<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 June 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 shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 14, 1997, there were
4,631 shares of Common Stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes _____ No __X__
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PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements
Balance Sheets as of June 30, 1997 and December 31, 1996 3
Statements of Operations for the Three Months Ended
June 30, 1997 and 1996 4
Statements of Operations for the Six Months Ended
June 30, 1997 and 1996 5
Statements of Changes in Shareholders' Equity for the Six Months Ended
June 30, 1997 and the Year Ended December 31, 1996 6
Statements of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 7
Notes to Financial Statements 8
ITEM 2. Management's Plan of Operation 9
PART II - OTHER INFORMATION 11
ITEM 1. Legal Proceedings.
ITEM 2. Changes in Securities.
ITEM 3. [Omitted].
ITEM 4. [Omitted].
ITEM 5. Other Information.
ITEM 6. Exhibits and Reports on Form 8-K.
</TABLE>
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,971,628 $ 5,563,345
Short-term investments 498,750 1,307,185
Advances to management company 414,973 430,929
Reinsurance recoverable on claims payable 345,984 300,000
Prepaid and other assets 272,097 321,714
------------ ------------
TOTAL CURRENT ASSETS 5,503,432 7,923,173
Investments 2,465,502 2,651,139
Furniture and equipment, net 304,487 1,320,867
Other assets -- 18,107
------------ ------------
TOTAL ASSETS $ 8,273,421 $ 11,913,286
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Claims payable $ 2,568,702 $ 1,544,647
Accounts payable and accrued expenses 839,926 782,428
Funds held for reinsurer 261,415 328,789
Other liabilities 205,703 85,679
------------ ------------
TOTAL LIABILITIES 3,875,747 2,741,543
------------ ------------
SHAREHOLDERS' EQUITY
Common Stock, subject to redemption 23,729,922 23,750,222
(no par; 20,000 authorized; 4,631
and 4,636 issued and outstanding)
Paid in capital 66,690 43,214
Net unrealized loss on investments (11,865) (5,476)
Retained deficit (19,387,073) (14,616,217)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 4,397,674 9,171,743
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,273,421 $ 11,913,286
============ ============
</TABLE>
See accompanying notes.
3
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PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
REVENUE
Premiums, net of reinsurance $ 2,160,040 $ 235,393
Interest income, net 83,367 126,084
Other revenue 27,366 12,742
----------- -----------
TOTAL REVENUE 2,270,773 374,219
----------- -----------
EXPENSES
Medical costs 3,077,077 189,846
Professional services 1,242,481 976,115
Compensation and benefits 314,126 854,335
General and administrative 394,595 532,275
Provision for Loss on 760,000 --
Furniture and Equipment
Insurance 38,109 48,378
----------- -----------
TOTAL EXPENSES INCURRED 5,826,388 2,600,949
----------- -----------
NET LOSS $(3,555,615) $(2,226,730)
=========== ===========
Net loss per common share $ (768) $ (506)
=========== ===========
</TABLE>
See accompanying notes.
4
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PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
REVENUE
Premiums, net of reinsurance $ 4,216,303 $ 328,549
Interest income, net 287,918 253,361
Other revenue 70,811 13,138
----------- -----------
TOTAL REVENUE 4,575,032 595,048
----------- -----------
EXPENSES
Medical costs 4,719,203 269,409
Professional services 2,335,949 2,089,064
Compensation and benefits 689,238 1,743,522
General and administrative 768,471 1,100,143
Provision for Loss on 760,000 --
----------- -----------
Furniture and Equipment
Insurance 73,027 97,656
----------- -----------
TOTAL EXPENSES INCURRED 9,345,888 5,299,794
----------- -----------
NET LOSS $(4,770,856) $(4,704,746)
=========== ===========
Net loss per common share $ (1,030) $ (1,188)
=========== ===========
</TABLE>
See accompanying notes.
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
5
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PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1997 AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NET
UNREALIZED TOTAL
PAID IN (LOSS) GAIN RETAINED SHAREHOLDERS'
COMMON STOCK CAPITAL ON INVESTMENTS DEFICIT EQUITY
------------ ------- -------------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE AT $ 17,575,000 $ 24,838 $ 21,645 $ (6,106,450) $11,515,033
DECEMBER 31, 1995
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, (20,300) 23,476 3,176
net (5 shares)
Change in net unrealized (6,389) (6,389)
losses
Net loss (4,770,856) (4,770,856)
------------ ----------- ----------- ------------ -----------
BALANCE AT JUNE 30, 1997 $ 23,729,922 $ 66,690 $ (11,865) $(19,387,073) $ 4,397,674
============ =========== =========== ============ ===========
</TABLE>
See accompanying notes.
6
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PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net Loss $(4,770,856) $(4,704,746)
Adjustment to reconcile net loss to net cash used
for operating activities :
Loss on Disposal of Furniture and 760,000 --
Equipment
Depreciation and amortization 143,788 283,112
Advances to management company 15,956 (1,699,362)
Prepaid and other assets 49,617 81,976
Accounts payable and accrued expenses 57,498 623,885
Claims payable 1,024,055 160,365
Reinsurance recoverable on unpaid losses (45,984) --
Other liabilities 120,024 66,182
Other assets 18,107 --
Funds held for reinsurer (67,373) --
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING (2,695,168) (5,188,588)
ACTIVITIES
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES :
Proceeds from sale of equipment 20,373 --
Purchase of equipment -- (127,710)
Proceeds from investments matured 3,517,675 --
Cost of investments acquired (2,437,773) --
----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING 1,100,275 (127,710)
ACTIVITIES
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Common stock subscribed -- 5,729,850
Redemption of common stock 3,176 (5,349)
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING 3,176 5,724,501
ACTIVITIES
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH (1,591,717) 408,203
EQUIVALENTS
Cash and cash equivalents, beginning of period 5,563,345 5,308,465
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,971,628 $ 5,716,668
=========== ===========
</TABLE>
See accompanying notes.
7
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PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. UNAUDITED FINANCIAL STATEMENTS
The financial information for the three and six months ended June 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. 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".
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.
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 will provide 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 will be based upon a per member per month fee, and will be lower than
management fees previously paid by the Company.
In addition, the Company expects to engage 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
will pay Pace a retainer of $20,000 per month, applied against hourly billings
for services and expenses.
Following the execution of the Management Agreement, the Company entered into
negotiations with MGM to terminate the previous management agreement. In the
interest of facilitating management transition, the Company expects the
termination of the management agreement with MGM to be effective as of July 31,
1997.
8
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4. SALE OF FIXED ASSETS
With the Purchaser's assumption of responsibility for management and
administrative services through the Management Agreement, the Company has
proposed to sell to MGM its fixed assets, chiefly furniture and computer
equipment at its office location in Lawrenceville, New Jersey. MGM has offered
approximately $260,000 for the Company's fixed assets, based primarily on a
series of appraisals obtained from independent third party appraisal firms. The
Company expects to close on the sale of fixed assets to MGM in a transaction to
be effective as of July 31, 1997. Based on June 30, 1997 net book values for
those fixed assets, the Company has recorded a $760,000 provision for loss on
furniture and equipment during the three months ended June 30, 1997.
5. COMMITMENTS AND CONTINGENCIES
The Company leases office facilities and office equipment. Effective October 1,
1996, NJSMU assumed the Company's obligation under the office facilities lease
and subleased 33% of the facility back to the Company under terms consistent
with the original lease. As of the July 31, 1997 effective date of the
termination of the MGM Management Agreement, the Company expects that the
month-to-month lease for 9,351 square feet at 1009 Lenox Drive, Lawrenceville,
New Jersey will be terminated and the Company will have no further obligation
under such lease. Upon such termination, the Company will not occupy any space
at any location.
6. REINSURANCE
The Company entered into a specific excess of loss reinsurance agreement with
an admitted AAA rated reinsurer with a retention limit of $35,000 per member
per year. Under the terms of the agreement, the Company pays a per memeber per
month premium in exchange for reimbursement of medical claims exceeding the
rentention limit. The Company has not recorded any reinsurance recoveries
related to this agreement. In the event of the Company's insolvency. the
reinsurer will continue to pay for services for the duration of the contract
period for which payment has been made, not to exceed 31 days or until the time
of discharge for members confined in an inpatient facility on the date of
insolvency.
In 1996, the Company entered into an additional arrangement with a reinsurer to
cover 100% of the out-of-network claims incurred related to the
Point-of-service ("POS") product. Such arrangements are required by New Jersey
regulations as preconditions for underwriting POS products. For both
arrangements, the Company remains primains primarily liable as the direct
insurer on all risks reinsured. In addition, all of the Company's reinsurance
is placed with a single reinsurer.
In April 1997 the comapny renewed its reinsurance coverage under similar terms
effective through December 31, 1997. With the announcement of the Agreement,
the reinsurer has given notice of its intent to cancel the policy based on
management changes. That cancellation is effective August 31, 1997.
Management will seek to renew the reinsurance without a lapse in coverage, but
expects that any such renewal would occur at a somewhat higher premium.
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 June 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 net 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 Footnote 2 of the Notes to Financial Statements,
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 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 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 Footnote 4 of the Notes to Financial Statements the
Company has proposed to sell to MGM its furniture and equipment. The Company
also proposes to sell 8 automobiles, and has authorized MGM to effect such
sales.
The Company expects that it will sell to the Purchaser certain office
equipment and file cabinets for a price of approximately $4,000. In addition,
the Company expects that, in connection with the Purchaser's performance of
management services, as described in Footnote 3, the Company will permit the
Purchaser 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.
Operations
9
<PAGE> 10
During the three months ended June 30, 1997, the Company's revenues
increased from the comparable 1996 fiscal period by $1,896,554, with $1,924,647
attributable to increased enrollment in the HMO and Point-of-Service ("POS")
products sold by the Company. The increase in premium revenue was partially
offset by lower interest income attributable to declining investment balances
over the preceding fiscal periods. Results for 1996 reflected limited sales
dependent on the timing of the Company's COA approval by the Department in
early 1996. At June 30, 1997, the Company reported total enrollment of 6,257
members, compared to only 880 at June 30, 1996. As reported in prior periods,
the Company continues 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.
Medical costs increased $2,887,224 from the comparable 1996 fiscal
period reflecting the enrollment increase described earlier, coupled with a
recent increase in claims payments. In May and June, 1997, claims payments
experienced a substantial increase to approximately $888,000 and $1,036,000,
respectively, compared to an average of $324,000 per month for the period
January-April, 1997. Those increased claims payments have resulted from
increases in the number of claims per member, and increases in the average
cost per claim. In addition to increased utilization of medical services
by the HMO membership, weekly reporting from the claims processor identified
reductions in claims inventory during this period.
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 is at the high end of the actuary's
suggested range.
As noted in Footnote 6 of the Notes to Financial Statements, the
Company's reinsurer has given notice of its intent to cancel the Company's
reinsurance policies based on management changes effective August 31, 1997.
Management will seek to renew the reinsurance without a lapse in coverage, but
expects that any such renewal would occur at a somewhat higer premium. No
assurance can be given that coverage can be renewed on terms acceptable to the
Company. Any failure to renew coverage could have a material adverse effect on
the Company's ability to write POS coverage in the future.
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.
All other expense categories (Professional services, Compensation and
benefits, General and administrative, and Insurance) decreased a total of
$411,523 from the comparable 1996 fiscal period, primarily reflecting (a)
reduced advertising, (b) reduced permanent staffing partially offset by
consultants and other temporary staffing, and (c) reduced occupancy costs
resulting from an assignment-sublease arrangement effective October 1, 1996. As
noted in Footnote 4 of the Notes to Financial Statements, the Company recorded
a Provision for Loss on Furniture and Equipment of $760,000, reflecting its
intent to dispose of fixed assets that will no longer be needed at the best
available price based upon a series of independent appraisals.
