CURRENT REPORT FOR ISSUERS SUBJECT TO THE
1934 ACT REPORTING REQUIREMENTS
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
November 12, 1998
(Date of Report)
FIRST CHOICE HEALTH NETWORK, INC.
(Name of Small Business Issuer as Specified in its Charter)
Commission File No. 0-23998
WASHINGTON 91-1272766
(State or Other Jurisdiction (I.R.S. employer
of Incorporation) identification number)
601 UNION STREET, SUITE 1100
SEATTLE, WASHINGTON 98101
(Address of Principal Executive Offices,
Including Zip Code)
Registrant's Telephone Number, Including Area Code:
(206) 292-8255<PAGE>
Item 2. Acquisition of Assets
On November 12, 1998, First Choice Health Network, Inc. executed a purchase
agreement to acquire Providence Plan Partners Preferred-Washington PPO
Business effective December 1, 1998. The acquired business consists of
approximately 125,000 subscribers with an annual revenue stream of $4.0
million. The agreement between the two companies consisted of the following
transactions as described in the paragraphs below.
First Choice Health Network, Inc. purchased substantially all of the assets of
Providence Plan Partners PPO Business for a minimum price of $2.8 million to
be paid with interest at a rate of six percent over 18 months. There is a
potential contingent payment of up to $700,000 to be determined based on the
revenues received by First Choice Health Network from the PPO Business during
the twelve months after the closing date. This transaction will be accounted
for using the purchase method.
The assets purchased from Providence Plan Partners PPO Business consisted of:
1. Intangible Assets; including trade secrets and goodwill
2. Trademarks and Tradenames (Preferred Washington)
3. Copyrights
4. Payer and Provider Agreements
5. Office equipment, computer hardware, operating systems, software and
licenses used in the PPO Business. This equipment specifically
includes 25 cubicles, 25 chairs, and all related accessories
specifically includes the IS assets in the attached schedule titled
PPO Asset Inventory.
6. PPO Business records and documents necessary for transition of PPO
Business, including billing and claim records.
First Choice Health Network, Inc. will file the required financial statements
associated with this acquisition in an amended Form 8K within 60 days of the
date of this initial report.
Item 7. Financial Statements and Exhibits.
(c) Exhibits:
10.1 Purchase Agreement, dated as of November 12, 1998, among First
Choice Health Network, Inc., and Providence Plan Partners.<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FIRST CHOICE HEALTH NETWORK, INC.
Date: November 12, 1998
By: / s /David Peel
--------------------
David Peel
Senior Vice President of Finance
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
AGREEMENT
BETWEEN
PROVIDENCE PLAN PARTNERS
AND
FIRST CHOICE HEALTH NETWORK, INC.
FOR THE PURCHASE AND SALE OF
PROVIDENCE PREFERRED-WASHINGTON
PPO BUSINESS
Effective Date: October 31, 1998
AGREEMENT
TABLE OF CONTENTS
1. Purchase and Sale of Assets; Closing Date .............1
1.1 Purchase and Sale of Assets ......................1
1.2 Purchase Price ...................................1
1.3 Closing Date and Documents .......................1
1.4 Assumption of Liabilities ........................2
1.5 Allocation of Purchase Price .....................2
2. Representations and Warranties of FCHN ................2
2.1 Organization .....................................2
2.2 Authorization ....................................3
2.3 Brokers and Finders ..............................3
2.4 Ability to Conduct the Assumed and Assigned
Business ..............................................3
3. Representations and Warranties of Seller ..............3
3.1 Organization .....................................3
3.2 Authorization ....................................3
3.3 Absence of Certain Changes or Events .............4
3.4 Brokers and Finders ..............................4
3.5 Ability to Transfer Assets .......................4
3.6 PPO Business Contracts Not in Default ............4
3.7 No Litigation ....................................4
4. Conditions to the Obligations of Seller ...............4
4.1 Representations and Warranties True at Closing ...4
4.2 Authority Relating to This Agreement .............4
4.3 No Action to Prevent Completion ...................5
4.4 Obligations Performed by FCHN ....................5
5. Conditions to the Obligations of FCHN .................5
5.1 Representations and Warranties True at Closing ...5
5.2 Obligations Performed by Seller ..................5
5.3 Authority Relating to This Agreement .............5
5.4 Material Changes in Business of PPO-Washington
Division ..............................................5
5.5 No Action to Prevent Completion ..................6
5.6 Contracts and Records ............................6
5.7 Noncompetition Agreement .........................6
5.8 Due Diligence ....................................6
5.9 FCHN Board Regulations ...........................7
6. Covenants of FCHN .....................................7
6.1 Sales Tax ........................................7
6.2 Access to Properties and Records ..................7
6.3 Indemnity ........................................7
6.4 Provider Contract Assignment Strategy ............7
6.5 Personnel ........................................8
6.6 FCHN Bylaw Amendments ............................8
6.7 Out-of-Area Coverage .............................8
6.8 Self-Funded Coverage .............................8
6.9 Renegotiation of Provider Agreements .............9
7. Covenants of Seller ...................................9
7.1 Conduct of PPO Washington Division Business Prior
to Closing Date .......................................9
7.2 Access to Properties and Records .................9
7.3 Indemnity ........................................9
7.4 Employment Taxes and Other Taxes ................10
7.5 Assignment of Name and Telephone Numbers ........10
7.6 Non-Competition .................................10
7.7 Seller Post-Closing Support .....................10
7.8 Maintenance of Corporate Existence ..............10
8. Termination ..........................................11
8.1 Mutual Agreement ................................11
8.2 Termination by FCHN .............................11
8.3 Termination by Seller ...........................11
9. Confidentiality ......................................11
9.1 Conditions Regarding Disclosure and Exchange of
Confidential Information .............................11
9.2 Public Announcements ............................12
10.Partnership Council ..................................12
11.Miscellaneous ........................................12
11.1 Expenses .......................................12
11.2 Notices ........................................12
11.3 Survival of Terms ..............................13
11.4 Governing Law ..................................13
11.5 Captions .......................................13
11.6 Assignment .....................................13
11.7 Counterparts ...................................13
11.8 Cooperation ....................................13
11.9 Business, Medical and Patient Records ..........13
11.10 Entire Agreement and Modification .............14
11.11 Records Disclosure ............................14
11.12 Failure to Pay ................................14
SCHEDULE 1.1_Assets...........................................16
SCHEDULE 1.2_Purchase Price...................................17
SCHEDULE 1.2.1_Payment Schedule...............................19
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SCHEDULE 2.2_Excerpt from 9/24/98 Board of Directors Meeting With
Resolution....................................................20
SCHEDULE 3.5_Ownership of Assets..............................21
SCHEDULE 3.9_Payer Contracts..................................22
SCHEDULE 3.10_No Litigation...................................23
SCHEDULE 6.7_Resolutions......................................24
SCHEDULE 7.8_Noncompetition...................................25
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AGREEMENT
This AGREEMENT (the _Agreement_) is made and entered into as
of October 31, 1998, by and between PROVIDENCE PLAN PARTNERS, a
Washington nonprofit corporation (_Seller_), and FIRST CHOICE
HEALTH NETWORK, INC., a Washington corporation (_FCHN_).
