVANCE OR OF OF PRINCIPAL NOTATION
PAYMENT ADVANCE PAYMENT BALANCE MADE BY
- ------------ --------- --------- ----------- ----------
<S> <C> <C> <C> <C>
------- ------- ------- ------- -------
------- ------- ------- ------- -------
------- ------- ------- ------- -------
------- ------- ------- ------- -------
------- ------- ------- ------- -------
------- ------- ------- ------- -------
------- ------- ------- ------- -------
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
<PAGE>
PHP HEALTHCARE CORPORATION
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED
JULY 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JULY 31,
-------------------------
1997 1996
----------- ------------
<S> <C> <C>
Primary Earnings Per Share
- --------------------------
Primary
Net earnings........................................... $ 1,045,000 $ 2,159,000
=========== ===========
Weighted average number of common
shares outstanding...................................... 11,409,820 11,044,095
Add common share equivalents (determined
using the "treasury stock method") repre-
senting shares issuable upon exercise of
stock options and warrants.............................. 2,252,370 2,833,254
Shares held in escrow..................................... --- (88,572)
----------- -----------
Weighted average number of shares used
in calculation of primary earnings per
share................................................... 13,662,190 13,788,777
=========== ===========
Primary earnings per common share......................... $0.08 $0.16
=========== ===========
Fully Diluted Earnings Per Share
- --------------------------------
Fully diluted
Net earnings........................................... $ 1,045,000 $ 2,159,000
Net interest expense related to convertible debt.... 9,000 6,000
----------- -----------
Net earnings as adjusted............................... $ 1,054,000 $ 2,165,000
=========== ===========
Weighted average number of common
shares outstanding...................................... 11,409,820 11,044,095
Add common share equivalents (determined
using the "treasury stock" method) repre-
senting shares issuable upon exercise of
stock options and warrants.............................. 2,338,910 2,833,254
Assumed conversion of convertible debt.................... 111,111 111,111
Shares held in escrow..................................... --- (88,572)
----------- -----------
Weighted average number of shares used
in calculation of fully diluted earnings
per share............................................... 13,859,841 13,899,888
=========== ===========
Fully diluted earnings per common share................... $0.08 $0.16
=========== ===========
</TABLE>
<PAGE>
PHP HEALTHCARE CORPORATION
Exhibit 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: PHP Healthcare Corporation, Registrations on Form S-3 and on Form S-8
We are aware that our report dated September 18, 1997 on our review of interim
financial information of PHP Healthcare Corporation and consolidated
subsidiaries as of July 31, 1997 and for the three month periods ended July 31,
1997 and 1996, and included in the Company's quarterly report on Form 10-Q for
the quarter then ended, is incorporated by reference in Registration Statement
No. 33-301101 on Form S-3 and in Registration Statement No. 33-41577 on Form S-
8. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the prospectus and registration statement prepared
or certified by us within the meaning of Section 7 and 11 of that Act.
Coopers & Lybrand L.L.P.
Washington, D.C.
September 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for PHP Healthcare Corporation and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 11,597
<SECURITIES> 0
<RECEIVABLES> 51,550
<ALLOWANCES> 196
<INVENTORY> 752
<CURRENT-ASSETS> 74,302
<PP&E> 76,172
<DEPRECIATION> 17,116
<TOTAL-ASSETS> 155,593
<CURRENT-LIABILITIES> 42,610
<BONDS> 70,601
0
0
<COMMON> 148
<OTHER-SE> 34,719
<TOTAL-LIABILITY-AND-EQUITY> 155,593
<SALES> 0
<TOTAL-REVENUES> 55,742
<CGS> 0
<TOTAL-COSTS> 44,883
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,492
<INCOME-PRETAX> 1,608
<INCOME-TAX> 563
<INCOME-CONTINUING> 1,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,045
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
