<PAGE> 1
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997.
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER 000-22719
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
(Name of small business issuer as specified in its charter.)
New Jersey 22-3273637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Princeton Pike Corporate Center, 1009 Lenox Drive, Lawrenceville, NJ 08648
(Address of principal executive offices) (zip code)
Issuer's telephone number: (800) 337-4765
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of share outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of September 30, 1997, there were
4,631 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes ___ No X
<PAGE> 2
Index to Form 10-QSB
<TABLE>
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets as of September 30, 1997 and December 31, 1996 3
Statements of Operations for the Three and Nine Months Ended
September 30, 1997 and 1996 4
Statements of Changes in Shareholders' Equity for the Nine Months Ended
September 30, 1997 and the Year Ended December 31, 1996 5
Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Plan of Operation
</TABLE>
Part II - Other Information
Item 1. [Omitted]
Item 2. [Omitted]
Item 3. [Omitted]
Item 4. [Omitted]
Item 5. [Omitted]
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
Part I - Financial Information
Item 1. Financial Statements
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
- -------------------------------------------------------------------------------
Unaudited
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents $5,864,630 $ 5,563,345
Short-term investments 1,307,185
Advances to management company 430,929
Reinsurance recoverable on claims payable 500,243 300,000
Prepaid and other assets 390,334 321,714
------------
Total current assets 6,755,207 $ 7,923,173
Investments 2,166,486 2,651,139
Furniture and equipment, net 1,320,867
Other assets 18,107
------------
Total assets $8,921,693 11,913,286
Liabilities and Shareholders' Equity
Liabilities
Claims Payable $2,935,106 1,544,647
Accounts payable and accrued expenses 793,717 782,428
Funds held for reinsurer 547,883 328,789
Due to management company 200,000
Deposit from Purchaser (note 2) 500,000
Other liabilities 75,534 85,679
------------
Total Liabilities 5,052,240 2,741,543
Shareholders' Equity
Common Stock, subject to redemption 23,729,922 23,750,222
(no par; 20,000 authorized; and 4,636
issued and outstanding)
Paid in capital 66,690 43,214
Net unrealized loss on investments (4,706) (5,476)
Retained deficit (19,922,453) (14,616,217)
------------
Total shareholders' equity $3,869,453 9,171,743
Total liabilities and
shareholders' equity $8,921,693 $ 11,913,286
</TABLE>
See accompanying notes.
<PAGE> 4
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUE
Premiums earned $2,154,001 $ 541,005 $6,370,304 $ 869,554
Interest income, net 121,752 172,968 409,670 426,329
Other revenue 38,656 22,836 109,467 35,974
---------- ----------- ---------- -----------
Total Revenue $2,314,409 736,809 $6,889,441 1,331,857
EXPENSES
Medical costs 1,965,165 589,091 6,684,368 858,500
Professional services 331,037 848,555 2,666,986 2,937,619
Compensation and benefits -- 525,918 689,238 2,269,440
General and administrative 519,568 439,583 1,288,039 1,539,726
Provision for loss on equipment
and furniture -- -- 760,000 --
Insurance 34,019 31,890 107,046 129,546
----------- ----------- ---------- -----------
Total expenses incurred 2,849,789 2,435,037 12,195,677 7,734,831
----------- ----------- ---------- -----------
Net Loss $(535,380) $(1,698,228) $(5,306,236) $(6,402,974)
----------- ----------- ----------- -----------
Net loss per common share $ (115) $ (340) $ (1,145) $ (1,528)
============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE> 5
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Net
Common Paid in Unrealized Retained Total
Stock Capital (Loss) Gain Deficit Shareholders'
on Equity
Investments
------------ ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 17,575,000 $24,838 $ 21,645 $ (6,106,450) $ 11,515,033
Common stock issued, net 6,250,222 (700,000) 5,550,222
Common stock redeemed (75,000) 18,376 (56,624)
(15 shares)
Net unrealized losses (27,121) (27,121)
Net loss (7,809,767) (7,809,767)
------------ ------- -------- ------------ ------------
Balance at December 31, 1996 $ 23,750,222 $43,214 $ (5,476) $(14,616,217) $ 9,171,743
============ ======= ======== ============ ============
Common stock redeemed, net (20,300) 23,476 3,176
(5 shares)
Change in net unrealized 770 770
losses
Net loss (5,306,236) (5,306,236)
------------ ------- -------- ------------ ------------
Balance at September 30, 1997 $ 23,729,922 $66,690 $ (4,706) $(19,922,453) $ 3,869,453
============ ======= ======== ============ ============
</TABLE>
<PAGE> 6
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
September 30, September 30,
1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $(5,306,236) $(6,402,974)
Adjustment to reconcile net loss to net
cash used for operating activities:
Loss on Disposal of Furniture and Equipment 760,000
Depreciation and amortization 144,716 341,746
Advances to management company 430,929 (617,334)
Prepaid and other assets (50,513) (183,265)
Accounts payable and accrued expenses 211,289 223,084
Claims payable 1,390,459 341,134
Deposit from Purchaser 500,000 --
Reinsurance recoverable on claims payable (200,243) 184,525
Funds held for reinsurer 219,094 --
Other liabilities (10,145) 305,140
----------- -----------
Net cash used in operating activities (1,910,650) (5,807,944)
----------- -----------
Cash flows from investing activities:
Purchase of investments (2,424,995) --
Proceeds from investments matured 4,281,804 --
Purchase of equipment -- (125,481)
Proceeds from sale of equipment 351,950 --
Purchase of short term investments, net -- (922,647)
----------- -----------
Net cash provided (used) in investing activities 2,208,759 (1,048,128)
----------- -----------
Cash flows from financing activities:
Common stock subscribed -- 5,998,000
Redemption of common stock 3,176 (6,624)
----------- -----------
Net cash provided by financing activities 3,176 5,991,376
----------- -----------
Net increase (decrease) in cash and cash equivalents 301,285 (864,696)
Cash and cash equivalents, beginning of period 5,563,345 5,308,465
----------- -----------
Cash and cash equivalents, end of period $5,864,630 $ 4,443,769
=========== ===========
</TABLE>
<PAGE> 7
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. UNAUDITED FINANCIAL STATEMENTS
The financial information for the three and nine months ended September 30, 1997
and 1996 included herein is unaudited. Such information includes all
adjustments, consisting of a normal and recurring nature, which in the opinion
of management, are necessary for a fair presentation of the Company's Balance
Sheets, and Statements of Operations, Changes in Shareholders' Equity and Cash
Flows in accordance with generally accepted accounting principles. Such
information should be read in conjunction with Management's Plan of Operation
included herein and the Notes to Financial Statements included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1996. The interim
operating results are not necessarily indicative of the operating results for
the full fiscal year.