RECITALS
A. Seller is the owner of certain assets that it has used
in its Washington division which conducts a preferred provider
network and that division's related health care services and
other activities, known as either Sound Health or Providence
Preferred - Washington (the _PPO Division_ or the _PPO
Business_).
B. Seller desires to sell the PPO Division in Washington,
and FCHN desires to purchase the PPO Division in Washington, on
the terms and subject to the conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the
parties agree as follows:
1. Purchase and Sale of Assets; Closing Date.
1.1 Purchase and Sale of Assets. On the terms and
subject to the conditions set forth in this Agreement, and the
exhibits and schedules hereto, on the Closing Date (as defined
below) Seller shall convey, transfer, assign, set over and
deliver to FCHN, and FCHN shall purchase from Seller, all of
Seller's right, title and interest in and to all of the assets of
Seller's Washington PPO's Washington Division Business tangible
and intangible, listed in Schedule 1.1 (the _Assets_). Transfer
of the Assets shall be by Bill of Sale, written assignment, or
such other instruments as deemed necessary and reasonable by
FCHN.
1.2 Purchase Price. Subject to the other terms and
conditions of this Agreement, FCHN shall pay to Seller a total
purchase price (the _Purchase Price_) determined and paid
pursuant to the methodology set forth in Schedule 1.2.
1.3 Closing Date and Documents. Closing of the
purchase and sale of the Assets provided for herein (the
_Closing_) shall take place on or before November 30, 1998, at
such place, date, and time as the parties may agree. The date of
the Closing shall be referred to in this Agreement as the
_Closing Date._ On the Closing Date, Seller shall convey its
entire interest in the Assets to FCHN. On or before the Closing
Date there shall be delivered to the parties, in form and
substance satisfactory to their respective counsel, the documents
and other items listed and described in this Agreement.
Notwithstanding the above, the Closing Date shall be
extended if FCHN is unable to complete its due diligence review
under Section 5.8 due to its inability to obtain necessary
information from third parties, provided that in no event shall
the Closing Date be later than December 15, 1998. FCHN shall
immediately inform Seller of any difficulty in completing due
diligence, and shall utilize Seller's assistance in obtaining
information from third parties.
1.4 Assumption of Liabilities. FCHN will not assume
any existing liabilities of Seller or of the PPO -Washington
Division Business. FCHN will assume responsibility only for
those liabilities it incurs with respect to the operation of the
PPO Business following Closing. Seller will defend, indemnify
and hold FCHN harmless from any liability (including attorneys'
fees) existing under or arising out of the operation of the PPO
Washington Division Business prior to Closing. FCHN will defend,
indemnify and hold Seller harmless from any liability (including
attorney fees) arising out of the operation of the PPO Washington
Division Business following Closing.
1.5 Allocation of Purchase Price. The parties agree
that the Purchase Price for the Assets, and the Noncompetition
Agreement under Section 7.6 below, shall be allocated as follows:
Intangible assets including trade
secrets and goodwill - 0%
Trademarks and trade names - 5%
Copyrights - 0%
Contracts and Licenses - 60%
Computer equipment and
software licenses - 5%
Noncompetition Agreement - 30%
The parties agree that the foregoing allocations of the Purchase
Price were specifically negotiated.
2. Representations and Warranties of FCHN. Except as
otherwise specifically set forth in this Agreement, FCHN hereby
represents and warrants to Seller that on the Closing Date, and,
as applicable, as of the date of this Agreement:
2.1 Organization. FCHN is a for profit corporation
duly organized, validly existing and in good standing under the
laws of the State of Washington and has all requisite corporate
2
power to own and lease its properties and to conduct its business
as it is now conducted. FCHN has the requisite corporate power
to enter into and perform its obligations under this Agreement.
2.2 Authorization. This Agreement has been (a) duly
authorized and approved by FCHN's board of directors and by all
members or shareholders of FCHN whose approval is necessary, and
(b) duly executed and delivered by FCHN. All of such actions
were taken in accordance with FCHN's corporate documents and
bylaws. A true and accurate copy of such resolutions are
attached hereto as Schedule 2.2.
2.3 Brokers and Finders. FCHN has not retained any
broker, finder or similar person in connection with the
transactions contemplated by this Agreement, and FCHN will
indemnify and hold harmless Seller against all claims for
brokers', finders' or similar fees claimed or asserted by any
party claiming to have been employed by or to have had any
arrangement with FCHN.
2.4 Ability to Conduct the Assumed and Assigned
Business. FCHN has the administrative, management, personnel and
information systems ability to conduct the assumed and assigned
business as of the date of Closing of the transaction without any
material disruption in the delivery of services to enrollees,
purchasers of the PPO Washington Division's services, or payment
of Provider or Facility claims. Seller acknowledges that this
representation and warranty is made in anticipation of FCHN's
employment of Seller's current staff and ability to utilize
Seller's computer and software systems post-Closing.