Financial Condition
During the first six months of 1997, the Company incurred a net loss of
$4,770,856, with operations requiring the use of $2,695,168 in cash. The Company
obtained the funds to finance its operating deficit by withdrawing $1,591,717
from Cash and cash equivalents, $808,425 from Short-term investments, and
$185,637 in Investments. In addition the Company incurred the $760,000 write-off
described in Footnote 4 of the Notes to Financial Statements, reflecting the
appraised value of fixed assets no longer needed for Company operations which
have been turned over to the Purchaser. The new Management Agreement with the
Purchaser is described in Footnote 3 of the Notes to Financial Statements.
Taken together these changes account for the $3,639,865 decline in total
assets. The State of New Jersey imposes a minimum net worth
10
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requirement of $1,000,000. As of June 30, 1997, the Company's statutory net
worth was $4,323,843, or approximately $3.3 million above the minimum.
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. LEGAL PROCEEDINGS
There are no legal proceedings pending against the Company which, if successful,
would materially adversely affect the operations or financial condition of the
Company.
ITEM 2. CHANGES IN SECURITIES.
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.
ITEM 3. [Omitted.]
ITEM 4. [Omitted.]
ITEM 5. OTHER INFORMATION.
The following directors have resigned during 1997: Raymond Kenny, M.D., Stephen
P. Landauer, M.D., Henry D. Rosin, M.D., and Ian Samson, M.D.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Reference is made to the Index of Exhibits hereinafter contained on Page
12.
(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.
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INDEX TO EXHIBITS
EXHIBIT NO. EXHIBIT
- ----------- -------
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 with Registrant
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)
10.7 Lease for Registrant's facility (incorporated by reference to Exhibit
10.11 to the Registrant's Registration Statement on SB-2).
10.8 Assignment and Assumption of Lease Agreement dated as of February 11,
1997. (Filed herewith).
10.9 Agreement between the Registrant and Medigroup of New Jersey, Inc.
dated as of June 26, 1997.
10.10 Management Services Agreement between the Registrant and Medigroup of
New Jersey, Inc. dated as of June 26, 1997.
27 Financial Data Schedule
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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: August 14, 1997
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Exhibit 10.8
ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT
THIS ASSUMPTION OF LEASE (this "Assumption") dated as of February 11,
1997 by PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY INC., a New Jersey
corportation having an office at 1009 Lenox Drive, Lawrenceville, NJ 08648
("PHP") to NJ STATE MEDICAL UNDERWRITERS, a New Jersey corporation having an
office at 2 Princess Road, Lawrenceville, New Jersey 08648 ("ASSIGNEE").
W I T N E S S E T H
For valuable consideration, the receipt and adequacy of which are
hereby expressly acknowledged, PHP and ASSIGNEE agree that:
1. ASSIGNMENT AND DELIVERY OF THE PREMISES. PHP assigns to
ASSIGNEE, effective as of October 1, 1996 (the "Effective Data"), all of PHP's
right, title and interest and ASSIGNEE assumes and agrees to perform each and
every obligation of PHP under the lease dated May 24, 1995 between Princeton
Pike Corporate Center Associates IV, a New Jersey partnership, (the "Landlord")
and PHP (the "Lease") with respect to the 28,053 rsf of office space (the
"Premises") located at ground floor level of 1009 Lenox Drive, Lawrenceville,
New Jersey (the "Building"). ASSIGNEE acknoweldges delivery of the Premises as
of the Effective Date. ASSIGNEE will provide Landlord with a replacemant cash
Security Deposit in the amount of $150,000.00 and upon receipt of such deposit
Landlord agrees that the PHP Letter of Credit may be terminated and Landlord
shall return the $50,000.00 PHP Security Deposit to PHP.
As additional security for Landlord's agreement to this Assignment, the Lease
shall be guaranteed by The Medical Inter-Insurance Exchange ("Guarantor"), a
New Jersey corportation having an office at 2 Princess Road, Lawrenceville, New
Jersey 08648 using the Guaranty form attached hereto as Exhibit A.
2. PARTIAL SUBLEASE. Landlord acknowledges that ASSIGNNEE can
sublease approximately 9,351 rsf of the Premises to PHP for its continued use
at the same rates and under the same conditions contained in the Lease, but
that ASSIGNEE will be primarily responsible under the Lease for all payments of
rent. Landlord's acknowledgement of such sublease is not intended to create
privity between Landlord and PHP with regard to such sublease or any of the
responsibilities of Tenant Under the Lease and Landlord will look to ASSIGNEE
only for all obligations of Tenant under the Lease.
3. ENTIRE AGREEMENT. This Assumption embodies the entire agreement
of PHP and ASSIGNEE with respect to the subject matter of this Assumption, and
it supersedes any prior agreements, whether written or oral, with respect to
the subject matter of this Assumption. There are no agreements or
understandings which are not set forth in this Assumption. This Assumption may
be modified only by a written instrument duly executed by PHP and ASSIGNEE and
consented to in writing by Landlord.
Page 1 of 3
<PAGE> 2
4. BINDING EFFECT. The terms and provisions of this Assumption will
inure to the benefit of, and will be binding upon, the successors, assigns,
personal representatives, heirs, devisees, and legatees of PHP and ASSIGNEE.
PHP and ASIGNEE have executed this Assumption on the respective dates set forth
beneath their signatures below. Any agent or other person executing this
Assignment and Assumption Agreement on behalf of either party represents and
warrants to the other and to Landlord that he or she has full power and
authority to execute this agreement on such party's behalf.
5. GOVERNING LAW. This Assumption shall be construed in accordance
with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties have executed this Assignment
as of the dates listed below.
Attest: PHYSICIANS HEALTHCARE PLAN
OF NEW JERSEY
/s/ Maria A. Puglisi By: /s/ Karen A. Brayer
- -------------------- -------------------
Name: MARIA A. PUGLISI Name: KAREN A. BRAYER
Title: A Notary Public of New Jersey Title: Acting CEO
(Seal) My Commission Expires Auguse 3, 2000 Date: 03/18/97
NJ MEDICAL UNDERWRITERS
/s/ Maria A. Puglisi By: /s/ David Goldberg
- -------------------- -----------------------
Name: MARIA A. PUGLISI Name: David Goldberg
Title: A Notary Public of New Jersey Title: President & CEO
(Seal) My Commission Expires August 3, 2000 Date: 03/19/97
In acknowledgement of guaranty obligations set forth in Paragraph 1 of this
agreement:
THE MEDICAL INTER-INSURANCE
EXCHANGE
/s/Maria A. Puglisi /s/David Goldberg
- ------------------- ------------------
Name: Maria A. Puglisi By: David Goldberg
Title: A Notary Public of New Jersey Name: David Goldberg
(Seal) My Commission Expires August 3, 2000 Title: President & CEO
Date: 03/19/97
LANDLORD'S CONSENT
Provided PHP becomes current in all of its Lease rental obligations prior to
the Effective Date of the Assumption Agreement, Landlord hereby consents to
this Assumption Agreement as of the 2nd day of April, 1997 and further agrees
that PHYSICIANS HEALTHCARE PLAN OF NEW JERSEY, a New Jersey corporation is
hereby released from the obligations of the Lease which are assumed by NJ
MEDICAL UNDERWRITERS, A New Jersey corporation and guaranteed by THE MEDICAL
INTER-OFFICE EXHANGE, a New Jersey corporation. ("Guarantor") pursuant to the
Page 2 of 3
<PAGE> 3
above Assumption of Lease Agreement, provided that ASSIGNEE provides a
cash Security Deposit in accordance with the provisions of Article 17 of the
Lease of $150,000. Landlord agrees that upon Landlord's receipt of the $150,000
Security Deposit from ASSIGNEE, PHP may then terminate its Letter of Credit and
Landlord shall return the $50,000.00 cash PHP Security Deposit. Landlord also
consents to the Sublease as set forth in Paragraph 2 above, but Landlord shall
collect all rentals from ASSIGNEE and ASSIGNEE shall remain primarly liable
under the Lease.
PRINCETON PIKE CORPORATE CENTER
ASSOCIATES IV
ATTEST: BY: PIKE IV HOLDING, LLC., a New Jersey
limited liablity company
BY: DKM Properties Corp., attorney-in-fact
/s/Donald M. Slaught
- ---------------------------- ---------------------
Anita J. Marrull, Asst. Secty BY: Donald M. Slaght, Vice President-Leasing
Page 3 of 3
<PAGE> 1
EXHIBIT 10.9
AGREEMENT
BY AND BETWEEN
MEDIGROUP OF NEW JERSEY, INC.
AND
PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC.
RELATING TO THE PURCHASE OF
THE HMO AND PPO OPERATIONS OF PHPNJ
-------------------------------
DATED AS OF JUNE 26, 1997
-------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1.
ASSIGNMENT AND TRANSFER.................................................................................. 1
Section 1.1 Assignment and Transfer................................................................ 1
Section 1.2 Excluded Liabilities................................................................... 2
Section 1.3 Deposit................................................................................ 2
Section 1.4 Management Agreement................................................................... 3
Section 1.6 Purchase Price Adjustment.............................................................. 3
Section 1.7 Closing................................................................................ 3
Section 1.8 Consents to Assignments................................................................ 5
Section 1.9 Payment of Premiums and Claims......................................................... 6
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES........................................................................... 6
Section 2.1 Organization, Qualifications and Corporate Power and Business.......................... 6
Section 2.2 Validity............................................................................... 6
Section 2.3 No Conflict............................................................................ 6
Section 2.4 Contracts.............................................................................. 7
Section 2.5 Tax Matters............................................................................ 7
Section 2.6 Litigation; Compliance with Law; Business Practices.................................... 7
Section 2.7 Other Agreements....................................................................... 8
Section 2.8 Defaults............................................................................... 8
Section 2.9 Transaction With Affiliates............................................................ 8
Section 2.10 Governmental Approvals................................................................. 8
Section 2.11 Brokers................................................................................ 9
Section 2.12 Disclosure............................................................................. 9
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER, MEDIGROUP
AND BCBSNJ............................................................................................... 9
Section 3.1 Organization, Qualifications and Power and Business.................................... 9
Section 3.2 Validity............................................................................... 9
Section 3.3 No Conflict............................................................................ 9
Section 3.4 Copies of Contracts................................................................... 10
Section 3.5 Brokers............................................................................... 10
Section 3.6 Management of the Business............................................................ 10
Section 3.7 Accuracy of the Seller's Representations.............................................. 10
Section 3.8 Disclosure............................................................................ 10
ARTICLE 4.
COVENANTS............................................................................................... 10
Section 4.1 Conduct of Business................................................................... 10
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 4.2 Confidentiality....................................................................... 11
Section 4.3 Best Efforts.......................................................................... 12
Section 4.4 Certain Notifications................................................................. 12
Section 4.5 Supplemental Disclosure............................................................... 12
Section 4.6 Cooperation........................................................................... 12
Section 4.7 HMO Endorsement....................................................................... 12
Section 4.8 Foundation Support/Recognition........................................................ 12
Section 4.9 Covenant Not to Compete; Use of Trade Name............................................ 13
Section 4.10 Board Appointments.................................................................... 13
Section 4.11 Certificate of Authority.............................................................. 14
Section 4.12 Non-Solicitation...................................................................... 14
ARTICLE 5.
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS......................................................... 14
Section 5.1 Representations and Warranties........................................................ 14
Section 5.2 Covenants and Obligations............................................................. 14
Section 5.3 Consents.............................................................................. 15
Section 5.4 No Proceeding or Litigation........................................................... 15
Section 5.5 Closing Deliveries.................................................................... 15
ARTICLE 6.
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS............................................................ 15
Section 6.1 Representations and Warranties of the Purchaser....................................... 15
Section 6.2 Covenants and Obligations of the Purchaser............................................ 16
Section 6.3 Consents.............................................................................. 16
Section 6.4 No Proceeding or Litigation........................................................... 16
Section 6.5 Closing Deliveries.................................................................... 16
ARTICLE 7.
INDEMNIFICATION......................................................................................... 16
Section 7.1 Indemnification by the Seller......................................................... 16
Section 7.2 Indemnification by the Purchaser...................................................... 17
Section 7.3 General Indemnification Provisions.................................................... 17
Section 7.4 Limit on Indemnification.............................................................. 18
ARTICLE 8.