2. SALE OF GROUP CONTRACTS AND PROVIDER AGREEMENTS
In an agreement dated June 26, 1997 (the "Agreement"), the Company contracted to
assign and transfer to Medigroup of New Jersey, Inc. (the "Purchaser" or "HMO
Blue") provider agreements and all group contracts in return for consideration
based on HMO and PPO membership, but not less than $1 million. A $500,000
deposit from the Purchaser has been reflected in the September 30, 1997 balance
sheet. This transaction is conditioned upon the receipt of approvals from
various parties, including, but not limited to, the Company's shareholders,
the Commissioner of Health and Senior Services, and the Commissioner of Banking
and Insurance of the State of New Jersey. In addition, Blue Cross and Blue
Shield of New Jersey, Inc. ("BCBSNJ") has agreed to appoint certain physicians
selected by the company to several BCBSNJ and HMO Blue committees and to the
board of HMO Blue's parent company. The purchaser is a wholly owned subsidiary
of Medigroup, which in turn is a wholly owned subsidiary of BCBSNJ, and the
Purchaser operates an HMO in the State of New Jersey known as "HMO Blue".
On October 24, 1997, the Purchaser made a filing with the Department of Health
and Senior Services and the Department of Banking and Insurance of the State of
New Jersey to gain required regulatory approvals for the proposed assignment
and transfer of provider agreements and group contracts.
In September, 1997, the Health Care Payers Coalition of New Jersey ("HCPC")
advised the Company of HCPC's decision not to renew its contract with the
Company. Therefore, the relationship will end as of February 28, 1998. HCPC
consists of self-funded, union health plans, and is the largest single customer
for the Company's Preferred Provider Organization ("PPO") network. For the
current reporting period, HCPC accounted for substantially all the "Other
revenue" reported by the Company. As noted earlier, the Agreement provides for
consideration based on HMO and PPO membership. The portion of the consideration
attributable to PPO membership is to be calculated and paid on the first
anniversary of the closing under the Agreement. Therefore, assuming the HCPC
relationship ends as scheduled on February 28, 1998, the Purchaser will not
make any payment to the Company for PPO membership.
3. MANAGEMENT AGREEMENT
Effective September 1, 1994, the Company entered into a management agreement
with Medical Group Management, Inc. ("MGM"), a subsidiary of New Jersey State
Medical Underwriters, Inc. ("NJSMU"). The management agreement with MGM
provided, among other things, that MGM was responsible for all administration
and management of the company. This agreement was terminated effective as of
July 31, 1997.
<PAGE> 8
Effective July 1, 1997, the Company entered into a Management Services Agreement
(the "Management Agreement") with the Purchaser. Under the terms of the
Management Agreement, the Purchaser is providing the Company management and
administrative services necessary for the operation of the Company including,
but not limited to, claims processing, member services, enrollment, provider
assistance, utilization management and financial services. The cost of such
services is based upon a per member per month fee, and is lower than management
fees previously paid by the Company. The Management Agreement has been approved
by the Department of Banking and Insurance, conditioned upon approval by the
Department of Health and Senior Services. Management fees expensed on the three
months ended September 30, 1997 were $274,700.
In addition, effective August 1, 1997, the Company engaged The Pace Group, Inc.
("Pace") to provide certain management transition services and certain corporate
financial and reporting assistance not otherwise provided by the Purchaser. The
Company is paying Pace a retainer of $20,000 per month, applied against hourly
billings for services and expenses.
4. SALE OF FIXED ASSETS
With the Purchaser's assumption of responsibility for management and
administrative services through the Management Agreement, the Company sold MGM
its fixed assets, chiefly furniture and computer equipment at its former office
location in Lawrenceville, New Jersey. MGM paid $258,327 for the Company's
fixed assets, based primarily on a series of appraisals obtained from
independent third party appraisal firms. A provision for loss on furniture and
equipment of $760,000 was recorded during the three months ended June 30, 1997.
On August 26, 1997, the Company sold to the Purchaser certain office equipment
and file cabinets. The Purchaser paid $3,975 for the equipment and furniture.
In addition, the Company has agreed to permit the Purchaser to use certain
computer equipment and related property in connection with the Purchaser's
performance of management services in return for the Purchasers maintaining the
equipment, paying for insurance for the equipment and assuming the risk of loss
or damage. While recording the provision for loss of furniture and equipment
during the three months ended June 30, 1997, the Company wrote off the property
balances associated with this computer equipment and related property.
In July, 1997, the Company's eight automobiles were sold for aggregate price of
$69,500.
5. COMMITMENTS AND CONTINGENCIES
Prior to executing the Management Agreement with the Purchaser, the Company
leased office facilities and office equipment at its former location in
Lawrenceville, New Jersey. Effective October 1, 1996, NJSMU assumed the
Company's obligation under the office space lease and subleased 33% of the
facility back to the Company under terms consistent with the original lease. As
of June 30, 1997, the Company's obligation to pay rent terminated, and as of
July 31, 1997, the Company vacated the space it previously subleased and the
Company ceased to occupy any space at any location.
6. REINSURANCE
The Company has renewed its reinsurance coverage to cover claims incurred
through December 31, 1997 or the closing date of the transaction with the
Purchaser, whichever occurs first, and paid within an additional 90 days. An
endorsement is being negotiated to extend the paid period for claims incurred
to one year from date of closing or December 31, 1998, whichever is earlier.
ITEM 2.
MANAGEMENT'S PLAN OF OPERATION
The Company is a New Jersey corporation, formed on January 10, 1994 under
the sponsorship of private practicing physicians for the purpose of developing a
statewide, physician-owned Health Maintenance Organization ("HMO").
As of September 30, 1997, the number of shares outstanding from the
Company's 1994 initial offering and the 1996 second offering of common stock is
4,631, resulting in paid-in capital of $23,796,612.
In addition to filing quarterly reports required of all New Jersey HMO's
by the New Jersey Department of Banking and Insurance (the "Department"), the
Company has continued to provide monthly reports to the Department, describing
progress toward membership and financial goals, which the Department required as
a result of a March, 1997 meeting to review the Company's financial performance.
As described in Note 2 of the Notes to Financial Statements at
September 30, 1997, the Company has contracted to assign and transfer provider
agreements and all group contracts to the Purchaser, subject to shareholder and
regulatory approvals. At the closing of such transaction, it is expected that
the Company will wind down its operations and, ultimately, surrender its
Certificate of Authority ("COA") to the Department at such time as the
Department is satisfied that all claims and liabilities arising prior to the
date of closing of the transaction have been
<PAGE> 9
paid or provided for. The Company is unable to estimate at this time when such
surrender would occur or what assets, if any, would be available for
distribution to stockholders after the Company ceases operations.
As noted in Note 4 of the Notes to Financial Statements at September
30, 1997, the Company on July 31, 1997, sold its furniture and equipment to MGM
for $258,327, recognizing a provision for loss on furniture and equipment of
$760,000. In addition, the Company sold eight automobiles for an aggregrate
price of $69,500 in July, 1997.
The Company also sold to the Purchaser certain office equipment and file
cabinets for approximately $3,975 on August 26, 1997. In addition, the Company
has agreed to permit the Purchaser, in connection with the Purchaser's
performance of management services as described in Note 3 of the Notes to
Financial Statements at September 30, 1997, to use certain computer equipment
and related property in return for the Purchaser maintaining the equipment,
paying for insurance for the equipment and assuming the risk of loss or damage.
During the three months ended September 30, 1997, the Company's revenues
increased from the comparable 1996 fiscal period by approximately $1,613,000,
with $1,354,000 or 84% of the increase attributable to increased enrollment in
the HMO and Point of service ("POS") products sold by the Company. Results for
1996 reflected limited sales due in part to the timing of the Company's COA
approval by the Department in early 1996.