3. Representations and Warranties of Seller. Except as
otherwise specifically set forth in this Agreement, Seller hereby
represents and warrants to FCHN that on the Closing Date, and, as
applicable, as of the date of this Agreement:
3.1 Organization. Seller is a nonprofit corporation
duly organized, validly existing and in good standing under the
laws of the State of Washington and has all requisite corporate
power to conduct the PPO Washington Division Business as it is
now conducted. Seller is qualified to do business in each
jurisdiction in which the nature of the Business makes such
qualification necessary. Seller has the requisite corporate
power to enter into and perform its obligations under this
Agreement.
3.2 Authorization. The Board of Directors of Seller
shall have (i) approved the terms and provisions of the
transaction contemplated by this Agreement and (ii) authorized
the officers and/or board of directors of Seller to take whatever
actions they deem necessary or desirable in order to consummate
the transactions contemplated by this Agreement. All of such
actions were taken in accordance with all applicable provisions
of the Washington Nonprofit Corporation Act and Seller's
3
corporate documents and bylaws. FCHN A true and accurate copy
of such Resolution is attached hereto as Schedule 3.2.
3.3 Absence of Certain Changes or Events. Prior to
the Closing Date Seller will not initiate any material change in
the financial position, liabilities, ownership, or other items of
Seller related to the PPO Washington Division Business or its
Assets. _Material_ shall be defined as any action which results
in a decrease of 5% or more in the gross revenue to Seller's PPO
Washington Division Business prior to the date of Closing.
3.4 Brokers and Finders. Seller has not retained any
broker, finder or similar person in connection with the
transactions contemplated by this Agreement, and Seller will
indemnify and hold harmless FCHN against all claims for brokers',
finders' or similar fees claimed or asserted by any party
claiming to have been employed by or to have had any arrangement
with Seller.
3.5 Ability to Transfer Assets. Seller has the right
and ability to transfer or assign its rights and interests in
each of the Assets listed in Schedule 1.1 as of the date of
Closing.
3.6 PPO Business Contracts Not in Default. Seller's
PPO payer and provider contracts identified on Schedule 3.6 are
in good standing and there are no known uncured defaults of
Seller or the payer or provider under these agreements except as
disclosed on Schedule 3.6. There are no facts known to PPP which
materially affect the Assets or the PPO Business which have not
been expressly and fully disclosed to FCHN including disclosure
through the due diligence completed by FCHN prior to the date of
this Agreement.
3.7 No Litigation. There are no actions, suits,
claims, proceedings or investigations of any kind pending or
threatened against or affecting the Assets, unless disclosed on
Schedule 3.7.
4. Conditions to the Obligations of Seller. Except as
otherwise specifically set forth herein, all obligations of
Seller under this Agreement are subject to the fulfillment, prior
to or on the Closing Date, of each of the following conditions,
any one or more of which may be waived in writing by Seller:
4.1 Representations and Warranties True at Closing.
The representations and warranties of FCHN contained in this
Agreement shall be deemed to have been made again at and as of
the Closing Date with respect to the state of facts then
existing, and shall then be true and correct in all respects.
4.2 Authority Relating to This Agreement. All
proceedings required to be taken by or on the part of FCHN to
execute, deliver and carry out this Agreement and any documents,
4
statements, schedules or exhibits to be furnished by FCHN
pursuant hereto or in connection with the transactions
contemplated hereby shall have been duly and properly taken.
4.3 No Action to Prevent Completion. There shall not
have been instituted and be continuing or threatened against FCHN
any claim, action or proceeding which would materially adversely
affect the business or financial condition of FCHN, nor shall
there have been instituted and be continuing or threatened any
action or proceeding by or before any court or any other
governmental body to restrain, prohibit or invalidate, or to
obtain damages in respect of, the transactions contemplated by
this Agreement.
4.4 Obligations Performed by FCHN. Each of the
obligations of FCHN to be performed prior to or on the Closing
Date pursuant to the terms of this Agreement shall have been duly
performed, and Seller shall not have discovered any material
error, misstatement or omission in the representations and
warranties made by FCHN herein.
5. Conditions to the Obligations of FCHN. Except as
otherwise specifically set forth herein, all obligations of FCHN
under this Agreement are subject to the fulfillment, prior to or
on the Closing Date, of each of the following conditions, any one
or more of which may be waived in writing by FCHN:
5.1 Representations and Warranties True at Closing.
The representations and warranties of Seller contained in this
Agreement shall be deemed to have been made again at and as of
the Closing Date with respect to the state of facts then
existing, and shall then be true and correct in all respects.
5.2 Obligations Performed by Seller. Each of the
obligations of Seller or its shareholders to be performed prior
to or on the Closing Date pursuant to the terms of this Agreement
shall have been duly performed, and FCHN shall not have
discovered any material error, misstatement or omission in the
representations and warranties made by Seller herein.
5.3 Authority Relating to This Agreement. All
proceedings required to be taken by or on the part of Seller and
its member(s) (i) to authorize Seller to execute, deliver and
carry out this Agreement and any documents, statements, schedules
or exhibits to be furnished by Seller pursuant hereto or in
connection with the transactions contemplated hereby and (ii) to
sell, transfer and deliver the Assets to FCHN in accordance with
this Agreement, shall have been duly and properly taken, and any
approval required of all of Seller's member(s) shall have been
given.
5.4 Material Changes in Business of PPO-Washington
Division . There shall have been no _material_ adverse change in
the position, financial or otherwise, of the Assets or the PPO
5
Washington Division Business, other than as permitted by this
Agreement. _Material_ changes shall be those which could result
in an unbudgeted decrease of 5% or more in the gross revenue to
the PPO Washington Division's Business.
5.5 No Action to Prevent Completion. There shall not
have been instituted and be continuing or threatened any action
or proceeding by or before any court or any other governmental
body to restrain, prohibit or invalidate, or to obtain damages in
respect of, the transactions contemplated by this Agreement which
might affect the right of FCHN after the Closing Date to own,
operate and control the Assets or to operate the Business. This
condition shall not be deemed to have been breached by the
assertion of any claim by a shareholder of Seller or any of
Seller's predecessors in interest against Seller or Seller's
officers, directors or shareholders.