TERMINATION............................................................................................. 18
Section 8.1 Termination of Agreement.............................................................. 18
Section 8.2 Procedure and Effect of Termination................................................... 19
ARTICLE 9.
MISCELLANEOUS........................................................................................... 20
Section 9.1 Expenses; Taxes....................................................................... 20
Section 9.2 Consents.............................................................................. 20
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
Section 9.3 Waiver................................................................................ 20
Section 9.4 Further Assurances.................................................................... 20
Section 9.5 Entire Agreement...................................................................... 20
Section 9.6 Amendment............................................................................. 20
Section 9.7 Headings.............................................................................. 20
Section 9.8 Notices............................................................................... 20
Section 9.9 Counterparts.......................................................................... 21
Section 9.10 Public Announcements.................................................................. 22
Section 9.11 Construction.......................................................................... 22
Section 9.12 Recitals.............................................................................. 22
Section 9.13 Severability.......................................................................... 22
Section 9.14 Assignment............................................................................ 22
Section 9.15 Governing Law......................................................................... 22
</TABLE>
EXHIBIT 1 Contracts
EXHIBIT 2 Management Services Agreement
EXHIBIT 3 Assignment and Assumption Agreement
SCHEDULE I Disclosure Schedule
iii
<PAGE> 5
AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of the 26th day of June,
1997, by and between MEDIGROUP OF NEW JERSEY, INC., a New Jersey corporation
(the "Purchaser") , and PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY, INC., a New
Jersey corporation (the "Seller"). MEDIGROUP, INC., a New Jersey corporation
("Medigroup") and BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC., a New Jersey
corporation ("BCBSNJ"), are parties to this Agreement for purposes of Sections
1.7(c), 4.6, 4.8, 4.9, 4.10, 6.1, 6.2, 6.5 and of Articles III, VII and IX
hereof.
RECITALS
The Seller is engaged in the business (the "Business") of operating a
statewide, physician-owned health maintenance organization in the State of New
Jersey known as the "Physician Healthcare Plan of New Jersey" (the "Plan"). The
Purchaser is a wholly owned subsidiary of Medigroup, which in turn is a wholly
owned subsidiary of BCBSNJ. The Purchaser operates a health maintenance
organization in the State of New Jersey known as "HMO Blue". On the terms and
subject to the conditions set forth in this Agreement, the Seller desires to
assign and transfer to the Purchaser, and the Purchaser desires to acquire and
assume from the Seller, all right, title and interest of the Seller in and to,
and all duties and obligations of the Seller arising after the Closing Date (as
defined below) with respect to, those group contracts and provider agreements
listed on Exhibit 1 attached hereto and made a part hereof (the "Contracts").
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
ARTICLE 1.
ASSIGNMENT AND TRANSFER
Section 1.1 Assignment and Transfer.
(a) Subject to Section 1.1(B) below and the other terms and
conditions contained herein, on the Closing Date, the Seller, for and in
consideration of the Purchase Price (as defined below) and the assumption and
performance by the Purchaser of the Seller's duties, obligations and liabilities
under the Contracts arising from and after the Closing Date, does hereby
irrevocably and unconditionally assign and transfer unto the Purchaser all of
the Seller's right, title and interest in and to each of the Contracts and all
the duties, obligations and liabilities of the Seller under or relating to the
Contracts to the extent accruing or arising on or after the Closing Date (but
not attributable to the period prior to the Closing Date); provided, that
nothing herein shall be construed as an assignment, transfer, sale, delegation,
setting over or assumption of any duty, obligation or liability
<PAGE> 6
of the Seller under or relating to the Contracts to the extent arising or
accruing (whether or not asserted or assessed) prior to the Closing Date.
(b) From and after the Closing Date, the Purchaser acquires and
assumes each of the Contracts and agrees to satisfy, discharge and perform all
of the duties, obligations and liabilities of the Seller under or relating to
the Contracts to the extent accruing or arising on or after the Closing Date
(but not attributable to the period prior to the Closing Date).
(c) Notwithstanding anything herein to the contrary, the Seller
shall retain and is not hereby selling, assigning or otherwise transferring any
of the following assets and property:
(i) cash on hand, cash equivalents, investments
(including stock, debt instruments, options and other instruments and
securities) and bank deposits;
(ii) all accounts, premiums or other amounts due to the
Seller for the period up to and including the Closing Date;
(iii) tax refunds, tax, insurance and other claims or
rights to recoveries and similar benefits of the Business and any prepaid items
with respect to the Business prior to the Closing Date; and
(iv) all other assets of the Seller not included among the
Contracts.
Section 1.2 Excluded Liabilities. The Purchaser shall not be required to assume,
perform or otherwise discharge any liabilities or obligations arising out of,
relating to, or in connection with, any shareholder of the Seller or the
operation of the Business prior to the Closing Date (the "Excluded
Liabilities"), including, without limitation, any liability or obligation
arising prior to the Closing Date (a) under the Contracts or any agreements
other than the Contracts to which the Seller is a party or by which it is bound;
(b) for Federal, state or local income taxes, personal property, excise, sales
or franchise taxes relating to or arising out of the operation of the Business;
and (c) for incurred but not reported claims relating to or arising out of the
operation of the Business.
Section 1.3 Deposit. In consideration for the Seller entering in that certain
Letter of Intent dated June 11, 1997, with the Purchaser, Medigroup and BCBSNJ
(the "Letter of Intent"), the Purchaser has made a good faith deposit of
$500,000.00 (the "Deposit") with Mellon Bank, N.A., as escrow agent ("Mellon").
Subject to the terms of that certain Escrow Agreement among the Seller, the
Purchaser and Mellon dated June 13, 1997, the parties agree that (a) if the
shareholders of the Seller disapprove or the Regulatory Agencies (as defined
below) disapprove the transactions contemplated hereby, Mellon shall return the
Deposit with all interest thereon to the Purchaser; and (b) if the shareholders
of the Seller and the Regulatory Agencies approve the transactions contemplated
hereby, Mellon shall disburse the Deposit and all interest thereon to the
Seller, and the Purchaser shall be entitled to a credit in accordance with
Section 1.6 below.
2
<PAGE> 7
Section 1.4 Management Agreement. Prior to or contemporaneously with the
approval by the Seller's Board of Directors of this Agreement for referral to
the Seller's shareholders for approval, the Seller and the Purchaser, as
manager, will enter into a Management Services Agreement (the "Management
Agreement") in the form of Exhibit 2 attached hereto and made a part hereof.
Pursuant to the terms of the Management Agreement, the Purchaser will provide
the Seller for the term set forth in the Management Agreement with all
management and administrative services necessary for the operation of the
Business, including, but not limited to, claims processing, member services,
enrollment, provider assistance, utilization management and financial services,
including accounting and reporting, for all product lines of the Seller;
provided, however, that such services shall not include any reporting to the
Securities Exchange Commission or any related Federal and state reporting
required under the securities laws of the United States or of the State of New
Jersey.
Section 1.5 Purchase Price; Payment. Subject to adjustment pursuant to Section
1.6 below, the purchase price (the "Purchase Price") for the assignment and
transfer of the Contracts shall be an amount equal to the sum of: (a) the
greater of One Million Dollars ($1,000,000.00) or Three Hundred Dollars
($300.00) per health maintenance organization member certified by the Purchaser,
as manager, to be enrolled in the Plan as of the Closing Date (the total of such
members being the "Certified Number"), payable to the Seller at the Closing (as
defined below) by wire transfer of immediately available funds to an account
designated by the Seller; and (b) Ten Dollars ($10.00) for each eligible Health
Care Payers Coalition ("HCPC") life to whom the services of the Purchaser are
available on the first anniversary of the Closing Date, payable to the Seller on
that date by wire transfer of immediately available funds to an account
designated by the Seller.
Section 1.6 Purchase Price Adjustment. The Purchaser shall be entitled to a
credit against the Purchase Price at Closing in a sum equal to the amount of the
Deposit actually received by the Seller. In addition, the Purchase Price may be
adjusted as follows: thirty (30) days after the Closing Date, the Seller, at its
sole cost, may verify, by independent audit, the number of health maintenance
organization members enrolled in the Plan as of the Closing Date and, if the
Seller has elected to verify such number by audit, shall notify the Purchaser of
such number in writing. If such number is higher than the Certified Number, the
Purchaser shall pay to the Seller an amount equal to Three Hundred Dollars
($300.00) per each additional member in the Plan. If such number is lower than
the Certified Number, the Seller shall rebate to the Purchaser from the Purchase
Price an amount equal to Three Hundred Dollars ($300.00) times such difference;
provided, however, that in no event will any such rebate reduce the Purchase
Price below $1,000,000.00. In each case, the applicable payment shall be made
within three (3) business days after such notice from the Seller.
Section 1.7 Closing.
(a) Subject to the terms and conditions of this Agreement, the closing
on the assignment and transfer of the Contracts contemplated hereby (the
"Closing") shall take place on a date (the "Closing Date") within ten (10)
business days after the receipt of the Material Consents (as defined below) at
such time and place as the Seller and the Purchaser may mutually agree in
writing; provided, however, that, prior to the Closing, all of the conditions
set forth in Articles V and VI of
3
<PAGE> 8
this Agreement shall have been satisfied or waived in writing by the party
entitled to claim the benefit thereof.
(b) At the Closing, the Seller shall deliver, or cause to be
delivered, to the Purchaser the following (collectively, the "Seller Closing
Deliveries"):
(i) a copy of the resolutions of the Board of Directors of
the Seller, certified by its Secretary, authorizing, subject to the approval of
the shareholders of the Seller, the execution, delivery and performance of this
Agreement and the other instruments and documents required to be executed and
delivered by it in connection herewith (collectively, the "Seller Related
Documents") and, subject to the approval of the Seller's shareholders,
authorizing the assignment and transfer contemplated hereby and thereby (the
"Transaction");
(ii) a copy of the minutes of the meeting of the shareholders
of the Seller, certified by the Secretary of the Seller, authorizing the
execution, delivery and performance of this Agreement and the other Seller
Related Documents and the consummation of the Transaction;
(iii) evidence of all required governmental and regulatory
approvals, including, without limitation, any approvals (the "Material
Consents") of the Commissioner of Health and Senior Services and the
Commissioner of Banking and Insurance of the State of New Jersey (collectively,
the "Regulatory Agencies"), required in connection with: (A) the execution and
delivery of this Agreement and the other Seller Related Documents; (B) the
consummation of the Transaction; and (C) the assignment and transfer to the
Purchaser of the Contracts; in each case in form reasonably satisfactory to the
Purchaser (collectively, the "Regulatory Approvals");
(iv) the assignment by the Seller to the Purchaser of all of
the Seller's right, title and interest in the Contracts, and the assumption by
the Purchaser of all of the Seller's liabilities arising after Closing under the
Contracts in accordance with the terms of an Assignment and Assumption Agreement
substantially in the form of Exhibit 3 attached hereto and made a part hereof;
(v) the certificate referred to in Section 5.1 below; and
(vi) copies of the Certificate of Incorporation and all
amendments thereto, as recorded, and the corporate by-laws and all amendments
thereto, of Seller, certified by its Secretary; and a good standing certificate
of the Seller dated no earlier than twenty (20) days prior to the Closing Date.