During the nine months ended September 30, 1997, the Company's revenues
increased from the comparable 1996 fiscal period by approximately $5,501,000,
with $4,670,000 or 85% of the increased attributable to increased enrollment in
the HMO and POS products sold by the Company. Results for 1996 reflected
limited sales due in part to the timing of the Company's COA approval by the
Department in early 1996. As reported in prior periods, the Company continued
to record approximately 80% of member-months (each representing one enrollee
for one month of coverage) in its POS products. Notwithstanding the increase in
enrollment, the Company has not met its targets for enrollment because of
significant competitive pressures in its marketplace.
During the fiscal quarter ended September 30, 1997, the Company
identified approximately 800 HMO and POS members whose premiums had not been
paid to the Company when due. The Company will notify affected employers that
their HMO or POS coverage had been terminated, effective with the date of
premium lapse. The Company has not recorded premium revenues for those groups
for any period past the date of lapse in premium payment.
During the three months ended September 30, 1997, the Company's medical
costs increased from the comparable 1996 fiscal period by approximately
$1,376,000, reflecting the enrollmnet increase described earlier and higher
medical costs per member. The Company's medical costs decreased from 108% of
premium revenue to 91% of premium revenue. This decline was largely
attributable to favorable claims development in the third quarter of 1997.
The higher medical costs in the second quarter and the increase in the
number of medical claims reserve at June 30, 1997 were principally attributable
to materially higher claims payments during the three months ended June 30,
1997. During the three months ended September 30, 1997, claims payment volumes
returned to the lower levels experienced previously. Subsequent review of
higher claims payment volumes during the second fiscal quarter of 1997 has
identified two causes for the second quarter increase; the change in claim
processing centers from California to Indiana and the increase in providers'
submission of claims resulting from their perception that claims should be
submitted prior to the consummation of the transaction with the Purchaser. As
in prior periods, the Company recorded its IBNR claims reserve based on an
evaluation of the Company's historical data by an independent actuary. The
claims reserve recorded by the Company at September 30, 1997 is at the high end
of the actuary's suggested range.
During the nine months ended September 30, 1997, the Company's medical
costs increased from the comparable 1996 fiscal period by approximately
$5,825,000, also reflecting the enrollment increase described earlier and
higher medical costs per member.
As noted in Note 6 of the Notes to Financial Statements at September 30,
1997, the Company has renewed its reinsurance coverage to cover claims incurred
through December 31, 1997 or the closing date of the transaction with the
Purchaser, whichever occurs first, and paid within an additional 90 days.
Management is currently negotiating to extend the incurred claims paid period
to one year from the date of closing or December 31, 1998, whichever is
earlier. No assurance can be given that coverage can be extended on terms
acceptable to the Company. Failure to extend coverage could have an adverse
effect on the Company's ability to reimburse a claim incurred prior to the date
of closing and paid more than 90 days after the date of closing.
No tax benefits for operating losses have been recognized in the financial
statements because the realization of such benefits would be dependent upon
achieving future operating profits, which cannot be reasonably assured.
During the three months ended September 30, 1997, all non-medical
expense categories decreased a total of $961,000 from the comparable 1996
fiscal period primarily reflecting the shift in operations to the Management
Agreement with the Purchaser at a lower fee than previously paid and the
termination of all Company employees effective July, 1997.
During the nine months ended September 30, 1997, all non-medical expense
categories decreased a total of $1,365,000 from the comparable 1996 fiscal
period, reflecting the shift in operations, layoff of employees and termination
of office space lease described earlier.
During the first nine months of 1997, the Company incurred a net loss of
$5,306,000, with operations requiring the use of $1,911,000 in cash. The
Company obtained the funds to finance its operating deficit by withdrawing
$1,857,000 from short-term investments, and $352,000 from the sale of certain
fixed assets as described in Note 4 of the Notes to Financial Statements at
September 30, 1997.
Taken together, these changes account for the $2,992,000 decline in total
assets. The State of New Jersey imposes a minimum net worth requirement of
approximately $1,037,000. As of September 30, 1997, the Company's statutory net
worth was $3,860,000, or $2,823,000 above that minimum.
The Board of Directors of the Company approved on July 15, 1997 a
resolution to place a moratorium on redemptions of the Company's common stock
for any reason, including reasons set forth in the Company's by-laws, because of
the prospect that the satisfaction of all prospective redemption obligations
could cause the Company to be in "precarious financial condition" as that term
is defined in the Company's prospectus dated November 9, 1995 and included in
the Company's registration statement on Form SB-2, SEC file no. 33-94826-NY. As
a result the Company will not be required to redeem a stockholder's shares of
the Company's common stock in the event that the stockholder requests such
redemption in connection with an event described in the Company's by-laws, or in
connection with the failure of the Company to credential the stockholder as a
provider under the Company's health care plans, or for any other reason.
<PAGE> 10
The discussion in this Quarterly Report contains certain forward-looking
statements that involve risks and uncertainties, such as statements of the
Company's plans, objectives, expectations and intentions. The statements should
not be regarded as a representation by the Company that the expectations or
plans of the Company will be achieved. Actual results or events could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, the effect of requirements
imposed by regulatory agencies, the amount of claims submitted by members
enrolled in the Company's health care plans, the further development of
negotiations with parties with whom the Company proposes to enter into
transactions and the conditions of the marketplace in which the Company
operates.
PART II -- OTHER INFORMATION
ITEM 1. [Omitted.]
ITEM 2. [Omitted.]
ITEM 3. [Omitted.]
ITEM 4. [Omitted.]
ITEM 5. [Omitted.]
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Reference is made to the Index of Exhibits hereinafter contained on Page nn.
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter for which this report on
Form 10-QSB is being filed.
<PAGE> 11
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
BY: /s/ JOSEPH BILLOTTI, M.D.
----------------------------
Joseph Billotti, M.D.
Chairman
/s/ BARRY MASSEY
----------------------
Barry Massey
Title..............
DATED: November 14, 1997
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- --------------------------------------------------------------------------------
<S> <C>
3.1 Amended and restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form SB-2)
3.2 Amended and restated By-Laws (incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form SB-2)
4.1 Secondary Offering Prospectus, as approved by the Securities
Exchange Commission on November 9, 1995, detailing rights of
security holders (incorporated by reference to the
Registrant's Registration Statement on Form SB-2)
10.1 Physician Participation Agreement with Registrant, and
amendment thereto (incorporated by reference to the
Registrant's Annual Report on Form 10-KSB for the year ended
December 31, 1995)
10.2 Hospital Letter of Agreement with Registrant (incorporated by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form SB-2)
10.3 Hospital Participation Agreement (incorporated by reference
to Exhibit 10.3 to the Registrant's Registration Statement
on Form SB-2)
10.4 Revised Management Agreement by and between Medical Group
Management, Inc. and the Registrant (incorporated by reference
to Exhibit 10.8 to the Registrant's Registration Statement on
Form SB-2)
10.5 Capital Management Agreement between New England Asset
Management and Registrant (incorporated by reference to
Exhibit 10.9 to the Registrant's Registration Statement on
Form SB-2)
10.6 Letter of Intent between Acordia of Southern California and
Medical Group Management, Inc. (incorporated by reference to
Exhibit 10.10 to the Registrant's Registration Statement on
Form SB-2)
10.7 Lease for Registrant's facility (incorporated by reference to
Exhibit 10.11 to the Registrant's Registration Statement on
Form SB-2)
10.8 Assignment and Assumption of Lease Agreement dated February
11, 1997 (incorporate by reference to Exhibit 10.8 in the
Registrant's Registration Statement Form SB-2)
10.9 Agreement between the Registrant and Medigroup of New Jersey,
Inc. dated as of June 26, 1977 (incorporated by reference to
Exhibit 10.9 to the Registrant's Form 10-QSB for quarter
ended June 30, 1997)
10.10 Management Services Agreement between the Registrant and
Medigroup of New Jersey, Inc. dated as of June 26, 1997
(incorporated by reference to the Registrat's Form 10-QSB
for quarter ended June 30, 1997)
10.11 Termination and Release Agreement by and between Medical
Group Management, Inc. and Physician Healthcare Plan of
New Jersey, Inc., Dated as of July 31, 1997.