5.6 Contracts and Records. To the extent that any
assignment of a contract, license, lease or right to be assigned
shall require the consent of the other party, this Agreement
shall not constitute an agreement to assign the same if such
agreement or assignment will constitute a breach thereof.
5.7 Noncompetition Agreement. Seller shall have
executed the Noncompetition Agreement.
5.8 Due Diligence. FCHN shall have completed its due
diligence review pursuant to this Section 5.8 not later than
October 30, 1998.
5.8.1 Review of Operations. Prior to the
Closing Date, FCHN may, at its own expense, direct its employees,
accountants and legal advisers to conduct due diligence on such
operations and financial matters of Seller related to the PPO
Washington Division Business as FCHN deems appropriate. Seller
agrees to grant reasonable access to all documents and Seller
personnel related to the PPO Business to assist FCHN in its due
diligence review. Seller acknowledges that FCHN's agreement to
purchase the Assets under this Agreement is premised upon the
reasonable accuracy in all material respects of the financial
information for the PPO Washington Division Business previously
delivered to FCHN and to be reviewed pursuant to FCHN's due
diligence, and upon the warranties made by Seller under
Sections 3.6, of this Agreement. In the event FCHN's due
diligence reveals that the financial information on which its
proposal is based is materially inaccurate, FCHN reserves the
right to terminate this Agreement upon written notice to Seller
not later than November 15, 1998, or to attempt to renegotiate
the Purchase Price. _Material_ changes shall be those which
result in a decrease of 5% or more in the gross revenue to the
PPO Business. If this transaction as contemplated fails to close
for any reason, all documents, and other information of Seller
provided to FCHN or its advisors or other representatives,
6
including all copies thereof, shall forthwith be returned to
Seller
5.8.2 Cooperation. Seller and FCHN will
cooperate with each other in undertaking and completing all
financial and operational due diligence reviews. As part of the
due diligence process, Seller and FCHN agree to furnish such
information to each other as may be reasonably requested
concerning their respective operations, liabilities, assets and
other relevant information, subject to the confidentiality
provisions of this Agreement. FCHN agrees to use its best
efforts to conduct its due diligence review as expeditiously as
possible with as little disruption to Seller's business
activities as possible.
5.9 FCHN Board Resolutions. FCHN's Board of Directors
shall have adopted the resolutions set forth in Schedule 6.6.
6. Covenants of FCHN.
6.1 Sales Tax. FCHN shall pay all sales or other
taxes imposed by any State in connection with or as a result of
the transactions contemplated by this Agreement and shall file
all requisite sales tax or other tax returns.
6.2 Access to Records and Data. After the Closing
Date, FCHN shall cooperate to give Seller and its authorized
representatives reasonable access, during reasonable business
hours at no cost to FCHN, and in such manner as will not unduly
disrupt the normal business activities of FCHN, to pre-Closing
records and data, whether electronically maintained or maintained
on microfiche or hard copy of the Seller which are in the
possession of FCHN, if reasonably needed and requested by Seller.
6.3 Indemnity. FCHN shall indemnify and hold harmless
Seller (and its employees, officers and directors) and each of
its successors and assigns, from and against any and all loss,
cost, expense, liability, claim, demand and judgment, including
the defense thereof and attorneys' fees incurred, resulting from
or arising out of or in connection with any claims arising out of
or in connection with the operation of the Assets or of the PPO
Washington Division Business of FCHN after the Closing Date.
Seller shall give prompt notice to FCHN of any matter arising
under this Section 6.3, and FCHN shall accept any tender of the
defense of any such matter.
6.4 Provider Contract Assignment Strategy. Subject to
the limitations stated in this Section 6.4, FCHN shall, as of
Closing, implement a provider contracting strategy for existing
providers in the Seller PPO Business network. As part of this
strategy, FCHN will either accept assignment of all existing
Seller provider agreements or itself directly enter new contracts
with such providers. FCHN's obligations hereunder are subject to
the agreement of the providers to accept assignment of such
7
contracts to FCHN. Following Closing, FCHN may, in its
discretion, determine appropriate contracting parameters and
terms of participation for its provider network, and may contract
or determine not to contract with providers on such terms as FCHN
may deem appropriate. Notwithstanding the above, and so long as
FCHN shall offer network providers' contract terms and fees
similar to their existing provider agreement with PPP, if after
Closing FCHN affirmatively terminates the provider agreements of
more than 25% of the total number of providers in any geographic
service area (defined as an area no smaller than a county), and
if thereupon and as a result of such network reduction (as
evidenced in writing by any such payer(s)), PPO Business payers
contracting with FCHN terminate their payer agreements for PPO
Business, the reduction in revenue occasioned by the loss of such
payer contracts shall not be used to reduce the APP under the
calculations pursuant to Schedule 1.2.
6.5 Personnel. FCHN wishes to employ Seller's
personnel currently assigned to the PPO Division as employees of
FCHN post-Closing. The employees are therefore included in the
assets of the corporation, and all necessary steps will be taken
to effect an orderly transition. FCHN shall present terms and
conditions for its employment of Seller's employees post-Close to
said employees as soon as possible after execution of this
Agreement. FCHN agrees that it will offer competitive pay and
benefits to those employed personnel of Seller to whom it
determines to make offers of employment. Notwithstanding,
FCHN's decisions to offer employment to Seller's employed
personnel shall be in the discretion of FCHN.
6.6 FCHN Bylaw Amendments. Prior to November 15, 1998,
FCHN agrees to present two resolutions to its Board of Directors
for adoption to (a) create an Advisory Committee to the Board
whose membership will consist of FCHN network participating
hospitals, and a permanent position to be filled by a Seller
representative; and (b) authorize a Seller representative to be
present at each Board and Finance Committee meeting as a non-
voting participant. The resolutions shall be in the form as set
forth in Schedule 6.6.