(c) At the Closing, the Purchaser, Medigroup and BCBSNJ shall
deliver to the Seller all of the following (collectively, the "Purchaser Closing
Deliveries"):
(i) the Purchase Price in the manner set forth above;
(ii) copies of resolutions of the Boards of Directors of each
of the Purchaser, Medigroup and BCBSNJ, certified by their respective
secretaries or other authorized representatives,
4
<PAGE> 9
authorizing the execution, delivery and performance of this Agreement and the
other instruments and documents required to be executed and delivered by any of
the Purchaser, Medigroup and BCBSNJ in connection herewith (collectively, the
"Purchaser Related Documents") and authorizing the consummation of the
Transaction;
(iii) evidence of the appointment by BCBSNJ of two (2)
physicians selected by the Seller or the Foundation (as defined below) to
BCBSNJ's Medical Policy Committee and of one (1) physician selected by the
Seller or the Foundation to BCBSNJ's Professional Advisory Committee;
(iv) evidence of the appointment by the Purchaser of two (2)
physicians selected by the Seller or the Foundation to the Purchaser's Quality
Improvement Committee and of two (2) physicians selected by the Seller or the
Foundation to such committee's subcommittees on Clinical Issues, Credentialing
and Grievance/Appeals;
(v) evidence of the appointment by the Purchaser to its
Panel of Independent Medical Examiners of two (2) physicians selected by the
Seller or the Foundation (meeting the Purchaser's applicable credentialing
requirements) for each specialty represented on such panel;
(vi) evidence of the appointment by Medigroup's shareholder
of one (1) physician selected from a slate of at least three (3) physicians
presented by the Seller or the Foundation to the Board of Directors of Medigroup
for a minimum term of three (3) years;
(vii) the certificate referred to in Section 6.1 below;
(viii) copies of the Certificate of Incorporation and all
amendments thereto, as recorded, and the corporate by-laws and all amendments
thereto, of each of the Purchaser, Medigroup and BCBSNJ, certified by their
respective Secretaries; and a good standing certificate of each of the
Purchaser, Medigroup and BCBSNJ dated no earlier than twenty (20) days prior to
the Closing Date;
(ix) a certificate of the Purchaser, as manager, certifying
the number of health maintenance organization members enrolled in the Plan as of
the Closing Date; and
(x) a proposal from the Purchaser regarding a product to
be offered by Princeton Medical Management, LLC ("Princeton") that, in the
reasonable determination of the Purchaser and the Seller, is generally
consistent with the type of product intended to be offered by Princeton, or
which constitutes a satisfactory alternative product.
Section 1.8 Consents to Assignments. The Seller shall use its best efforts
to obtain the consent of Bayonne Hospital to the assignment to the Purchaser of
that certain Hospital Participation Agreement dated September 16, 1996, between
the Seller and Bayonne Hospital.
5
<PAGE> 10
Section 1.9 Payment of Premiums and Claims. The Seller and the Purchaser agree
that to the extent the Purchaser receives from and after the Closing Date
premiums payable under any of the Contracts for the period prior to the Closing
Date, the Purchaser will promptly pay to the Seller all such premiums on a
weekly basis. To the extent the Purchaser properly pays from and after the
Closing Date any claims incurred prior to the Closing Date, the Seller shall
reimburse the Purchaser within one (1) business day after the Seller's receipt
of the Purchaser's invoice for such payments, provided said invoice contains
information on the claims comparable to the information contained on the HCFA
1500 form or UB-92 form, as applicable. The Purchaser shall submit its invoice
no more frequently than once weekly. The invoice shall be in such form and
detail as the Seller may reasonably require. All reimbursements by the Seller
pursuant to this Section shall be subject to subsequent audit and verification,
and for such purposes, the Purchaser agrees to provide the Seller and its
accountants, agents and representatives reasonable access during normal business
hours to the Purchaser's books and records relating to the payment of such
claims. This Section shall survive Closing.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
The Seller hereby makes to the Purchaser the representations and
warranties set forth in this Article II. Exceptions to the representations and
warranties made in this Article II are as set forth in the Disclosure Schedule
attached hereto as Schedule I ("Schedule I").
Section 2.1 Organization, Qualifications and Corporate Power and Business. The
Seller is a corporation duly organized, validly existing and in good standing
under the laws of the State of New Jersey. The Seller has the corporate power
and authority to own and hold its properties in order to carry on the Business
as it is now being conducted and to execute, deliver and perform this Agreement
and the other Seller Related Documents.
Section 2.2 Validity. This Agreement and the other Seller Related Documents have
been duly executed and delivered by the Seller, and, assuming their due
execution and delivery by the Purchaser, Medigroup and BCBSNJ (as applicable),
constitute the legal, valid and binding obligations of the Seller, enforceable
in accordance with their respective terms, except to the extent such
enforceability may be limited by applicable laws affecting the enforcement of a
party's rights generally and by principles of equity regarding the availability
of remedies.
Section 2.3 No Conflict. The execution, delivery and performance by the Seller
of this Agreement and the other Seller Related Documents (a) do not violate any
provision of applicable laws, any order of any court or other agency of
government, the charter or by-laws of the Seller, or any provision of any
indenture, agreement or other instrument to which the Seller or any of its
properties or assets is bound, and (b) do not conflict with or constitute (with
due notice or lapse of time or both) a default that would allow the other party
to accelerate the obligations of the Seller due such party or otherwise exercise
rights against the Seller under any such indenture, agreement or
6
<PAGE> 11
other instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Seller, including, without limitation, the
Contracts.
Section 2.4 Contracts. Assuming the due execution and delivery of the Contracts
by the other parties thereto, the Contracts constitute the legal, valid and
binding obligations of the Seller, enforceable in accordance with their
respective terms, except to the extent such enforceability may be limited by
applicable laws affecting the enforcement of a party's rights generally and by
principles of equity regarding the availability of remedies. To the knowledge of
the Seller, the Contracts are in full force and effect, and except as set forth
in Schedule I hereto, neither the Seller nor any party thereto has provided
notice, nor does the Seller have any knowledge of any intent to provide notice,
or an election to exercise any rights to terminate any of the Contracts. Other
than the Contracts and except as set forth in Schedule I hereto, there are no
other agreements between the Seller and any insurance company, health
maintenance organization or other third party payor for medical services
rendered or to be rendered by the Seller to patients served thereby, whether
such agreement be in the form of a capitation plan or otherwise.
Section 2.5 Tax Matters.
(a) The Seller has filed or will file when due all Federal, state, and
local income tax returns and reports in all requisite jurisdictions for all
years and periods ended on or before the Closing Date. For purposes of this
Agreement, "Taxes" means all income, capital gains, gross income, gross
receipts, transfer, value added, sales, use, service, ad valorem, franchise,
profits, capital stock, license, withholding, payroll, employment, social
security, unemployment compensation, utility, excise, production, severance,
stamp, occupation, premium, real or personal property, alternative minimum,
environmental, or windfall profit taxes, customs, duties, or other taxes, fees,
assessments, levies, imposts or charges of any kind whatsoever imposed by any
governmental authority (a "Taxing Authority") responsible for the imposition of
any such Tax, together with any interest and any penalties, additions to tax or
additional amounts imposed by any Taxing Authority.
(b) There are no claims or investigations by any Taxing Authority
pending or, to the knowledge of the Seller, threatened against the Seller, and
the Seller has not received any notice of any threatened claims or
investigations by any Taxing Authority; and, with respect to any Tax return
filed by the Seller, there has been no waiver of any applicable statute of
limitations or extension of the time for the assessment of any Tax against the
Seller.
Section 2.6 Litigation; Compliance with Law; Business Practices.
(a) There is no (i) action, suit, claim, proceeding or investigation
pending or, to the knowledge of the Seller, threatened against or affecting the
Business, at law or in equity, or before or by any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, including malpractice claims; (ii)
arbitration proceeding involving the Business pending under any collective
bargaining agreement or otherwise;
7
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or (iii) governmental inquiry pending or, to the knowledge of the Seller,
threatened against or affecting the Business (collectively, "Litigation
Matters"). Schedule I hereto contains a list of all Litigation Matters to which
the Seller has been a party as it relates to the Business during the two (2)
years immediately preceding the Closing. The Seller has not received any opinion
or memorandum or legal advice from legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability or disadvantage that may have
a material adverse affect on the Business. The Seller is not in default with
respect to any order, writ, injunction or decree known to or served upon the
Seller of any court or of any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, as it relates to the Business.
(b) The Seller (i) has complied in all material respects with all laws,
rules, regulations and orders that are applicable to the Business, and (ii) has
obtained all necessary permits, licenses and other authorizations required to
enable it to conduct the Business as it is now being conducted. There is no
existing law, rule, regulation or order, whether Federal or state or local, that
would prohibit or restrict the Seller from operating the Business as it is now
being operated.
Section 2.7 Other Agreements. The Seller is not a party to or otherwise bound by
any written or oral agreement or instrument or other restriction that
individually or in the aggregate will materially adversely affect the Business.
Section 2.8 Defaults. With respect to the Business, the Seller has performed all
the obligations required to be performed by it to date, has received no notice
of default and is not in default, in any respect (with due notice or lapse of
time or both) under any agreement now in effect, the result of which could
materially adversely affect the Business. The Seller has no present expectation
or intention of not fully performing all its obligations under each such
agreement in all respects, and the Seller does not have any knowledge of any
breach and has not received any written notice of any anticipated breach by the
other party to any agreement to which the Seller is a party and that pertains to
the Business.
Section 2.9 Transaction With Affiliates. Except as set forth on Schedule I
hereto, no director, officer or stockholder of the Seller, or member of the
family of any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of any such person,
has a substantial interest or is an officer, director, trustee, partner or
holder of more than 5% of the outstanding capital stock thereof or is presently
or contemplated to be a party to any transaction with the Seller relating to the
Business, including any contract, agreement or other arrangement providing for
the employment of, furnishing of services by, rental of real or personal
property from or otherwise requiring payments to any such person or firm.
Section 2.10 Governmental Approvals. Except for the Regulatory Approvals, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Seller of
this Agreement or any of the other Seller Related Documents, or the conduct of
the Business in the manner in which the Business has been conducted.
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Section 2.11 Brokers. Except with respect to the engagement of Shattuck Hammond
Partners, Inc. by the Seller, for which the Seller shall be solely responsible,
there exists no contract, arrangement or understanding between the Seller and a
broker, finder or similar agent with respect to the Transaction.
Section 2.12 Disclosure. This Agreement and the other Seller Related Documents,
contain no untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein not misleading. None of the
written statements, documents, certificates or other written materials prepared
or supplied by the Seller with respect to the Transaction, when read together
and in light of the circumstances in which they were made, contain an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein not misleading.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER, MEDIGROUP AND
BCBSNJ
Each of the Purchaser, Medigroup and BCBSNJ represents and warrants to
the Seller as follows:
Section 3.1 Organization, Qualifications and Power and Business. Each of the
Purchaser, Medigroup and BCBSNJ is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey. Each of
the Purchaser, Medigroup and BCBSNJ has the power and authority to own and hold
its properties and to carry on its business as it now being conducted and as
proposed to be conducted and to execute, deliver and perform this Agreement and
the other Purchaser Related Documents.
Section 3.2 Validity. This Agreement and the other Purchaser Related Documents
have been duly executed and delivered by Purchaser, Medigroup and/or BCBSNJ (as
applicable) and, assuming the due execution and delivery by the Seller,
constitute the legal, valid and binding obligations of the Purchaser, Medigroup
and BCBSNJ (as applicable), enforceable in accordance with their respective
terms, except to the extent such enforceability may be limited by applicable
laws affecting the enforcement of a party's rights generally and by principles
of equity regarding the availability of remedies.
Section 3.3 No Conflict. The execution, delivery and performance by the
Purchaser, Medigroup and BCBSNJ of this Agreement and the other Purchaser
Related Documents (a) do not violate any provision of applicable law, any order
of any court or other agency of government, the charters or by-laws of the
Purchaser, Medigroup and BCBSNJ, or any provision of any indenture, agreement or
other instrument to which any of the Purchaser, Medigroup and BCBSNJ or any of
its properties or assets is bound, and (b) do not conflict with or constitute
(with due notice or lapse of time or both) a default that would allow the other
party to accelerate the obligations of any of the Purchaser, Medigroup and
BCBSNJ due such party or otherwise exercise rights against any of the Purchaser,
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Medigroup and BCBSNJ under any such indenture, agreement or other instrument, or
result in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or assets of the
Purchaser, Medigroup or BCBSNJ.
Section 3.4 Copies of Contracts. The Purchaser acknowledges receipt of copies of
all of the Contracts (other than the physician participation agreements).
Section 3.5 Brokers. None of the Purchaser, Medigroup or BCBSNJ has any
contract, arrangement or understanding with any broker, finder or similar agent
with respect to the Transaction.