10.12 Letter Agreement between Medigroup of New Jersey, Inc. and
Physician Healthcare Plan of New Jersey, Inc., dated as of
August 26, 1997, relating to the sale of certian fixed
assets.
10.13 Services Agreement between The Pace Group, Inc. and Physician
Healthcare Plan of New Jersey, Inc., dated as of August 1,
1997.
10.14 Agreement between Medigroup of New Jersey, Inc. and Physician
Healthcare Plan of New Jersey, Inc., dated July 25, 1997,
relating to the use of certian computer equipment.
27 Financial Data Schedule
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Physician Healthcare Plan of New Jersey, Inc.
By: /s/ Joseph Billotti, M.D.
---------------------------
Joseph Billotti, M.D.
Chairman
/s/ Barry Massey
- --------------------
Barry Massey
Senior Consultant of The Pace Group, Inc.
-----------------------------------------
(Acting in the capacity of Principal Accounting Officer and Principal
---------------------------------------------------------------------
Financial Officer of the Registrant)
------------------------------------
Dated: November 14, 1997
</TABLE>
<PAGE> 1
EXHIBIT 10.3
Hospital Participation Agreement with Registrant
( TO COME )
<PAGE> 1
Exhibit 10.11
TERMINATION AND RELEASE AGREEMENT
This Termination and Release Agreement (the "Agreement") is made effective
as of the 31st day of July, 1997 (the "Effective Date") by and between Medical
Group Management, Inc., a New Jersey corporation, located at Two Princess Road,
Lawrenceville, New Jersey 08648 ("MGM") and Physician Healthcare Plan of New
Jersey, Inc., a New Jersey corporation, located at 1009 Lenox Drive,
Lawrenceville, New Jersey 08648 ("PHPNJ").
BACKGROUND
WHEREAS, MGM and PHPNJ have previously entered into that certain
Management Agreement dated as of September 1, 1994, as amended by letter
agreement dated February 20, 1997 (the "Management Agreement"), pursuant to
which MGM provides certain administrative, management and consulting services
to PHPNJ;
WHEREAS, PHPNJ and Medigroup of New Jersey, Inc. ("Medigroup"), Medigroup,
Inc. and Blue Cross and Blue Shield of New Jersey, Inc. have entered into (1)
that certain Assignment and Transfer Agreement dated June 24, 1997 (the
"Assignment Agreement") pursuant to which Medigroup will, subject to
ratification by PHPNJ shareholders, acquire certain group contracts and
provider agreements from PHPNJ, and (2) effective July 1, 1997, a Management
Services Agreement whereby Medigroup assumed responsibility for providing
management services to PHPNJ for a period of up to six (6) months pending
approvals of the acquisition by PHPNJ shareholders and regulatory authorities;
and
WHEREAS, PHPNJ and MGM desire to terminate their Management Agreement in
accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the obligations
undertaken by the parties hereto, and intending to be legally bound hereby, the
parties hereby agree as follows:
1. Termination
Except as otherwise set forth in this Agreement, all agreements,
understandings, terms and conditions set forth in the Management Agreement
shall terminate as of the Effective Date of this Agreement and such Management
Agreement shall be null and void and have no further legal effect whatsoever.
2. Release
Except for any obligations due under Paragraph 3 hereof, MGM and PHPNJ,
together with their shareholders, Affiliates and assigns, agree to forever
release and discharge each other and their respective shareholders, successors,
assigns and Affiliates from any and all liabilities, rights, obligations,
debts, suits, agreements, licenses, demands or claims of any kind or nature,
<PAGE> 2
which either party and their shareholders, successors, assigns, and Affiliates
ever had, now have or hereafter may have or shall have against the other party,
related to or arising under the Management Agreement. Notwithstanding anything
contained herein to the contrary, either MGM or PHPNJ may file a third party
complaint against the other for the limited purpose of joining the other as a
defendant in any pending action brought by a third party non-shareholder
plaintiff but in no event shall MGM or PHPNJ, as the case may be, bring a
claim, cross claim, counterclaim or otherwise seek monetary damages or other
remedies against the other on its own behalf. For purposes of this Agreement,
"Affiliates" of any party shall mean any other entity controlling, controlled
by or under common control with such specified party.
3. Outstanding Obligations
(a) Within ten (10) working days of the date of execution of this
Agreement, MGM shall perform all of its duties and satisfy all of its
obligations under the Management Agreement which were incurred up through the
Effective Date. The parties agree that all payments owed each by the other as
of the Effective Date shall be reviewed and confirmed by the independent
auditors of PHPNJ, and provided such confirmation is forthcoming, shall be paid
in full no later than thirty (30) days after the Effective Date. Such payments
shall include, without limitation, (i) unpaid management fees, (ii) unpaid
office rental expense, (iii) surplus funds maintained by MGM after giving
effect to all payments due and owing third parties, and (iv) the net purchase
price of furniture and fixtures to be sold by PHPNJ to MGM.
(b) As of the date of execution of this Agreement, MGM shall no longer be
a signatory on the Investment Account(s) or the Operating Account(s)
established pursuant to the Management Agreement between MGM and PHPNJ.
(c) MGM shall provide storage space consisting of approximately 100
square feet at 1009 Lenox Drive, Lawrenceville, New Jersey 08648, or such other
location as the parties may agree, for PHPNJ books and records until the later
of (i) the closing date of the Assignment, or (ii) thirty (30) days after the
surrender by PHPNJ of its Certificate of Authority. PHPNJ shall pay MGM for
such storage at a rate of eighteen dollars ($18.00) per square foot if at the
Lenox Drive location, or such other agreed-upon rate for any alternate
location, and PHPNJ, or Medigroup with the prior consent of PHPNJ, shall have
access to such space on an as needed basis.
(d) In light of the comprehensive nature of MGM's services to PHPNJ under
the Management Agreement, MGM agrees to make itself reasonably available to
assist PHPNJ in the future in the event a matter arises wherein PHPNJ requires
the reasonable assistance of MGM as a former provider of services under the
Management Agreement. Upon request from MGM, PHPNJ shall pay MGM reasonable
compensation for such assistance.