6.7 Out-of-Area Coverage. With respect to Out-of-Area
coverage for Providence Health Plans in Oregon, FCH would,
effective January 1, 1999, make available the expanded FCH PPO
described above to Providence Health Plans in Oregon at terms
mutually agreeable to both parties. The parties agree that FCH
PPO shall enter into an exclusive, reciprocal marketing agreement
with PPP, to be negotiated by PPP and FCH after close.
6.8 Self-Funded Coverage. With respect to CIGNA's
administration of Seller's self-funded benefit plan, FCHN agrees
to make its network available to CIGNA and Seller effective
January 1, 1999. _Network_ shall include all providers and
facilities whose contracts are assumed by FCHN under this
Agreement. CIGNA will be requested by FCHN to add the entire
8
Network of FCHN as it exists after Closing, and make such Network
available to Providence's self-funded benefit plan.
6.9 Renegotiation of Provider Agreements. Prior to
the Closing, FCHN and Sisters of Providence in Washington will
negotiate and mutually agree to adjust the rates paid to the
following Sisters of Providence facilities under their provider
agreements to be assigned to and assumed by FCHN:
Providence General Medical Center, Everett;
Providence Seattle Medical Center, Seattle;
Providence St. Peter's Hospital, Olympia;
Providence Centralia Hospital, Centralia;
Providence Yakima Medical Center, Yakima;
Providence Toppenish Medical Center,
Toppenish; Providence Alaska Medical Center,
Anchorage.
None of these adjustments will be decreases.
7. Covenants of Seller.
7.1 Conduct of PPO Washington Division Business Prior
to Closing Date. Pending the Closing Date, Seller agrees to
conduct the PPO Washington Division Business in the ordinary
course of business and to use its best efforts to preserve and
maintain the goodwill of the Business; Seller shall follow
practices and maintain its financial records and books in
accordance with generally accepted accounting principles
consistently applied; and Seller shall not take any action or
suffer any action taken against it which would cause any material
change in any of the matters covered by Seller's representations
and warranties in Section 3 of this Agreement; _Material_ shall
be defined as any action which results in a decrease of 5% or
more in the gross revenue to Seller's PPO Washington Division
Business prior to the date of Closing.
7.2 Access to Properties and Records. Unless any
third party shall have the right to consent to such access, and
shall refuse to so consent, between the date of this Agreement
and the Closing Date, FCHN and its authorized representatives
shall upon request have reasonable access during normal business
hours to the books and records of Seller in such manner as will
not unduly disrupt the normal business activities of Seller.
7.3 Indemnity. Seller shall indemnify and hold
harmless FCHN (and all of its officers and directors) and each of
its successors and assigns, from and against any and all loss,
cost, expense, liability, claim, demand and judgment, including
the defense thereof and attorneys' fees incurred, resulting from
or arising out of or in connection with (i) any breach by Seller
of any warranty or representation made by Seller pursuant to this
Agreement; (ii) the nonperformance, partial or total, of any
covenant of Seller; and (iii) any claims which are not assumed by
9
FCHN hereunder arising out of or in connection with the operation
of the Assets or the PPO Washington Division Business prior to
the Closing Date. FCHN shall give prompt notice to Seller of any
matter arising under this Section 7.3, and Seller shall accept
any tender of the defense of any such matter.
Seller shall have sole responsibility for compliance
with, and shall assume all liabilities and obligations resulting
from any noncompliance with the requirements of any state,
federal, or local requirements with respect to any termination of
employment, including COBRA requirements. Seller shall fully
assume and pay any liability or expense for termination or
severance of all Seller employee PPO Washington Division
Business personnel, and shall indemnify and hold harmless FCHN
from any such liability.
7.4 Employment Taxes and Other Taxes. Seller shall
pay, when due, all state, federal and local income, excise,
business and occupation, unemployment, disability, and similar or
other taxes payable in connection with its Business prior to or
on the Closing Date.
7.5 Assignment of Name and Telephone Numbers. Seller
expressly agrees to assign to FCHN, or to take whatever action is
necessary in order to allow FCHN to assume, the telephone
number(s) of the PPO Washington Division Business until two years
post-closing. Seller agrees to permit FCHN the use of the _Sound
Health_ and _Preferred-Washington_ name for the period of the
Noncompetition Agreement, at which time all rights and licenses
associated with said names and trademarks reverts to Seller.
The number 1-800-443-0996 is to be shared between FCHN
and PPP as mutually agreed for a period of at least one (1) year
following Closing to facilitate the transition of the PPO
Business without transferring ownership of the number to FCHN.
7.6 Non-Competition. The parties agree to abide by the
terms and conditions of the FCHN separate Non-Competition
Agreement attached as Schedule 7.6.
7.7 Seller Post-Closing Support and Operation. Upon
request of FCHN, Seller shall provide facility and system
support, at cost, to FCHN as reasonably necessary to facilitate
the transfer of the PPO Washington Division Business, pursuant
to the terms set forth on Schedule 7.7. Further, Seller shall
undertake all reasonable efforts to assist FCHN in the transition
to FCHN of all PPO Washington Division Business contracts and
other Assets of the PPO Washington Division Business. FCHN
agrees to administer at no cost to Seller all run-out of claims
processing and payment for services delivered by PPO Washington
Division Business prior to Closing.
7.8 Maintenance of Corporate Existence. For a period
of at least two (2) years from the Closing Date, PPP shall
10
maintain its existence as a nonprofit corporation and shall not
transfer, either directly or by operation of law by merger,
consolidation or other reorganization, all or substantially all
of its assets to any person or entity (_transferee_) without
FCHN's prior written consent unless any proposed transferee shall
agree in writing to assume the indemnity and other obligations of
PPP under this Agreement. No notice to or consent by FCHN is
required if upon any such dissolution, merger or consolidation or
other transfer or reorganization of Seller, Sisters of Providence
in Washington assumes Seller's obligation under this Agreement.