Section 3.6 Management of the Business. In its management of the Business
pursuant to the Management Agreement, the Purchaser, as manager, will not take
any action or fail to take any action that is likely to cause any of the
representations and warranties of the Seller set forth herein to become false or
misleading in any way. The Purchaser acknowledges the Seller's objective of
retaining as many health maintenance organization members as possible during the
term of the Management Agreement.
Section 3.7 Accuracy of the Seller's Representations. To the best knowledge of
the Purchaser, Medigroup and BCBSNJ, this Agreement contains no untrue statement
of a material fact and do not omit to state a material fact necessary to make
the statements contained herein not misleading.
Section 3.8 Disclosure. This Agreement and the other Purchaser Related Documents
contain no untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein not misleading. None of the
written statements, documents, certificates or other written materials prepared
or supplied by the Purchaser, Medigroup or BCBSNJ with respect to the
Transaction, when read together and in light of the circumstances in which they
were made, contain an untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained therein not misleading.
ARTICLE 4.
COVENANTS
Section 4.1 Conduct of Business.
(a) Between the date hereof and the Closing Date, without the consent
of the Seller, the Purchaser, as manager, shall not, and the Seller shall not
itself nor cause the Purchaser, as manager, to:
(i) conduct the Business other than in the ordinary course, except
that the Seller may choose not to engage in active selling of its product
line;
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(ii) make any sale, assignment, transfer or other disposition
of any Contract or mortgage, pledge or otherwise create a security interest in
any of the Contracts;
(iii) modify, extend, renew or terminate any of the Contracts
(other than the routine renewals of the Contracts) or enter into any commitment
or agreement similar to the Contracts;
(iv) fail to maintain the books, accounts and records of the
Business on a basis consistent with past practice;
(v) create, incur or assume any indebtedness (except for
accounts payable in the ordinary course of business) for money borrowed in
connection with the operation of the Business;
(vi) with respect to the Business, effect any transaction
with any other entity or person, the terms of which are not commercially
reasonable or are other than on an arm's length basis;
(vii) undertake any action or engage in any omission that
shall impair or jeopardize the Seller's rights to any of the Contracts; or
(viii) enter into any agreement, commitment or arrangement
with respect to any of the actions prohibited by the foregoing.
(b) From the date hereof until the Closing Date, the Purchaser, as
manager, shall not, and the Seller shall not cause the Purchaser, as manager, to
take any action that would cause any of the representations and warranties made
in Article II hereof not to remain true and correct.
(c) From the date hereof until the Closing Date, the Seller shall
keep the Purchaser advised of any significant decisions concerning the Business.
(d) From the date hereof until the Closing Date, the Seller and
the Purchaser, as manager, shall take such steps in the ordinary course of
business as are reasonable to retain the Seller's existing relationships with
providers, subscribers and third party payors.
Section 4.2 Confidentiality. Except as required by law, no party hereto,
nor their respective successors, assigns, affiliates, directors, officers,
representatives, agents or employees, shall disclose or use any confidential
information received hereunder or provided by any party to the other, except in
connection with the consummation of the Transaction. If this Agreement
terminates without the consummation of the Transaction, the parties shall (a)
hold in confidence and refrain from using all non-public information received in
connection with the Transaction; and (b) promptly return to the party supplying
such confidential information any confidential information, including, without
limitation, the Letter of Intent, and all copies in its possession or in the
possession of its representatives of such confidential information, or destroy
such information and certify its destruction in writing. If, pursuant to a court
or other legal order, any party, (the "Requested Party")
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is requested or required (by oral questions, interrogatories, requests for
information or documents, subpoena, civil investigative demand or similar
process) to disclose any information supplied to it, its directors, officers,
employees, representatives or agents in the course of its dealings hereunder, on
the subject matter hereof, the parties agree that the Requested Party will
provide the other parties with prompt written notice of such request or
requirement so that the other parties may seek an appropriate protective order
and/or waive the Requested Party's compliance with the provisions of this
Agreement; but it is understood that the Requested Party will be obligated to,
and may comply with, requirements of law.
Section 4.3 Best Efforts. Each party hereto shall use its best efforts to
fulfill its conditions to Closing and otherwise to consummate the Transaction.
Section 4.4 Certain Notifications. At all times prior to the Closing, each party
hereto shall, as promptly as reasonably practicable, notify the other in writing
of the occurrence of any event as to which it obtains knowledge that is
reasonably likely to result in the failure of a condition precedent to Closing
contained in Article V or Article VI below. The party receiving such notice
shall have the right, but not the obligation, for a period of three (3) business
days, to attempt to cure the anticipated failure of the condition precedent. The
Seller and the Purchaser, as manager, promptly shall notify the other of the
occurrence of a material adverse change in the Business or of any termination,
non-renewal or material alteration of any Contract.
Section 4.5 Supplemental Disclosure. Each of the parties hereto shall have the
continuing obligation to promptly supplement or amend this Agreement with
respect to any matter hereafter arising or discovered that, if existing or known
at the date of this Agreement, would have been required to be set forth or
described herein; provided, however, that for the purpose of the rights and
obligations of the parties hereunder, any such supplemental or amended
disclosure shall not be deemed to have been disclosed as of the date of this
Agreement unless so agreed to in writing by the party making the disclosure,
and, accordingly, shall have no effect on the liabilities or obligations of the
parties under this Agreement.
Section 4.6 Cooperation. The parties agree to cooperate fully with one another
to effect the transfer of the Contracts, to meet with the Regulatory Agencies to
facilitate the consummation of the Transaction and to prepare and file all
necessary filings promptly to obtain the Material Consents and to respond as
otherwise requested by the Regulatory Agencies. No party shall meet separately
with any of the Regulatory Agencies regarding the Transaction unless required to
do so by the Regulatory Agencies or agreed to by the other party.
Section 4.7 HMO Endorsement. The Seller agrees to explore with the Purchaser a
mutually acceptable form of endorsement by the Seller of the Purchaser for the
period of time after Closing that the Seller maintains its Certificate of
Authority in the State of New Jersey.
Section 4.8 Foundation Support/Recognition. The Purchaser, Medigroup and BCBSNJ
acknowledge and agree that the Seller may establish a successor entity, which
may be a private tax-exempt foundation under Section 509(a) of the Code (the
"Foundation") to, among other things,
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carry on the Seller's mission of advancing the interest of physician-directed
medical services and to select the physicians for the board, committees and
medical panels described in Section 4.10 below if the Seller itself does not
make that selection. If so requested by the Purchaser, marketing and promotional
materials for Foundation programs that are financially supported by the
Purchaser, Medigroup and/or BCBSNJ would carry the notation that the program is
"sponsored in part by HMO Blue", Medigroup or BCBSNJ. The Purchaser, Medigroup
and BCBSNJ acknowledge and agree that a private foundation such as the
Foundation may not endorse a for-profit operation.
Section 4.9 Covenant Not to Compete; Use of Trade Name. For no additional
consideration, for a period of one (1) year after the Closing Date, neither the
Seller nor any entity in which the Seller is a majority owner (an "Affiliate")
will, directly or indirectly, engage in the business of providing or arranging
for the provision of managed health care insurance (including HMO, PPO, POS and
ASO arrangements) in the State of New Jersey. In addition, for a period of five
(5) years following the surrender of the Seller's Certificate of Authority to
the State of New Jersey, the Seller and its Affiliates will not use any name,
trade name, trademark, brand name or service mark, including, without
limitation, "Physician Healthcare Plan of New Jersey," that is confusingly
similar to those used by the Seller or its Affiliates as of the Closing Date.
Notwithstanding this, the Purchaser, Medigroup and BCBSNJ acknowledge and agree
that the use by the Foundation of any name, trade name, trademark, brand name or
service mark, including, without limitation, "Physician Healthcare Plan of New
Jersey," that is similar to those used by the Seller or its Affiliates as of the
Closing Date shall not be a violation of this Section.
Section 4.10 Board Appointments. This Section shall survive Closing.
(a) Prior to or effective with Closing, BCBSNJ shall appoint two (2)
physicians selected by the Seller or the Foundation to BCBSNJ's Medical Policy
Committee and one (1) physician selected by the Seller or the Foundation to
BCBSNJ's Professional Advisory Committee. BCBSNJ agrees that the Seller and/or
the Foundation shall be entitled to this physician representation on said
committees (or any successor committees) for at least five (5) years.
(b) Prior to or effective with Closing, the Purchaser shall appoint two
(2) physicians selected by the Seller or the Foundation to the Purchaser's
Quality Improvement Committee and two (2) physicians selected by the Seller or
the Foundation to such committee's subcommittees on Clinical Issues,
Credentialing and Grievance/Appeals. The Purchaser agrees that the Seller and/or
the Foundation shall be entitled to this physician representation on said
committee and subcommittees (or any successor committees or subcommittees) for
at least five (5) years.
(c) Prior to or effective with Closing, the Purchaser shall appoint to
its Panel of Independent Medical Examiners two (2) physicians selected by the
Seller or the Foundation (meeting the Purchaser's applicable credentialing
requirements) for each specialty represented on such panel. The Purchaser agrees
that the Seller and/or the Foundation shall be entitled to this physician
representation on said panel (or any successor panels) for at least five (5)
years.
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(d) Prior to or effective with Closing, Medigroup agrees that its
shareholder shall elect one (1) physician selected from a slate of at least
three (3) physicians presented by the Seller or the Foundation to the Board of
Directors of Medigroup for a minimum term of three (3) years.
Section 4.11 Certificate of Authority. After Closing, the Seller shall surrender
its health maintenance organization Certificate of Authority to the State of New
Jersey in accordance with applicable regulatory requirements.
Section 4.12 Non-Solicitation. From the date of this Agreement until the Closing
Date, the Seller shall not, directly or indirectly, through any officer,
director, employee, representative, advisor, agent or otherwise, (a) solicit or
initiate, directly or indirectly, or encourage the submission of inquiries,
proposals or offers from any other potential buyer relating to the disposition
of the Contracts; or (b) respond to any person indicating an interest in
purchasing the Contracts by participating in any discussions or negotiations
regarding, or furnish to any person any information with respect to, the
disposition of the Contracts. If the Seller is presented with an unsolicited
offer to purchase its HMO and PPO operations on terms the Board of Directors of
the Seller considers more favorable than the terms set forth herein, the Seller
shall provide the Purchaser with a right of first opportunity to purchase these
operations on terms equivalent to or better than the terms set forth in the
unsolicited offer. The Purchaser shall exercise its right of first opportunity
within five (5) business days of written notice thereof, or its right shall
automatically expire.
ARTICLE 5.
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
Unless waived in writing by the Purchaser in its sole discretion, the
obligations of the Purchaser hereunder shall be subject to the fulfillment,
prior to or at the Closing, of each of the following conditions precedent:
Section 5.1 Representations and Warranties. Each of the representations and
warranties contained in Article II hereof shall be true and accurate in all
respects as of the date of this Agreement and shall be true and accurate in all
respects as of the Closing Date as if made on the Closing Date (except for any
representation or warranty expressly stated to have been made or given as of a
specified date, which, at the Closing Date, shall be true and correct in all
respects as of the date expressly stated and except for any breach after the
date of this Agreement that has been caused by the Purchaser, as manager, in its
management of the Business). This Section shall be deemed satisfied
notwithstanding that some of the agreements comprising the Contracts are not
renewed in the ordinary course of business. The Seller shall have delivered to
the Purchaser a certificate of its Chairman of the Board certifying the
fulfillment of the conditions set forth in this Section 5.1 and in Sections 5.2
and 5.3 below, and a certificate of the Secretary of the Seller, as to the
incumbency of such officer executing the certificate.
Section 5.2 Covenants and Obligations. All of the covenants and obligations that
the Seller is required to perform or to comply with pursuant to the terms of
this Agreement and pursuant to each
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of the other Seller Related Documents at or prior to Closing shall have been
duly performed or complied with by the Seller in all material respects prior to
the Closing Date.
Section 5.3 Consents. All Regulatory Approvals shall have been obtained,
and the Seller shall have obtained the consent and approval of its Board of
Directors and shareholders to this Agreement, the other Seller Related Documents
and the Transaction.
Section 5.4 No Proceeding or Litigation.