(e) As of the Effective Date, that certain month-to-month lease by and
between
2
<PAGE> 3
MGM, as landlord, and PHPNJ, as tenant, covering approximately 9351 square feet
on the first floor of 1009 Lenox Drive, Lawrenceville, New Jersey, is hereby
terminated, and PHPNJ shall have no current or future obligation whatsoever
under that lease.
(f) MGM acknowledges that it and its affiliates have entered into various
office equipment rental agreements and equipment maintenance agreements in
connection with the management services it provided to PHPNJ. MGM further
acknowledges and agrees that it and its affiliates will perform their
respective obligations under said agreements and that PHPNJ has no obligations
under those agreement.
4. Waiver of Termination Fee
Notwithstanding the provisions of Paragraph 3 hereof and in partial
consideration for the premises set forth herein, MGM hereby waives its right,
if any, to receive, or forgives PHPNJ's obligation, if any, to pay, (i) any
Termination Fee, under section 8.4 of the Management Agreement or (ii) any
payment under section 7.4 of the Management Agreement relating to a Sale or
Change of Control Event, as defined therein.
5. Transition
MGM and PHPNJ agree to abide by the provisions in section 8.6 of the
Management Agreement. This provision shall survive termination of this
Agreement.
6. Confidentiality
Except as required by law or regulation, or as necessary to defend
against suit, MGM and PHPNJ agree to abide by the provisions in section 12 of
the Management Agreement pertaining to the disclosure of Confidential
Information following the termination of the Management Agreement. At PHPNJ's
request, MGM shall return to PHPNJ all copies of PHPNJ confidential documents.
This provision shall survive termination of this Agreement.
7. Non-Competition
MGM and PHPNJ agree that any restrictions on the right of MGM or any of
its Affiliates to own, manage, operate, control or participate in the
ownership, management, operation or control of, or be employed or retained by
any organization or entity competitive with PHPNJ under section 13 of the
Management Agreement following the termination of the Management Agreement
shall be null and void as of the Effective Date.
8. Maintenance of Existence
MGM agrees that it shall maintain its corporate existence until the
earlier of (i) that date upon which PHPNJ liquidates and/or dissolves its
corporate existence, or (ii) the second anniversary date of the Closing of the
acquisition contemplated by the Assignment Agreement (the "Dissolution
Date"). Each of PHPNJ and MGM further agree to maintain all existing policies
of professional liability insurance and Directors and Officers liability
insurance until the Dissolution Date.
3
<PAGE> 4
9. Announcements
Neither party will originate any publicity, news release or other public
announcement related to the Management Agreement or this Agreement, or any
amendment hereto, without the prior written approval of the other party hereto.
This provision shall survive termination of this Agreement.
10. Notices
All notices, requests, demands or other communications called for in this
Agreement shall be in writing and addressed to the parties at the addresses set
forth below and shall be deemed to have been given (i) when personally delivered
(ii) if mailed by registered or certified U.S. mail, postage prepaid, return
receipt requested, when receipt is signed for at the address shown below or
(iii) when receipt is signed for at the address shown below when sent by
overnight courier services. Any party may change the address to which notices
are given by giving notice in the manner provided for herein.
Notices to MGM shall be addressed as follows:
MEDICAL GROUP MANAGEMENT, INC.
Two Princess Road
Lawrenceville, New Jersey 08648
Attention: President
Notices to PHPNJ shall be addressed as follows:
PHYSICIAN HEALTH CARE PLAN OF NEW JERSEY, INC.
Princeton Pike Corporate Center
1009 Lenox Drive
Lawrenceville, New Jersey 08648
Attention: Chairman of the Board
11. Entire Agreement
This Agreement represents the entire Agreement between the parties and
supersedes all prior understandings and agreements, including the Management
Agreement, except those provisions of the Management Agreement that are
specifically ratified herein. This Agreement may not be modified except by an
instrument in writing signed by the parties hereto.
12. Severability
Should any clause of this Agreement be found unenforceable, it shall be
deemed to be severable, and the balance of the Agreement shall continue in full
force as if the unenforceable clause had never been made a part hereof.
4
<PAGE> 5
13. Governing Law
This Agreement and all actions taken hereunder shall be governed by the
laws of the State of New Jersey without regard to principles of conflicts of
law.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
on this 13th day of August, 1997 effective as of the date first written above.
MEDICAL GROUP MANAGEMENT, INC.
By: /s/ Daniel Goldberg
---------------------------
Title:
-------------------------
PHYSICIAN HEALTHCARE PLAN
OF NEW JERSEY, INC.
By: /s/ Joseph D. Billotti, M.D.
----------------------------
Title:
--------------------------
5
<PAGE> 1
EXHIBIT 10.12
[PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY LETTERHEAD]
August 26, 1997
Medigroup of New Jersey, Inc.
433 Bellevue Avenue
Trenton, NJ 08618
Attn: Sharon Hayman
Dear Sharon:
This will confirm our agreement regarding the sale of certain furniture and
equipment by Physician Healthcare Plan of New Jersey, Inc. ("PHPNJ") to
Medigroup of New Jersey, Inc. ("Medigroup"). In consideration for the purchase
price and the other terms of this agreement, PHPNJ hereby agrees to sell to
Medigroup, and Medigroup hereby agrees to purchase, the furniture and equipment
set forth on Exhibit A attached hereto and made a part hereof (the "Assets").
The purchase price for the Assets will be $3,975.00, which purchase price shall
be payable by Medigroup on or before September 12, 1997. If the purchase price
is not paid by that date, the purchase price will accrue interest at the rate of
eighteen percent (18%) per annum from that date until the date paid to PHPNJ.
Upon payment of the purchase price, PHPNJ shall execute a bill of sale in
substantially the form attached hereto as Exhibit B and made a part hereof.
If this agreement sets forth your understanding, please sign below and return
this to my attention.
Sincerely yours,
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
By: /s/ Karen Brayer
______________________________
Karen Brayer
Acting CEO
AGREED AND ACKNOWLEDGED TO:
MEDIGROUP OF NEW JERSEY, INC.
By: /s/ Sharon J. Hayman
_______________________
Name: Sharon J. Hayman
Title: Chief Operating Officer
BCBS Health Centers
<PAGE> 2
EXHIBIT A
FURNITURE AND EQUIPMENT
Thirty (30) five drawer lateral file cabinets
One (1) Hewlett Package HP4si-Serial Number USGB562893
<PAGE> 3
EXHIBIT B
Bill of Sale
Physician Healthcare Plan of New Jersey, Inc. ("Seller") for and in
consideration of the sum of $1.00 and other good and valuable consideration
does hereby sell, grant, transfer, convey and deliver all of its rights, title
and interest in and to the furniture and equipment set forth on Exhibit A
attached hereto (the "Assets") to Medigroup of New Jersey, Inc. ("Buyer").
Seller represents and warrants that it has good and marketable title to the
Assets conveyed hereunder, free and clear of any and all encumbrances, liens,
charges or defects.
IN WITNESS WHEREOF, Seller has caused this instrument to be duly executed
as of the 15th day of September, 1997.
PHYSICIAN HEALTHCARE PLAN OF
NEW JERSEY, INC.
By: /s/ Karen Brayer
------------------------
Karen Brayer
Acting CEO
<PAGE> 1
EXHIBIT 10.13
SERVICES AGREEMENT
THIS SERVICES AGREEMENT (this "Agreement") is made as of the 1st day of
August, 1997, by and between PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC., a
New Jersey corporation ("PHPNJ"), and THE PACE GROUP, INC., a Texas corporation
("Pace").