8. Termination.
8.1 Mutual Agreement. This Agreement may be
terminated and abandoned without penalty at any time prior to the
Closing Date by the written agreement of both FCHN and Seller.
8.2 Termination by FCHN. This Agreement may be
terminated by FCHN if, as of the Closing Date, the conditions set
forth in Section 5 of this Agreement shall not have been met by
Seller or waived in writing by FCHN.
8.3 Termination by Seller. This Agreement may be
terminated by Seller if, as of the Closing Date, the conditions
set forth in Section 4 of this Agreement shall not have been met
by FCHN or waived in writing by Seller.
9. Confidentiality.
9.1 Conditions Regarding Disclosure and Exchange of
Confidential Information. As part of FCHN's due diligence
review, it will be necessary for Seller and FCHN to disclose and
exchange certain confidential and proprietary information,
including financial and operating information. To assure that
any disclosure and exchange of information is maintained in a
confidential manner, Seller and FCHN agree to the following terms
and conditions for any such disclosure or exchange of
confidential information:
9.1.1 All financial and operational
information, and any other information expressly identified by
any party as confidential and thereafter disclosed or exchanged
between Seller and FCHN shall be kept confidential and shall not
be disclosed to any third-party other than those consultants,
legal counsel, counsel or advisers, if any, specifically retained
to participate in and conduct the due diligence under this
Agreement. Each party shall disclose to the other the identity of
any consultant or advisor to whom the other plans to disclose
such information in advance of such disclosure. Further,
confidential information exchanged or disclosed by Seller or FCHN
shall be used exclusively for purposes of this Agreement and for
no other purpose.
11
9.1.2 In the event this transaction does not
close, Seller and FCHN shall each return to the other such
confidential information of the other as may have been exchanged
or disclosed.
9.2 Public Announcements. Seller and FCHN also agree
that neither will, without the prior written consent of the
other, make any public announcements or statements concerning
this Agreement or the transaction contemplated herein, except to
their respective consultants, lawyers or financial institutions
and as may be necessary to comply with any applicable federal or
state law, regulations or order; in any event, any party required
to disclose the existence of the discussions to any outside party
shall notify the other party prior to Closing. Any public
statement or announcement made shall be developed jointly by
Seller and FCHN and shall be issued only following the execution
of the Purchase Agreement and upon mutual agreement.
10. Partnership Council.
A Partnership Council (the _Council_) will be created by mutual
agreement with representatives from both FCHN and Seller to
oversee the transition of the PPO Washington Division Business to
FCHN following Closing and to act as a forum for future
provider/payer relations. FCHN and Seller shall each pick three
(3) persons to serve on the Council.
Following Closing and through December 31, 1998, the Council
shall meet at the request of either Seller or FCHN, and shall
meet semi-annually thereafter or as otherwise agreed.
11. Miscellaneous.
11.1 Expenses. Unless otherwise provided in writing as
mutually agreed, each party will pay its own costs and expenses,
including legal and accounting expenses, relating to the
transactions contemplated by this Agreement.
11.2 Notices. Any notice required or permitted to be
given hereunder shall be in writing and shall be delivered by
personal delivery, facsimile or United States mail, certified or
registered, return receipt requested, and addressed to the
parties as follows:
To Seller: Providence Plan Partners
520 Pike Street, Suite 2500
Seattle, WA 98101
Attn: General Counsel
To FCHN: First Choice Health Network, Inc.
601 Union, Suite 1100
Seattle, WA 98101
Attn: Gary R. Gannaway
12
The address for any party may be changed by such party from time
to time by written notice pursuant to this Section 11.2. Any
notice to be delivered hereunder shall be deemed to be delivered
on the date of delivery if by personal delivery or facsimile, or
five days after mailing if sent by mail.
11.3 Survival of Terms. All warranties,
representations and covenants contained in this Agreement and in
any certificate or other instrument delivered by or on behalf of
the parties pursuant hereto shall be continuous and shall survive
the Closing Date.
11.4 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Washington,
11.5 Captions. The captions contained in this
Agreement shall not be controlling in the construction or
interpretation of this Agreement.
11.6 Assignment. This Agreement and the rights and
obligations hereunder may not be assigned by Seller without the
prior written consent of FCHN which shall not be unreasonably
withheld. Any purported assignment by Seller in contravention of
this Section 11.6 shall be null and void. This Agreement and the
rights and obligations hereunder may not be assigned by FCHN;
provided nonetheless, however, that FCHN may make such an
assignment either to any subsidiary or affiliated corporation or
company or to any affiliated person or entity, provided that
Seller shall be given notice of such assignment, and Seller's
consent shall be required but such consent shall not be
unreasonably withheld. This Agreement shall be binding upon and
inure to the benefit of the successors and permitted assigns of
the parties.
11.7 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original and all
of which shall constitute one and the same instrument.
11.8 Cooperation. The parties agree to cooperate with
each other in supplying required forms, notifying appropriate
authorities, executing such documents as may be required and in
any other way reasonably necessary to facilitate the lawful and
orderly transfer of the Assets as set forth herein, including the
development of a transition plan, and participation on the
Partnership Council.
11.9 Business, Medical and Patient Records. All
business, medical and patient records in Seller's possession
pursuant to the operation of the PPO's Washington Division
Business shall remain at Seller's PPO Washington Division
Business location pending the Closing Date. Following the
Closing Date, FCHN shall assume all custodial responsibility for
such records, and shall keep such records in such location as
13
FCHN may deem necessary or desirable. After Closing, Seller,
shall have reasonable access to such records at all times during
normal business hours, in such manner as will not unduly disrupt
the normal business activities of FCHN. The parties' obligations
under this Paragraph 11.9 are subject to: (a) the rights of
patients to refuse to consent to release or disclosure of their
medical or financial records; and (b) the right of third parties
who have the right by contract to consent to such release of or
access to records and who refuse to consent.
11.10 Entire Agreement and Modification. This
Agreement and the exhibits and schedules hereto constitute and
contain the entire agreement of the parties supersedes any and
all prior negotiations, correspondence, understandings and
agreements, whether oral or in writing, between the parties
respecting the subject matter of this Agreement. This Agreement
may be amended only in a written instrument signed by all parties
hereto.