(a) No preliminary or permanent injunction or other order
shall have been issued by any court of competent jurisdiction, whether Federal,
state or foreign, or by any governmental or regulatory body, whether Federal,
state or foreign, nor shall any statute, rule, regulation or executive order be
promulgated or enacted by any governmental authority, whether Federal, state or
foreign, that prevents the consummation of the Transaction.
(b) No suit, action, claim, proceeding or investigation before
any court, arbitrator or administrative, governmental or regulatory body,
whether Federal, state or foreign, shall have been commenced and be pending
against the Seller or any of its affiliates, officers or directors seeking to
prevent the assignment and transfer of the Contracts or asserting that the
assignment and transfer of the Contracts would be illegal.
Section 5.5 Closing Deliveries. On or before the Closing Date, each of the
Seller Closing Deliveries shall have been delivered to the Purchaser, and the
Purchaser and its counsel shall be reasonably satisfied with the form and
substance thereof.
ARTICLE 6.
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
Unless waived in writing by the Seller, in its sole discretion, the
obligations of the Seller hereunder shall be subject to the fulfillment, prior
to or at the Closing, of each of the following conditions precedent:
Section 6.1 Representations and Warranties of the Purchaser. Each of the
representations and warranties of the Purchaser, Medigroup and BCBSNJ contained
in Article III above shall be true and accurate in all respects as of the date
of this Agreement and shall be true and accurate in all respects as of the
Closing Date as if made on the Closing Date (except for any representation or
warranty expressly stated to have been made or given as of a specified date,
which, at the Closing Date, shall be true and correct in all respects as of the
date expressly stated). Each of the Purchaser, Medigroup and BCBSNJ shall have
delivered to the Seller a certificate of its president or any vice president
certifying the fulfillment of the conditions set forth in this Section 6.1 and
in Sections 6.2 and 6.3 below, and a certificate of the Secretary of each of the
Purchaser, Medigroup and BCBSNJ as to the incumbency of such officer executing
the certificate.
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Section 6.2 Covenants and Obligations of the Purchaser. All of the
covenants and obligations that any of the Purchaser, Medigroup and BCBSNJ is
required to perform or to comply with pursuant to the terms of this Agreement
and each of the other Purchaser Related Documents at or prior to Closing shall
have been duly performed or complied with by such party in all material respects
prior to the Closing Date.
Section 6.3 Consents. All Regulatory Approvals shall have been obtained,
and the Purchaser, Medigroup and BCBSNJ shall have obtained the consent and
approval of the Boards of Directors of each of the Purchaser, Medigroup and
BCBSNJ to this Agreement, the other Purchaser Related Documents and the
Transaction.
Section 6.4 No Proceeding or Litigation.
(a) No preliminary or permanent injunction or other order
shall have been issued by any court of competent jurisdiction, whether Federal,
state or foreign, or by any governmental or regulatory body, whether Federal,
state or foreign, nor shall any statute, rule, regulation or executive order be
promulgated or enacted by any governmental authority, whether Federal, state or
foreign, that prevents the consummation of the Transaction.
(b) No suit, action, claim, proceeding or investigation before
any court, arbitrator or administrative, governmental or regulatory body,
whether Federal, state or foreign, shall have been commenced and be pending
against any of the Purchaser, Medigroup and BCBSNJ or any of their affiliates,
officers or directors seeking to prevent the assignment and transfer of the
Contracts or asserting that the assignment and transfer of the Contracts would
be illegal.
Section 6.5 Closing Deliveries. On or before the Closing Date, the
Purchaser, Medigroup and BCBSNJ shall have delivered to the Seller each of the
Purchaser Closing Deliveries, and the Seller and its counsel shall be reasonably
satisfied with the form and substance thereof.
ARTICLE 7.
INDEMNIFICATION
Section 7.1 Indemnification by the Seller.
Except as otherwise limited by this Article VII, the Seller shall
indemnify, defend and hold harmless the Purchaser and its officers, directors,
employees, agents, successors and assigns (collectively, the "Purchaser
Indemnified Parties") from and against any and all liabilities, losses, damages,
claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, reasonable attorneys' fees and expenses)
actually suffered or incurred by any of the Purchaser Indemnified Parties
(hereinafter, a "Purchaser Loss") arising out of or resulting from any of the
following:
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(a) the breach by the Seller of any representation or warranty
contained herein or in any document delivered hereunder at the Closing (except
to the extent such breach has been caused by the Purchaser, as manager, in its
management of the Business);
(b) the breach by the Seller of any covenant or agreement contained
herein or in any document delivered hereunder at the Closing (except to the
extent such breach has been caused by the Purchaser, as manager, in its
management of the Business); or
(c) the failure of the Seller to pay or otherwise discharge any
liability or obligation incurred by it in connection with the Contracts or the
Business prior to the Closing Date (except to the extent such failure has been
caused by the Purchaser, as manager, in its management of the Business).
Section 7.2 Indemnification by the Purchaser. Except as otherwise limited by
this Article VII, the Purchaser shall indemnify, defend and hold harmless the
Seller and its officers, directors, independent contractors, agents, successors
and assigns (the "Seller Indemnified Parties") from and against any and all
liabilities, losses, damages, claims, costs and expenses, interest, awards,
judgments and penalties (including, without limitation, reasonable legal costs
and expenses) actually suffered or incurred by any of the Seller Indemnified
Parties (hereinafter, a "Seller Loss") arising out of or resulting from any of
the following:
(a) the breach by any of the Purchaser, Medigroup and BCBSNJ of any
representation or warranty contained herein or in any document delivered
hereunder at the Closing;
(b) the breach by any of the Purchaser, Medigroup and BCBSNJ of any
covenant or agreement contained herein or in any document delivered hereunder at
the Closing; or
(c) the failure of any of the Purchaser, Medigroup and BCBSNJ to pay or
otherwise discharge any liability or obligation incurred by such party in
connection with the Contracts or the Business from and after the Closing Date
(except for the Excluded Liabilities).
Section 7.3 General Indemnification Provisions.
(a) For the purposes of this Section, the term "Indemnitee" shall refer
to the Purchaser Indemnified Parties or the Seller Indemnified Parties, as
applicable, entitled, or claiming to be entitled, to be indemnified, pursuant to
the provisions of Section 7.1 or 7.2 hereof, as the case may be; the term
"Indemnitor" shall refer to the person or persons having the obligation to
indemnify pursuant to such provisions; and "Losses" shall refer to the "Seller
Losses" or the "Purchaser Losses," as the case may be.
(b) An Indemnitee shall give written notice (a "Notice of Claim") to
the Indemnitor within ten (10) business days after the Indemnitee has knowledge
of any claim (including a Third Party Claim, as defined below) that an
Indemnitee has determined has given or could give rise to a right of
indemnification under this Agreement. No failure to give such Notice of Claim
shall affect
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the indemnification obligations of the Indemnitor hereunder, except to the
extent Indemnitor can demonstrate such failure materially prejudiced
Indemnitor's ability to successfully defend the matter giving rise to the claim.
The Notice of Claim shall state the nature of the claim, the amount of the
Losses, if known, and the method of computation thereof, all with reasonable
particularity and containing a reference to the provisions of this Agreement in
respect of which such right of indemnification is claimed or arises.
(c) The obligations and liabilities of an Indemnitor under this Article
VII with respect to Losses arising from claims of any third party that are
subject to the indemnification provisions provided for in this Article VII
("Third Party Claims") shall be governed by and contingent upon the following
additional terms and conditions: the Indemnitee at the time it gives a Notice of
Claim to the Indemnitor of the Third Party Claim shall advise the Indemnitor
that it shall be permitted, at its option, to assume and control the defense of
such Third Party Claim at its expense and through counsel of its choice if it
gives prompt notice of its intention to do so to the Indemnitee and confirms
that the Third Party Claim is one with respect to which the Indemnitor is
obligated to indemnify. In the event the Indemnitor exercises its right to
undertake the defense against any such Third Party Claim as provided above, the
Indemnitee shall cooperate with the Indemnitor in such defense and make
available to the Indemnitor all witnesses, pertinent records, materials and
information in its possession or under its control relating thereto as is
reasonably required by the Indemnitor. Similarly, in the event the Indemnitee
is, directly or indirectly, conducting the defense against any such Third Party
Claim, the Indemnitor shall cooperate with the Indemnitee in such defense and
make available to it all such witnesses, records, materials and information in
its possession or under its control relating thereto as is reasonably required
by the Indemnitee. Except for the settlement of a Third Party Claim that
involves the payment of money only and for which the Indemnitee is totally
indemnified by the Indemnitor, no Third Party Claim may be settled by the
Indemnitor without the written consent of the Indemnitee, which consent shall
not be unreasonably withheld. Similarly, no Third Party Claim may be settled by
the Indemnitee without the written consent of the Indemnitor, which consent
shall not be unreasonably withheld.
Section 7.4 Limit on Indemnification. The aggregate amount of all Purchaser
Losses subject to indemnification under this Article VII shall not exceed the
portion of the Purchase Price described in Section 1.5(A) above, subject to any
adjustment pursuant to Section 1.6 hereof.
ARTICLE 8.
TERMINATION
Section 8.1 Termination of Agreement.
This Agreement may be terminated at any time prior to the Closing:
(a) by written consent of the Purchaser and the Seller;
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(b) subject to Section 4.4 hereof, by the Seller, if it becomes clear
that there is a condition precedent to Closing set forth in Article VI hereof
that cannot be satisfied;
(c) subject to Section 4.4 hereof, by the Purchaser, if it becomes
clear that there is a condition precedent to Closing set forth in Article V
hereof that cannot be satisfied;
(d) by the Seller, if a default by the Purchaser, as manager, occurs
under the Management Agreement, and in the event of such termination by the
Seller under this Section 8.1(d), Mellon shall disburse the entire Deposit and
all interest thereon to the Seller;
(e) by the Purchaser, if a default by the Seller occurs under the
Management Agreement, and in the event of such termination by the Purchaser
under this Section 8.1(e), Mellon shall disburse the entire Deposit and all
interest thereon to the Purchaser;
(f) by the Purchaser, upon written notice, if twelve (12) or more
months have elapsed since the date of this Agreement and the shareholders of the
Seller have not approved this Agreement prior to said notice; and in the event
of such termination by the Purchaser under this Section 8.1(f), Mellon shall
disburse $250,000 of the Deposit to the Purchaser and the remainder of the
Deposit and all interest thereon to the Seller;
(g) by the Purchaser, upon ninety (90) days advance written notice, if
twelve (12) or more months have elapsed since the date of this Agreement and the
shareholders of the Seller have approved this Agreement prior to said notice but
the Regulatory Agencies' approvals have not yet been secured; provided, however,
the Purchaser and the Seller shall utilize best efforts to secure said
Regulatory Agencies' approvals during the ninety (90) day-period between the
Purchaser notice and the effective date of termination hereunder. If this
Agreement is terminated under this Section 8.1(g), Mellon shall disburse the
entire Deposit and all interest thereon to the Seller; and
(h) by the Seller, upon written notice, if twelve (12) months or more
have elapsed since the date of this Agreement; and in the event of such
termination by the Seller under this Section 8.1(h), Mellon shall disburse the
entire Deposit and all interest thereon to the Purchaser.
Section 8.2 Procedure and Effect of Termination. In the event of termination of
this Agreement by any party permitted to terminate this Agreement pursuant to
Section 8.1 hereof, written notice thereof shall forthwith be given to the other
parties hereto specifying the provision hereof pursuant to which such
termination is made, and this Agreement shall forthwith become void and of no
further force and effect, and there shall be no liability on the part of the
parties hereto (or their respective officers, directors or affiliates), except
as set forth in Sections 1.3, 4.2, 9.1 and 9.10 hereof and except that nothing
herein shall relieve either party from liability for any willful breach hereof.
19
<PAGE> 24
ARTICLE 9.
MISCELLANEOUS
Section 9.1 Expenses; Taxes. All costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement, the Management
Agreement and the Transaction shall be paid by the party incurring such costs
and expenses, whether or not the Closing shall have occurred. The Purchaser, on
the date of Closing, or, if due thereafter, promptly when due, shall pay all
excise, sales, value added, use, registration, stamp, transfer and similar
taxes, levies, charges, and fees incurred in connection with this Agreement and
the Transaction (other than income taxes due and payable by the Seller).