RECITALS: PHPNJ is engaged in the business of operating a physician health
maintenance organization in the State of New Jersey known as the "Physician
Healthcare Plan of New Jersey". Pace is a provider of management and consulting
services to, among other, health maintenance organizations. Since December
1996, Pace has been providing such services to PHPNJ through a contract with a
company providing management services to PHPNJ. PHPNJ has entered into that
certain Assignment and Transfer Agreement dated as of June 26, 1997 (the
"Assignment") by and among PHPNJ, Medigroup of New Jersey, Inc. ("Medigroup"),
Medigroup, Inc. and Blue Cross and Blue Shield of New Jersey, Inc. Pursuant to
the Assignment, PHPNJ has agreed to assign and transfer its right, title and
interest in and to certain contracts to Medigroup. PHPNJ has also entered into
that certain Management Services Agreement dated as of June 26, 1997 (the
"Management Agreement"), by and between PHPNJ and Medigroup pursuant to which
Medigroup has agreed to provide certain management services to PHPNJ for a
temporary period. As a result of the Assignment and the Management Agreement,
PHPNJ requires the assistance of Pace with certain transition activities. To
that end, PHPNJ wishes to engage Pace, and Pace is willing, to provide services
in support of the Transition Activities on the terms and conditions set forth
below.
NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pace and PHPNJ agree as follows:
1. Engagement of Pace. PHPNJ hereby engages Pace, and Pace hereby
agrees, to provide the services (the "Services") described on Exhibit A
attached hereto and made a part hereof on the terms and conditions set forth
below. Pace shall report to the Chairman of the Board of PHPNJ or other
representative designated from time to time by the Board of Directors of PHPNJ.
2. Pace Personnel. In providing the Services, Pace intends to utilize the
services of the personnel described in Section 3(b) below (the "Pace
Personnel"). The Pace Personnel will be compensated by Pace and will not be, or
be deemed or considered to be, employees or independent contractors of PHPNJ, or
joint employees or independent contractors of Pace and/or PHPNJ, for any
purpose. In the event that PHPNJ determines that the job performance of any of
the Pace Personnel is deficient. PHPNJ
<PAGE> 2
may notify Pace of the nature of such job performance deficiency, and Pace
shall have ten (10) days from the date of such notice to replace such Pace
Personnel.
3. Compensation
(a) PHPNJ shall pay Pace a monthly retainer of $20,000 (the "Monthly
Retainer") by the fifth (5th) day of each month. Pace shall apply the Monthly
Retainer against any amounts billed by Pace for services provided by the Pace
Personnel during the preceding month. Such services will be billed at the rates
set forth in Section 3(b) below. To the extent that the Monthly Retainer
exceeds the amounts billed, such excess will be applied toward the next month's
Monthly Retainer. PHPNJ shall pay any amounts billed in excess of the Monthly
Retainer monthly, upon receipt of an invoice from Pace.
(b) The Pace Personnel shall consist of the following persons, who
will be billed at the rates set forth next to their names:
Karen Brayer $250.00 per hour
Barry Massey $200.00 per hour
and of certain administrative support personnel, who will be billed at $30.00
per hour.
(c) Pace shall bill PHPNJ monthly for Pace's reasonable
out-of-pocket expenses incurred in providing the Services (the "Expenses").
Upon receipt of Pace's invoice, PHPNJ shall reimburse Pace for the Expenses.
The Expenses will include, without limitation, airfare (coach class), lodging,
transportation, telephone charges, facsimile, copying, mailing, postage, meals,
parking and mileage.
4. Confidentiality. Pace may have access to certain information of a
proprietary and confidential nature belonging or pertaining to PHPNJ and/or its
operations (the "Confidential Information"). Pace shall maintain the
Confidential Information in strictest confidence and shall restrict access and
dissemination of the Confidential Information to solely those of its
shareholders, partners, officers, directors, employees, independent contractors
or agents ("Agents") who reasonably have a need to know such information for
the purpose of providing the Services. Otherwise, Pace shall not disclose or
reveal the Confidential Information to any person or entity for any purpose;
provided, however, that Confidential Information may be disclosed or used to
the extent required by Applicable Law or generally and lawfully available to
the public. Pace shall take all necessary and proper precautions against
disclosure of any Confidential Information by any of its Agents in violation of
this Agreement. Pace hereby waives any and all right, title and interest in and
to the Confidential Information and will return, and cause its Related Parties
to return, all copies of such Confidential Information to PHPNJ upon the
expiration or termination of this Agreement for any
<PAGE> 3
reason. This Section shall survive the expiration or termination of this
Agreement for any reason.
5. Term and Termination. The term of this Agreement shall commence on
August 1, 1997, and, unless terminated sooner pursuant to this Agreement, shall
expire at such time as PHPNJ shall request. Either party may terminate this
Agreement upon ten (10) days prior written notice to the other party if the
other party fails to perform any of its obligations hereunder and such failure
continues for a period of thirty (30) days after written notice thereof (which
notice shall describe with particularity the default).
6. Arbitration. Any dispute between the parties arising under this
Agreement will be arbitrated in Lawrenceville, New Jersey, pursuant to the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitration shall be conducted by one arbitrator, to be selected, in good
faith, by the parties. In the event the parties cannot agree upon an
arbitrator, each party shall name one arbitrator, and the arbitrators so named
shall jointly select a third arbitrator, who will conduct the arbitration. The
award of the arbitrator shall be final and the binding upon the parties, and
judgment may be entered thereon upon the application of any party in any court
of competent jurisdiction. The parties shall bear their own costs of
arbitration and shall share equally in the cost of the arbitrator conducting
the arbitration. The provisions of this Section shall survive the termination
or expiration of this Agreement for any reason.
7. Notices. All notices hereunder shall be in writing and shall be
deemed given when hand delivered, sent by overnight courier that provides
confirmation of delivery, telefaxed with voice confirmation and receipt
confirmed, or deposited in the United States mail, certified mail, return
receipt requested, postage prepaid, addressed as follows:
To PHPNJ, at: Physician Healthcare of New Jersey, Inc.
385 South Maple Avenue
Ridgewood, New Jersey 07450
Attn: Joseph D. Billotti, M.D.
Chairman of the Board
To Pace, at: The Pace Group, Inc.
12160 Abrams Road
Suite 409
Dallas, Texas 75243
Attn: Karen Brayer
or to such other address or to such other person as may be designated by notice
given from time to time by one party to the other.
<PAGE> 4
8. Miscellaneous. In the event that any provision of this Agreement is
for any reason held to be invalid, illegal or enforceable, in whole or in part
or in any respect, then such provision only shall be deemed null and void and
shall not affect any other provision hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provisions were
omitted. The headings used herein are for convenience only. This Agreement may
be executed in any number of counterparts, each of which shall be considered an
original and all of which taken together shall constitute one and the same
instrument. This Agreement constitutes the entire agreement of the parties
regarding the subject matter hereof and completely and fully supersedes any and
all other prior agreements, both written and oral, between the parties relating
to the subject matter hereof. This Agreement cannot be modified except in
writing signed by both parties. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New Jersey, without
reference to its conflict of laws rules. This Agreement shall inure to the
benefit of and shall be binding on Pace and PHPNJ and their respective
successors and permitted assigns. This Agreement may not be assigned by either
party without the prior written consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
THE PACE GROUP, INC. PHYSICIAN HEALTHCARE PLAN OF
NEW JERSEY, INC.