11.11 Records Disclosure. The provisions of this
paragraph shall only be effective if this contract is subject to
regulations promulgated by the Health Care Financing
Administration implementing S 952 of the Omnibus Reconciliation
Act of 1980, codified at 42 U.S.C. S 1395x(v)(1)(A):
a. Each party agrees, until the expiration of
four (4) years after the furnishing of services pursuant to this
Agreement, to make available upon written request, to the
Secretary of Health and Human Services (Secretary) or, upon
request, to the Comptroller General, or any of their duly
authorized representatives, this Agreement and all books,
documents, and records that are necessary to verify the nature
and extent of the costs of such services.
b. If any party carries out any of the duties
hereunder through a subcontract with a related organization,
having a value or cost of Ten Thousand ($10,000) or more over a
twelve (12) month period, such subcontract shall contain a clause
to the effect that, until the expiration of four (4) years after
the furnishing of such services pursuant to such subcontract, the
related organization shall make available, upon written request,
to the Secretary, or, upon request, to the Comptroller General,
or any of their duly authorized representatives, the subcontract
and the books, documents, and records of such organization that
are necessary to verify the nature and extent of the costs of
such services.
11.12 Failure to Pay. In the event FCHN fails to
make payments to Seller by the scheduled date, Seller may
proclaim default and demand payment in full for the remainder of
the amount due and owing under the payment schedule pursuant to
Schedule 1.2 provided that FCHN shall have the opportunity to
cure any default within 10 working days of receiving notice from
Seller, and further provided that the APP shall nonetheless be
14
calculated and the remainder of the purchase price reconcilations
shall be completed pursuant to Schedule 1.2
IN WITNESS WHEREOF, this Agreement has been executed as of
the date set forth above.
PROVIDENCE PLAN PARTNERS, a
Washington nonprofit corporation
By /s/ John F. Koster, M.D.
------------------------------
John F. Koster, M.D.
Its Senior Vice President/Chief
Medical Officer
FIRST CHOICE HEALTH NETWORK, INC.,
a Washington corporation
By /s/Gary R. Gannaway
---------------------------
Gary R. Gannaway
Its Chief Executive Officer
15
SCHEDULE 1.1_Assets
A. Assets Purchased:
1. Intangible Assets; including trade secrets and goodwill
2. Trademarks and Tradenames (Preferred Washington;)
3. Copyrights
4. Payer and Provider Agreements
5. Office equipment, computer hardware, operating systems,
software and licenses used in the PPO Business
6. PPO Business records and documents necessary for
transition of PPO Business, including billing and claim
records.
B. Excluded Assets:
1. Name _Providence_
2. All other assets not specifically described in (A)
above.
16
SCHEDULE 1.2_Purchase Price
The Purchase Price will be determined as follows:
The actual purchase price (_APP_) will equal the revenues
received by FCHN from the PPO Business during the twelve (12)
months after the Closing Date. As estimated payments toward the
APP, FCHN will pay to Seller eighteen (18) monthly payments,
according to Schedule 1.2.1 attached hereto. These payments begin
the first of the first month after the Closing Date and will be
due in cash in the form of a check or draft paid to Seller by
FCHN by the 15 day of each succeeding month.
FCHN may, at its sole option, at any time, elect to prepay
all or part of the principal balance. If FCHN exercises this
option, then FCHN will recalculate Schedule 1.2.1 to determine
the applicable interest expense. No future interest or other
penalties will be assessed if FCHN elects to prepay all or part
of the principal balance.
FCHN total payments to Seller, will be no more than
$3,500,000 and no less than $2,832,000. FCHN will calculate the
APP no later than the nineteenth (19 ) month after the Closing
Date. If the APP is greater than $2,832,000, FCHN will pay
Seller the difference between the two figures within fifteen
working days after the Calculation has been made. FCHN will
provide Seller a monthly record of revenue and membership on the
acquired PPO Washington Division Business no less than quarterly.
FCHN agrees to allow Seller to audit at Seller's expense FCHN
records as they relate to the APP calculation.
FCHN and Seller recognize there will be receipts and
disbursements applicable to services rendered by Seller prior to
the Closing Date. Twelve (12) months after the Closing Date, the
parties shall calculate the amount of funds received by FCHN for
the PPO Washington Division Business and services it provided
prior to the Closing Date, and deduct from that amount any
disbursements made by FCHN for liabilities of Seller prior to the
Closing Date. FCHN will use the accrual method of accounting for
all financial calculations. FCHN will not include in the
calculation of disbursements any of its overhead or other costs
associated with its administration of the run-out or other such
disbursements.
In the event the Final Calculation demonstrates that the
funds received are greater than the funds disbursed by FCHN
(_surplus_), FCHN will pay to Seller the full amount of such
surplus not later than February 15, 2000. In the event the funds
received are less than the funds disbursed by FCHN (_deficit_)
the amount of the deficit shall be paid by Seller to FCHN not
later than February 15, 2000. If Seller does not make such
payment on a timely basis, FCHN shall be withheld by FCHN from
the next monthly payment toward the APP.
17
SCHEDULE 3.5--Ownership of Assets
None.
18
SCHEDULE 1.2.1_Payment Schedule
See attached.
19
SCHEDULE 2.2_Excerpt from 9/24/98 Board of
Directors Meeting With Resolution
See attached.
20
SCHEDULE 3.5_Ownership of Assets
None.
21
SCHEDULE 3.9_Payer Contracts
Payer
1.
2.
3.
4.
5.
22
SCHEDULE 3.10_Litigation
None.
23
SCHEDULE 6.7_Resolutions
See attached.
24
SCHEDULE 7.8_Noncompetition
This AGREEMENT (the _Agreement_) is made and entered into as
of October 31, 1998, by and between PROVIDENCE PLAN PARTNERS, a
Washington nonprofit corporation (_Seller_), and FIRST CHOICE
HEALTH NETWORK, INC., a Washington corporation (_FCHN_).