Section 9.2 Consents. Whenever this Agreement requires a consent by or on behalf
of any party hereto, such consent shall be given in writing in a manner
consistent with the requirements for a waiver of compliance as set forth in
Section 9.3 below.
Section 9.3 Waiver. Except as otherwise provided in this Agreement, any failure
of the parties to comply with any provision hereof may be waived by the party
entitled to the benefit thereof only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such provision shall not operate as a waiver of or estoppel with
respect to, any subsequent or other failure.
Section 9.4 Further Assurances. Each of the parties hereto agrees that, from and
after the Closing, upon the reasonable request of any other party hereto and
without further consideration, such party will execute and deliver to such other
party such documents and further assurances and will take such other actions
(without cost to such party) as such other party may reasonably request in order
to carry out the purpose and intention of this Agreement.
Section 9.5 Entire Agreement. This Agreement, the Exhibits and the Schedules and
the other writings referred to herein or delivered pursuant hereto that form a
part hereof contain the entire understanding of the parties with respect to the
subject matter hereof. This Agreement supersedes all prior agreements.
Section 9.6 Amendment. This Agreement may be amended, modified, or superseded
only by an instrument signed by each of the parties hereto or, in the case of a
waiver, by or on behalf of the party waiving compliance.
Section 9.7 Headings. The Article and Section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement.
Section 9.8 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder will be in writing and will be deemed to have
been duly given if personally delivered or on the date of receipt indicated on
the return receipt if delivered or mailed (registered or certified mail, postage
prepaid, return receipt requested) as follows:
20
<PAGE> 25
(a) If to the Seller:
Physician Healthcare Plan of New Jersey, Inc.
Princeton Pike Corporate Center
1009 Lenox Drive
Lawrenceville, New Jersey 08648
Attn: Chairman of the Board
with a copy to:
Ober, Kaler, Grimes & Shriver
A Professional Corporation
120 East Baltimore Street
Baltimore, Maryland 21202-1643
Attention: Carol M. McCarthy, Esquire
(b) If to the Purchaser:
Medigroup of New Jersey, Inc.
3 Penn Plaza East
Newark, New Jersey 07105-2200
Attn: Christy W. Bell
(c) If to Medigroup:
Medigroup, Inc.
3 Penn Plaza East
Newark, New Jersey 07105-2200
Attn: Christy W. Bell
(d) If to BCBSNJ:
Blue Cross/Blue Shield of New Jersey, Inc.
3 Penn Plaza East
Newark, New Jersey 07105-2200
Attn: Robert J. Pures
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above.
Section 9.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed shall be deemed to be an original but
all of which, when taken together, shall constitute one and the same agreement.
21
<PAGE> 26
Section 9.10 Public Announcements. The parties may issue press releases that are
approved by the Seller and BCBSNJ (acting on its own behalf and on behalf of the
Purchaser and Medigroup) upon the occurrence of the following events: the
approval by the Board of Directors of the Seller of this Agreement for referral
to the Seller's shareholders and upon the Closing. No other press releases,
announcements, marketing/promotional materials or other publicity regarding the
Transaction or this Agreement may be made, issued or distributed prior to the
Closing, without the express written consent of all the parties, including
consent as to content; provided, however, that nothing in this Agreement shall
prevent a party hereto from making any disclosure in connection with the
Transaction to such party's shareholders or to the extent required by law so
long as prior notice of such disclosure is given to the other party. The Seller
agrees that in any communications permitted by this Section the Purchaser may
describe the Transaction as "a purchase of the HMO and PPO operations of
Physician Healthcare Plan of New Jersey, the statewide HMO endorsed by the
Medical Society of the State of New Jersey." Any other description referencing
both the Seller and endorsement of any kind must be approved in form and
substance by the Seller.
Section 9.11 Construction. This Agreement and the other Seller Related Documents
and the other Purchaser Related Documents have been negotiated by the parties
and their respective legal counsel, and legal or equitable principles that might
require the construction of this Agreement or the other Seller Related Documents
or the other Purchaser Related Documents or any provision hereof or thereof
against the party drafting such agreements will not apply in any construction or
interpretation of this Agreement or the other Seller Related Documents or the
other Purchaser Related Documents.
Section 9.12 Recitals. The Recitals hereto are specifically incorporated herein
by reference and made a part of this Agreement as if they appeared in the body
hereof.
Section 9.13 Severability. Any provision of this Agreement that is invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability and shall not affect in any way the remaining provisions
hereof.
Section 9.14 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of, the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations herein shall be assigned by any party
hereto without the prior written consent of the other parties.
Section 9.15 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the internal laws of the State of New Jersey
without regard to its provisions concerning conflicts or choice of law.
[SIGNATURES ON NEXT PAGE]
22
<PAGE> 27
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties as of the date first written above.
WITNESS/ATTEST: MEDIGROUP OF NEW JERSEY, INC.
/s/ Lynn E. Marinelli By:/s/ Donna M. Celestini
----------------------
Donna M. Celestini
Executive Vice President
WITNESS/ATTEST: MEDIGROUP, INC.
/s/ Lynn E. Marinelli
By:/s/ Christy W. Bell
-------------------
Christy W. Bell
President and Chief Operating Officer
WITNESS/ATTEST: BLUE CROSS AND BLUE SHIELD OF NEW
JERSEY, INC.
/s/ Lynn E. Marinelli
By:/s/ Christy W. Bell
-------------------
Christy W. Bell
Senior Vice President - Health Industry Services
WITNESS/ATTEST: PHYSICIAN HEALTHCARE PLAN OF NEW
JERSEY, INC.
By:/s/ Joseph D. Billoti
---------------------------
Joseph D. Billoti, M.D.
Chairman of the Board
23
<PAGE> 28
EXHIBIT 1
CONTRACTS
Seller's HMO and PPO group account contracts listed on Exhibit A hereto.
Seller's agreements with the primary care physicians listed on Exhibit B hereto;
provided, however, that if a physician fails to meet Medigroup's credentialing
requirements, said physician's provider agreement with Seller shall be excluded
from the Contracts.
Seller's agreements with the specialty care physicians listed on Exhibit C
hereto; provided, however, that if a physician fails to meet Medigroup's
credentialing requirements, said physician's provider agreement with Seller
shall be excluded from the Contracts.
The PPO agreements, ancillary provider service agreements and hospital
participation agreements listed on Exhibit D hereto.
<PAGE> 29
EXHIBIT 2
MANAGEMENT SERVICES AGREEMENT
<PAGE> 30
EXHIBIT 3
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Assignment") is made as
of the day of , 1997, by and between PHYSICIAN HEALTHCARE PLAN OF NEW JERSEY,
INC., a New Jersey corporation (the "Assignor"), and MEDIGROUP OF NEW JERSEY,
INC., a New Jersey corporation (the "Assignee").
RECITALS
A. The Assignor has entered into the various contracts set forth on
Exhibit A attached hereto and made a part hereof (collectively, the
"Contracts").
B. The Assignor has agreed to assign and transfer to the Assignee all
of its right, title and interest in and to the Contracts pursuant to the terms
of that certain Agreement dated as of June ____, 1997, by and between the
Assignor and the Assignee (the "Agreement").
C. The Assignee desires to take an assignment of all of the Assignor's
right, title and interest in and to each of the Contracts and to assume all of
the Assignor's duties, obligations and liabilities thereunder.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Assignor and the Assignee agree as follows:
1. Assignment. The Assignor, for and in consideration of the payment of
the Purchase Price (as defined in the Agreement) and the assumption and
performance by the Assignee of the Assignor's duties, obligations and
liabilities under the Contracts on and after the date hereof, does hereby
irrevocably and unconditionally assign and transfer unto the Assignee all of the
Assignor's right, title and interest in and to each of the Contracts and all the
duties, obligations and liabilities of the Assignor under or relating to the
Contracts to the extent accruing or arising on or after the date hereof (but not
attributable to the period prior to the date hereof); provided, that nothing
herein shall be construed as an assignment, transfer, sale, delegation, setting
over or assumption of any duty, obligation or liability of the Assignor under or
relating to the Contracts to the extent arising or accruing (whether or not
asserted or assessed) prior to the date hereof. The Assignor shall indemnify and
hold harmless the Assignee from and against any and all claims, actions, causes
of action, damages, obligations, expenses (including, without limitation,
attorneys' fees and expenses) and liabilities (collectively, the "Claims")
arising out of or in connection with the Assignor's failure to perform its
obligations hereunder.
<PAGE> 31
2. Performance of Contracts. From and after the date hereof, the
Assignee assumes each of the Contracts and agrees to satisfy, discharge and
perform all of the Assignor's duties, obligations and liabilities under or
relating to the Contracts to the extent accruing or arising on or after the date
hereof (but not attributable to the period prior to the date hereof). The
Assignee acknowledges that it has examined all of the Contracts and understands
their terms and conditions. The Assignee shall indemnify and hold harmless the
Assignor from and against any and all Claims arising out of or in connection
with the Assignee's failure to perform its obligations hereunder.
3. Representation and Warranty. The Assignor and the Assignee
each represents and warrants to the other that this Assignment is its valid,
legal and binding obligation, enforceable against it in accordance with its
terms, and that it has the power and authority to enter into this Assignment.
4. Miscellaneous.
(a) This Assignment and the Agreement contain the entire
agreement between the Assignor and the Assignee regarding the subject matter
hereof. The headings in this Assignment are for convenience only and shall not
limit or otherwise affect any of the terms hereof.
(b) No modification or waiver of any of the provisions of this
Assignment shall be effective until and unless it is in writing and signed by
the Assignor and the Assignee, and any such waiver shall be effective only in
the specific instance and for the specific purpose for which it is given. This
Assignment may be executed in any number of counterparts, all of which when
taken together shall constitute but a single instrument.
(c) All of the terms of this Assignment shall survive the
execution and delivery of this Assignment and the performance of the duties,
obligations and liabilities of the Assignee under this Assignment and the
Contracts.
(d) In the event that any provision of this Assignment 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 the remaining provisions shall remain
operative and in full force and effect.
(e) This Assignment shall be construed in accordance with, and
governed by, the laws of the State of New Jersey (excluding the conflict of laws
principles of such State) and shall be binding upon and inure to the benefit of
the Assignor and the Assignee and their respective successors and assigns.
2
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Assignment to
be duly executed as of the date first above written.
ATTEST/WITNESS: PHYSICIAN HEALTHCARE PLAN OF
NEW JERSEY, INC.
By:_________________________________
Name:
Title:
ATTEST/WITNESS: MEDIGROUP OF NEW JERSEY, INC.
By:_________________________________
Name:
Title:
3
<PAGE> 33
SCHEDULE I
DISCLOSURE SCHEDULE
Section 2.4
The Provider Letter of Agreement between the Seller and SmithKline Beecham
Clinical Laboratories effective on July 1, 1995, has been terminated effective
August 19, 1997.
The Letter of Intent between the Seller and the Somerset Medical Center
effective on September 1, 1995, expired pursuant to its terms on August 31,
1996, but the parties are still operating under it.
The Letter of Intent between the Seller and Memorial Hospital of Burlington
County effective on Spetember 18, 1995, has not been executed by the Seller, but
the parties are operating under it.
The Seller is a party to that certain Operating Agreement of Princeton Medical
Management, L.L.C. dated as of December 20, 1996, between the Medical Center at
Princeton Physician-Hospital Organization, Inc. and the Seller.
The Seller is a party to that certain Agreement dated as of December 16, 1996,
between Princeton Medical Management, L.L.C. and the Seller, with respect to the
Princeton Preferred Health Plan.
The Seller is a party to a Reinsurance Treaty No. 96 40 043 effective January 1,
1996, between the Seller and Sun Life Assurance Company of Canada.
The Seller is a party to a Specific Excess HMO Reinsurance Agreement dated
December 4, 1995, between the Seller and Sun Life Assurance Company of Canada.
Section 2.6
The Seller is subject to a complaint captioned Prisco S. DeFronzo, M.D. v.