By: /s/ Karen A. Brayer By: /s/ Joseph D. Billotti, M.D.
------------------------ -----------------------------
Name: Karen A. Brayer Joseph D. Billotti, M.D.
Title: Vice President Chairman of the Board
<PAGE> 5
EXHIBIT A
SERVICES
Pace shall provide the following services to PHPNJ, including, but not limited
to:
1. Preparing and coordinating PHPNJ corporate, shareholder and provider
communications and meetings (including, without limitation, preparing and
mailing notices and other communications to shareholders, providers and the
Board of Directors of PHPNJ, preparing minutes, providing supplies, etc.)
2. Preparing and coordinating response to stock redemption requests with counsel
to PHPNJ and the Board of Directors of PHPNJ and otherwise responding to
shareholder communications after consultation with the Chairman of PHPNJ.
3. Coordinating, reviewing and assisting with the preparation of proxies and
other Securities Exchange Commission filings, including, without limitation,
providing/preparing financial data necessary for disclosure in such filings
and preparing and delivering any notices required.
4. Coordinating transition requirements of the New Jersey Department of Banking
and Insurance and the New Jersey Department of Health and Senior Services,
including, preparing and filing any reports required and coordinating the
establishment of claims reserves and the surrender of PHPNJ's Certificate of
Authority.
5. Monitoring and enforcing (at the direction of PHPNJ) Medigroup's compliance
with the Management Agreement and the performance standards set forth
therein, including, without limitation, reviewing accounts payable.
6. Preparing/providing financial data necessary for tax returns and coordinating
their filing with Ernst & Young.
7. Coordinating, reviewing and assisting with the preparation of PHPNJ's second
quarter financial report to the New Jersey state regulatory authorities,
including, but not limited to, the following activities: (i) reviewing and
adjusting the financial information, (ii) drafting a section on management
discussion and analysis, and (iii) coordinating a legal review thereof.
8. Coordinating the investment of PHPNJ's funds in accordance with the policies
of PHPNJ's Board of Directors.
<PAGE> 6
EXHIBIT A
9. Coordinating marketing activities, including contacting brokers regarding
new and existing business.
10. Preparing plan of liquidation of PHPNJ and coordinating and arranging for
the liquidation of the furniture, equipment and other assets of PHPNJ.
11. Such other services as PHP may reasonably request.
To the extent possible, Pace shall provide the Services from their offices in
Dallas, Texas; however, the Pace Personnel shall be available for on-site
meetings as needed. To the extent permitted by applicable law, all corporate
books and records of PHPNJ, except for daily operational items, shall be stored
at Pace's offices in Dallas, Texas. All PHPNJ shareholder inquiries shall be
forwarded to Pace and handled by the Pace Personnel in Dallas, Texas.
<PAGE> 1
Exhibit 10.14
AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of the 25th day of July, 1997,
by and between PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC., a New Jersey
corporation ("PHPNJ"), and MEDIGROUP OF NEW JERSEY, INC., a New Jersey
corporation ("Medigroup").
RECITALS: PHPNJ is engaged in the business of operating a physician health
maintenance organization in the State of New Jersey known as the "Physician
Healthcare Plan of New Jersey". PHPNJ has entered into that certain Management
Services Agreement dated as of June 26, 1997 (the "Management Agreement"), by
and between PHPNJ and Medigroup pursuant to which Medigroup has agreed to
provide certain management services to PHPNJ. In order to perform the
Management Agreement, Medigroup has requested that PHPNJ allow Medigroup access
to and use of certain equipment and software on the terms and conditions set
forth below.
NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Medigroup and PHPNJ agree as follows:
1. Right to Use Computers. PHPNJ hereby agrees to permit Medigroup to
access and use the computer equipment and software listed on Exhibit A attached
hereto and made a part hereof (collectively, the "Computer Equipment"),
together with all operating manuals and similar information and all service
contracts and manufacturer's warranties (to the extent assignable) on the terms
and conditions set forth herein. Medigroup, at its own expense, shall pick up
the Computer Equipment from PHPNJ's premises for use at Medigroup's premises
located at Three Penn Plaza East, Newark, New Jersey or 433 Bellevue Avenue,
Trenton, New Jersey (the "Locations") and shall promptly redeliver the same to
PHPNJ (at such location as PHPNJ shall direct) at the expiration or termination
of this Agreement. Medigroup acknowledges and agrees that PHPNJ has not made
any representations or warranties concerning the Computer Equipment, that PHPNJ
makes no warranties (express or implied) and disclaims all liability with
respect thereto, that Medigroup accepts the same in an "AS IS" condition and
that Medigroup waives all rights against PHPNJ with respect thereto.
2. Title; Fees. PHPNJ represents to Medigroup that PHPNJ owns the
Computer Equipment, has the right to use it and shall take all actions necessary
to defend title to the Computer Equipment. The parties acknowledge and agree
that the Computer Equipment is and shall at all times remain the sole personal
property of PHPNJ, and that Medigroup's right to use the Computer Equipment
hereunder shall in no way affect or impair PHPNJ's title to the Computer
Equipment. Notwithstanding this, Medigroup shall be responsible for, and hereby
indemnifies and holds PHPNJ harmless from, all taxes, license fees, telephone
line fees, computer line fees and all other charges of any nature relating to
Medigroup's use of the Computer Equipment hereunder.
3. Use and Maintenance. Medigroup shall use the Computer Equipment (a)
solely in providing services to PHPNJ pursuant to and in accordance with the
terms of the Management Agreement; (b) for the purpose for which the Computer
Equipment was designed, in a careful and proper manner, consistent with all
appropriate operating materials and prudent business practices; (c) so as to
cause the Computer Equipment to be in at least the same condition at the end of
the term of this Agreement as when received by Medigroup (ordinary wear and
tear from proper use excepted); (d) at the Locations only; and (e) in
compliance with all applicable law and Medigroup's insurance policies.
Medigroup acknowledges and agrees that its right to use the Computer Equipment
hereunder applies solely to Medigroup and its
<PAGE> 2
authorized employees, agents and independent contractors, and that Medigroup
shall not permit any other person or entity to use the Computer Equipment
without the express written consent of PHPNJ. Medigroup shall properly
maintain, service and repair the Computer Equipment throughout the term of this
Agreement and shall not remove any parts from, or make any alterations to,
thereto without the prior written consent of PHPNJ. Medigroup shall permit
PHPNJ to have access to the premises where the Computer Equipment is located
for the purpose of inspection at any reasonable time during normal business
hours.
4. Insurance. Medigroup, at its expense, shall maintain physical damage
and liability insurance insuring the Computer Equipment as it does on computer
equipment that it owns or leases. All such insurance shall (a) be in amounts,
with companies, and in such form as is acceptable to PHPNJ; (b) provide that
PHPNJ shall receive at least 30 days' advance notice of any material change in,
or cancellation of, such insurance; and (c) name PHPNJ as additional insured
and as sole loss payee. Medigroup shall provide PHPNJ with evidence of such
coverage.