WHEREAS, FCHN and Seller have completed an asset purchase
and sale transaction whereby FCHN acquired from Seller certain
assets pursuant to that certain agreement dated as of
October____, 1998 (the _Purchase Agreement_).
WHEREAS, FCHN and Seller agreed to certain restrictions on
the ability of Seller to compete with FCHN following the closing
of the Purchase Agreement.
Section 1. Noncompetition
1.1 Scope of Competition
Seller agrees that with the exception of the Southwest
Washington counties of Clark, Cowlitz, Skamania and Whakiakum, it
will not, directly or indirectly, for a period of three (3) years
from the date of this Agreement, own, manage, operate, , finance,
control or participate in the financing, ownership, management,
operation or control of or be connected with, in any manner, ,
any preferred provider organization (PPO) business similar to or
in competition with the PPO Washington Division Business carried
on by Seller (as defined in the Purchase Agreement) as of the
Closing Date of the Purchase Agreement,.
1.2 Noncompetition by Affiliates
A). _Affiliate_ is defined as a subsidiary of Seller
or one of Seller's subsidiaries, or one of the Sisters of
Providence corporate entities or an entity in which Sisters of
Providence has more than a 50% equity position.
B) Seller shall not (a) cause or permit any Affiliate
of Seller to, in any way, directly or indirectly, for itself or
on behalf of any other person or entity, conduct, participate in
or engage in any activity or enter into any contract or agreement
of any kind with respect to any activity that Seller is
prohibited from engaging in by Section 1.1 hereof or (b) fail to
take any action necessary to prevent any Affiliate of Seller, in
any way, directly or indirectly, for itself or on behalf of any
other person or entity, from conducting, participating in or
engaging in any activities or entering into any contract or
agreement of any kind whatsoever with respect to any activity
that Seller is prohibited from engaging in by Section 1.1 hereof.
As used in this Section 1.2,
25
1.3 Noncompetition Payments
In consideration of Seller's agreement not to compete
pursuant to this Section 1, upon execution of this Agreement,
FCHN shall pay the amount specified in Section 1.5 of the
Provider Agreement.
1.4 Equitable Relief
Seller acknowledges that the provisions of this
Section 1 are essential to FCHN, that FCHN would not enter into
this Agreement if it did not include this Section 1 and that
damages sustained by FCHN as a result of a breach of this
Section 1 cannot be adequately remedied by damages. Seller
agrees that the Purchaser, notwithstanding any other provision of
this Agreement, and in addition to any other remedy it may have
under this Agreement or at law, shall be entitled to injunctive
and other equitable relief to prevent or curtail any breach of
any provision of this Agreement, including, without limitation,
this Section 1.
1.5 Effect of Violation
Upon any violation by Seller of this Section 1, Seller
shall repay amounts received pursuant to Section 1.3.
Section 2. Miscellaneous
2.1 Nonwaiver
The failure of either party to insist upon or enforce
strict performance by the other of any of the provisions of this
Agreement, or to exercise any right or remedy under this
Agreement, will not be construed as a waiver or relinquishment to
any extent of such party's right to assert or rely upon any such
provisions, rights or remedies in that or any other instance;
rather, the same will be and remain in full force and effect.
2.2 Successors and Assigns
This Agreement will inure to the benefit of, be
enforceable by and be binding upon the parties and their
respective successors, assigns, heirs and legal representatives.
In the event of any assignment or other transfer (whether
voluntary, involuntary or otherwise) of all or any portion of a
party's rights, titles and interests in this Agreement, such
party will promptly notify the other party of the same.
2.3 Entire Agreement
This Agreement constitutes the entire agreement with
respect to the subject matter hereof and supersedes any all prior
agreements between the parties with respect to the royalties. No
amendment, modification or waiver of any of the provisions of
26
this Agreement will be valid unless set forth in a written
instrument signed by both parties.
2.4 Governing Law
This Agreement will be interpreted, construed and
enforced in all respects in accordance with the laws of the State
of Washington without reference to its choice of law rules,
except to the extent the same are preempted by the laws of the
United States.
2.6 Form of Notices
All notices given hereunder shall be given in writing,
shall specifically refer to this Agreement and shall be
personally delivered or sent by telecopy or other electronic
facsimile transmission or by registered or certified mail, return
receipt requested, at the address set forth below or at such
other address as may hereafter be designated by notice given in
compliance with the terms hereof:
To FCHN: First Choice Health Network, Inc.
601 Union, Suite 1100
Seattle, WA 98101
Attn: Gary R. Gannaway
To Seller: Providence Plan Partners
520 Pike Street, Suite 2500
Seattle, WA 98101
Attn: General Counsel
If notice is mailed, such notice shall be effective upon mailing
or, if notice is personally delivered or sent by telecopy or
other electronic facsimile transmission, it shall be effective
upon receipt.
2.7 Severability
If any provision of this Agreement shall be held
invalid, illegal or unenforceable in any jurisdiction, for any
reason, including, without limitation, the duration of such
provision, its geographical scope or the extent of the activities
prohibited or required by it, then, to the full extent permitted
by law (a) all other provisions hereof shall remain in full force
and effect in such jurisdiction and shall be liberally construed
in order to carry out the intent of the parties hereto as nearly
as may be possible, (b) such invalidity, illegality or
unenforceability shall not affect the validity, legality or
enforceability of any other provision hereof, and (c) any court
or arbitrator having jurisdiction thereover shall have the power
to reform such provision to the extent necessary for such
provision to be enforceable under applicable law.
[The rest of this page is intentionally left blank.]
27
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first set forth above.
PROVIDENCE PLAN PARTNERS, a
Washington nonprofit corporation
By /s/John F. Koster, M.D.
----------------------------
John F. Koster, M.D.
Its Senior Vice President/Chief
Medical Officer
FIRST CHOICE HEALTH NETWORK, INC.,
a Washington corporation
By /s/ Gary R. Gannaway
---------------------------
Gary R. Gannaway
Its Chief Executive Officer
28