5. Risk of Loss. Medigroup assumes the entire risk of loss of or damage
to the Computer Equipment from all causes until redelivery to PHPNJ. In the
event of loss or damage to any item of Computer Equipment, Medigroup shall, at
its expense (except to the extent of any insurance proceeds that have been
received by PHPNJ), and at PHPNJ's direction, either (a) repair such item to
its original condition, (b) replace such item with a like item acceptable to
PHPNJ of equivalent value by conveying title thereto to PHPNJ, free and clear
of all liens, or (c) pay PHPNJ the fair market value of such Item immediately
prior to such event of loss or damage.
6. Indemnification. Medigroup hereby indemnifies and holds harmless
PHPNJ from and against any and all liability, claims, damages or losses
(including reasonable attorneys' fees and costs) arising out of this Agreement,
including, without limitation, Medigroup's use of the Computer Equipment
hereunder. PHPNJ hereby indemnifies and holds harmless Medigroup from and
against any and all liability, claims, damages or losses (including reasonable
attorneys' fees and costs) arising out of this Agreement, including, without
limitation, PHPNJ's use of the Computer Equipment prior to the date hereof.
7. Term and Termination. The term of this Agreement shall commence on
the date hereof, and, unless terminated sooner pursuant to this Agreement,
shall expire upon the first to occur of the termination or expiration of the
Management Agreement. If Medigroup fails to perform any of its obligations
hereunder and such failure continues for a period of thirty (30) days after
written notice thereof, PHPNJ may (a) terminate this Agreement upon ten (10)
days' prior written notice to Medigroup; (b) require Medigroup to assemble and
return the Computer Equipment in accordance hereof or to make the same
available for repossession by PHPNJ; (c) recover from Medigroup all expenses
incurred in enforcing this Agreement; and/or (d) avail itself of any other
remedies available to it at law or in equity (including specific performance).
All such remedies are cumulative and may be exercised concurrently or
separately. No failure by PHPNJ to exercise, and no delay in exercising, any
right or remedy shall constitute a waiver thereof. A default hereunder shall
not constitute a default under that certain Agreement dated as of June 26, 1997,
among PHPNJ, Medigroup, Medigroup, Inc. and Blue Cross and Blue Shield of New
Jersey, Inc. or under that certain Management Services Agreement dated as of
June 26, 1997, between PHPNJ and Medigroup.
8. Notices. All notices hereunder shall be in writing and shall be
deemed given when hand delivered, sent by overnight courier that provides
confirmation of delivery, telefaxed with voice confirmation and receipt
confirmed, or deposited in the United States mail, certified mail, return
receipt requested, postage prepaid, addressed as follows:
2
<PAGE> 3
To PHPNJ, at: Physician Healthcare of New Jersey, Inc.
385 South Maple Avenue
Ridgewood, New Jersey 07450
Attn: Joseph D. Billotti, M.D.
Chairman of the Board
Fax: (201) 447-9326
To Medigroup, at: Medigroup of New Jersey, Inc.
433 Bellevue Avenue
Trenton, New Jersey 08618
Attn: Sharon Hayman
Fax: (609) 599-1095
or to such other address or to such other person as may be designated by notice
given from time to time by one party to the other.
9. Miscellaneous. In the event that any provision of this Agreement is
for any reason held to be invalid, illegal or unenforceable, in whole or in part
or in any respect, then such provision only shall be deemed null and void and
shall not affect any other provision hereof, and this Agreement shall be
construed in all respects as if such invalid or unenforceable provisions were
omitted. The headings used herein are for convenience only. This Agreement may
be executed in any number of counterparts, each of which shall be considered an
original and all of which taken together shall constitute one and the same
instrument. This Agreement constitutes the entire agreement of the parties
regarding the subject matter hereof and completely and fully supersedes any and
all other prior agreements, both written and oral, between the parties relating
to the subject matter hereof. This Agreement cannot be modified except in
writing signed by both parties. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New Jersey, without
reference to its conflict of laws rules. This Agreement shall inure to the
benefit of and shall be binding on Medigroup and PHPNJ and their respective
successors and permitted assigns. This Agreement may not be assigned by either
party without the prior written consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MEDIGROUP OF NEW JERSEY, INC. PHYSICIAN HEALTHCARE PLAN OF
NEW JERSEY, INC.
By: By:
--------------------------- ----------------------------
Donna Celestini Joseph D. Billotti, M.D.
Executive Vice President Chairman of the Board
<PAGE> 4
EXHIBIT A
COMPUTER EQUIPMENT
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION SERIAL NUMBER
- -------- ----------- -------------
<S> <C> <C>
2 Equipment Cabinet N/A
Color Blue
Plex door front, no rear door,
Pair side panels, top fan, 3
Shelves and one 6 ft. power
Strip
1 SHIVA PE202549
Lan Rover/E Plus
2 3COM 0201/76WV160509
LinkBuilder FMS II 24pot 0201/76WV160409
2 APC S95070171171
Smartup 2200 S95070171072
2 COMPAQ 6535HNF10438
Proliant 1500 6539HNF10189
1 COMPAQ 6535HNM10149
Proliant Fast wide SCSI2
with (5) 2.1 gb SCSI Drives
1 COMPAQ 6535HNM10104
Proliant Fast wide SCSI 2
with (1) 2.1 gb SCSI Drive
2 COMPAQ 53041409A189
Monitor 53041409A180
2 COMPAQ 1NQ39BV03726
Keyboard 1GD34CC15293
1 COMPAQ A521HNB5E667
Prolinea 575 CPU. Keyboard,
Mouse
</TABLE>
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION SERIAL NUMBER
- -------- ----------- -------------
<S> <C> <C>
1 COMPAQ D530HNY3D161
Prolinea 5100 CPU, Keyboard,
mouse
</TABLE>
2
<PAGE> 5
3 VIEWSONIC J244718843
17" Monitor J250325750
J251339437
1 DELL
17" Monitor V1728UL
1 COMPAQ D451HNE25609
Prolinea 4/66 CPU keyboard,
mouse
1 VIEWSONIC J250325750
17" Monitor
SOFTWARE PACKAGES
File Server:
Novell NetWare 3.12 250 user license
Mcafee Netshield virus scan
Cheyenne Arcserve-tape backup system
OnTime Calendaring
Workstations
Windows 3.1 and 3.11
Microsoft Office 4.3
Word
Excel
PowerPoint
Access
Lotus 1-2-3
Sweetpro Physicians tracking system
Reflections-Acordia communications
Freedom-Financial reporting system
WordPerfect
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,864,630
<SECURITIES> 2,166,486
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,755,207
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,921,693
<CURRENT-LIABILITIES> 5,052,240
<BONDS> 0
0
0
<COMMON> 23,796,612
<OTHER-SE> (4,706)
<TOTAL-LIABILITY-AND-EQUITY> 8,921,693
<SALES> 0
<TOTAL-REVENUES> 2,314,409
<CGS> 0
<TOTAL-COSTS> 2,849,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (535,380)
<INCOME-TAX> 0
<INCOME-CONTINUING> (535,380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (535,380)
<EPS-PRIMARY> (115)
<EPS-DILUTED> (115)
</TABLE>