Physician Health Plan of New Jersey, Inc., filed with the Superior Court of New
Jersey, Union County:Law Division, Docket UNN-L-2035 97, on April 10, 1997,
pursuant to which Dr. DeFronzo demands the return of his stock purchase price in
the amount of $5,500.
At the direction of the Department of Banking and Insurance, the Seller is
required to file monthly statements of the condition and affairs of the Seller
with the Department.
Section 2.9
The Seller is a party to that certain Agreement dated March 13, 1997, between
Henry D. Rosin, M.D. and the Seller, with respect to certain compensation.
<PAGE> 1
EXHIBIT 10.10
MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT ("Management Services Agreement") by
and between Physician Healthcare Plan of New Jersey. Inc. ("PHPNJ") and
Medigroup of New Jersey, Inc. ("Medigroup"), is entered into as of June 26,
1997, for the period as hereinafter set forth.
WITNESSETH
WHEREAS, by an Agreement ("Agreement") dated June 26. 1997, the parties
have agreed to the purchase by Medigroup of certain assets of PHPNJ's HMO and
PPO business ("PHPNJ's Business"): and
WHEREAS, under this Agreement, Medigroup has agreed to provide
management services ("Management Services") for PHPNJ's Business for the period
and under the terms and conditions as hereinafter set forth:
NOW, THEREFORE, the parties hereto agree as follows:
1. Management Services to be Provided.
The Management Services to be provided by Medigroup shall be those
management and administrative services necessary for the operation of PHPNJ's
Business. These Management Services, which Medigroup may provide directly or
through subcontract, shall include services relating to claims processing,
member services, enrollment, provider assistance, utilization management and
financial services, including accounting and reporting for all product lines of
<PAGE> 2
PHPNJ's Business: provided, however, that such services shall not include any
reporting to the Securities and Exchange Commission or any related Federal and
state reporting required under the securities laws of the United States or the
State of New Jersey. The Management Services are more fully set forth in Section
2 below and in Schedule A (which includes performance standards), which is
attached hereto and made a part hereof
2. Certain Management Services
Management Services shall include the following:
(a) Accounting/Books and Records. Medigroup shall
maintain PHPNJ's accounting system and maintain all
books and records with respect to PHPNJ's Business
dunng the term of the Management Services Agreement:
(b) Collections. Medigroup shall use its best efforts to
collect all premiums and other revenue due PHPNJ and
shall deposit same in the Operating Account (as
defined below).
(c) Licenses. Medigroup shall maintain all licenses,
certifications and permits required by applicable
law and regulation in connection with the
manangement and operation of PHPNJ's business:
2
<PAGE> 3
(d) Operating Account. Medigroup shall establish in the
name of PHPNJ at a bank of Medigroup's choice, an
operating account (the "Operating Account") into
which Medigroup shall deposit all amounts received
from the operation of PHPNJ's Business. Medigroup
shall not commingle with its own funds any monies
received from the operation of PHPNJ's Business.
PHPNJ agrees that Medigroup shall have access to and
the right to make withdrawals from the Operating
Account, and for that purpose. PHPNJ agrees to
execute such power of attorney, signature card or
other instrument as may be required by the
applicable bank. PHPNJ herby irrevocably authorizes
Medigroup to make such endorsements on any checks,
drafts, or other instuments to be deposited into the
Operating Account as is necessary to permit their
collection. PHPNJ hereby expressly authorizes
Medigroup to pay when due from the Operating
Account all amounts with respect to PHPNJ's
Business: and
(e) Financial Statements. Medigroup shall deliver to
PHPNJ on a monthly basis a balance sheet, a profit
and loss statement and a disbursement schedule.
(f) Coordination With PHPNJ's Designee. During the term
of the Management Services Agreement. Medigroup shall
use its best efforts to coordinate its activities
with a designee appointed by PHPNJ.
3. Transition to Management Services Agreement.
It is understood that PHPNJ's existing management agreement with
Medical Group Management. Inc. ("MGM") will be terminated as soon as it is
mutually determined an orderly transition would permit. PHPNJ shall work with
Medigroup to ensure a smooth transition, and PHPNJ shall use its best efforts to
obtain the full cooperation of MGM and MGM's subcontractors in regard to any
required assistance needed by Medigroup in regard to the transition.
4. Term of Management Services Agreement.
The term of the Management Services Agreement shall commence as of July
1, 1997 ("Commencement Date"). Unless terminated sooner pursuant to this
Management Services Agreement, the term of this Management Services Agreement
shall end on the first to occur of (a) the Closing Date (as defined in the
Agreement): or (b) sixty (60) days (the "Transition Period") after (i) the date
that the shareholders of PHPNJ vote to disapprove the Agreement, or
3
<PAGE> 4
(ii) the six (6) month anniversary of the Commencement Date if the shareholders
of PHPNJ have failed to vote on the Agreement during such six (6) month period.
During the Transition Period, and if necessary, for a reasonable period
thereafter. Medigroup shall work with PHPNJ to ensure a smooth and timely
transition to a successor manager. Medigroup hereby acknowledges PHPNJ's
objective of retaining as many HMO members and PPO lives as possible during the
term of the Management Services Agreement.
5. Management Fee
For the Management Services provided hereunder, PHPNJ shall pay to
Medigroup a management fee of $15 per member per month for each HMO member
enrolled in PHPNJ as of the first day of each month. Medigroup shall provide a
monthly invoice to PHPNJ, including a certification of membership, by the fifth
day of the month, and PHPNJ shall provide payment to Medigroup within ten (10)
days of receipt of such invoice. The $15 per member per month rate shall apply
through the Closing Date of the Agreement: provided, however, that if PHPNJ's
shareholders disapprove the Agreement within six (6) months of the Commencement
Date of the Management Services Agreement, the management fee shall be increased
to $25 per member per month, effective as of the date PHPNJ's shareholders
disapprove the Agreement, or sixty-one (61) days from the Commencement Date of
the Management Services Agreement, whichever shall occur earlier. In the event
the management fee of $25 per member per month is to be paid retroactively, the
retroactive payment shall be made within ten (10) days of PHPNJ's shareholders
vote to disapprove, or in the event the shareholders have not yet voted on the
Agreement, within ten (10) day's after the six (6) month anniversary of the
Commencement Date of the Management Services Agreement.
4
<PAGE> 5
6. Compliance with Law.
Both parties shall comply with all applicable law's and governmental
rules and regulations
7. Governing Law
The execution, validity, interpretation and enforcement of this
Management Services Agreement shall be governed by the laws of the State of New
Jersey.
8. Indemnification
Each party agrees to indemnify and hold harmless the other party, its
affiliates, successors, assigns, directors, officers, employees, independent
contractors and agents, from and against any and all liabilities, damages,
actions, suits, proceedings, claims, demands, losses, costs and expenses
(including reasonable attorneys' fees) that shall or may arise, directly or
indirectly, out of or in connection with any breach or inaccuracy of any
representation, warranty or covenant hereunder, misfeasance, malfeasance,
negligent or intentional act or omission of the indemnifying party, its
affiliates, successors, assigns, officers, directors, employees, independent
contractors or agents in connection with this Management Services Agreement.
9. Access.
During the term of the Management Services Agreement, each party shall
have reasonable access to the other partys facilities, personnel, contractors,
consultants, books, records. documents and other information in connection with
this Management Services Agreement.
10. Termination For Default.
5
<PAGE> 6
In the event Medigroup fails materially to perform or observe any of
its obligations under this Management Services Agreement, including, without
limitation, the performance standards in Schedule A. PHPNJ may declare Medigroup
in default upon written notice setting forth the nature of the default.
Medigroup's failure to cure the default within thirty (30) days of receipt of
notice thereof shall constitute a default, entitling PHPNJ to terminate this
Management Services Agreement and to all rights and remedies available at law'
or in equity'. In the event PHPNJ fails to pay or authorize payment of the
Management Fee when due hereunder or, in Medigroup's reasonable good faith
judgment, PHPNJ puts significant barriers in the way of Medigroup assuming or
performing any of its obligations under this Management Services Agreement.
Medigroup may declare PHPNJ in default upon written notice setting forth the
nature of the default. PHPNJ's failure to cure the default within thirty (30)
days of receipt of notice shall constitute a default, entitling Medigroup to
terminate this Management Services Agreement and to all rights and remedies
available at law or in equity.
11. General Provisions
11.1 Assignment This Management Services Agreement shall
be binding upon and inure to the benefit of the
parties hereto and their respective successors and
assigns. Neither party shall assign this Management
Services Agreement without the other's prior written
consent, which consent shall not be unreasonably
withheld:
provided, however, that Medigroup may, without such
prior consent of
6
<PAGE> 7
the other party, assign this Management Services
Agreement to its parent, a subsidiary or an
affiliate, provided such entity' has experience in
the operation and management of HMOs.
11.2 Independent Contractors. Nothing in this Agreement
shall affect the separate identity of PHPNJ and
Medigroup and their relationship to each other as
independent contractors. Other than as provided in
this Agreement or other written agreements, nothing
contained in this Agreement is intended to cause
either party, to be the agent of the other or as
limiting in any manner the parties in the conduct of
their respective businesses, ventures or activities.
11.3 Entire Agreement. This Management Services Agreement
and the Agreement contain all the terms and
conditions agreed upon by the parties hereto with
respect to the matters contained herein, and
constitute the entire understanding of the parties.
They supersede all other agreements, oral or
otherwise, regarding the subject matter hereof.
11.4 Notices. Any notice required to be given pursuant to
the terms and provisions of this Agreement shall be
in writing and shall be sent by certified mail,
return receipt requested, postage prepaid:
If to PHPNJ:
7
<PAGE> 8
Physician Healthcare Plan of New Jersey. Inc.
Princeton Pike Corporate Center
1009 Lenox Drive
Lawrenceville, New Jersey 08648
Attn: Joseph Billotti
with copies to:
Physician Healthcare Plan of New Jersey, Inc.
Princeton Pike Corporate Center
1009 Lenox Drive
Lawrenceville, New Jersey 08648
Attn: PHPNJ's Designee under Section 2(f) of this
Management Services Agreement
and
Ober, Kaler, Grimes & Shriver
A Professional Corporation
120 East Baltimore Street
Baltimore. Maryland 21202-1643
Attn: Carol M. McCarthy. Esq.
If to Medigroup:
Medigroup of New Jersey. Inc.
3 Penn Plaza East
Newark. New Jersey 07105-2200
Attn: Christy W. Bell
11.5 Headings. The headings contained herein are for
convenience of reference only and are not intended to
define, limit or describe the scope or intent of any
provision of this Management Services Agreement.
11.6 Waiver. The waiver (which must be in writing) by
either party of any of the terms or provisions of
this Management Services Agreement shall not be
deemed to constitute a waiver of any of its other
terms or provisions. No waiver of the
8
<PAGE> 9
provisions of this Management Services Agreement
shall be deemed to constitute a continuing waiver
thereof unless otherwise expressly provided herein.
11.7 Amendment. This Management Services Agreement may be
amended, modified or superseded only by an instrument
signed by each of the parties hereto.
11.8 Execution in Counterparts. This Management Services
Agreement may be executed in counterparts, all of
which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Management Services
Agreement as of the day and year first above written.
PHYSICIAN HEALTHCARE PLAN MEDIGROUP OF NEW JERSEY, INC.
OF NEW JERSEY, INC.
By: /s/ Joseph D. Billotti By: /s/ Donna M. Celestini
---------------------- ----------------------
Name: Joseph D. Billotti, M.D. Name: Donna M. Celestini
Title: Chairman of the Board Title: Executive Vice President
9
<PAGE> 10
SCHEDULE A
MANAGEMENT SERVICES
General and Medical Management
- - Maintain risk management programs and related insurance coverages
- - Manage existing provider and subscriber contracts and their renewals,
and respond to requests for new business
- - Member Management - Maintain Member records and verify eligibility;
provide fulfillment material and I.D.cards
- - Medical Claims Processing - Includes adjudication. letters and
explanations of benefits to Member, physicians and other healthcare
entities; payments and disbursements to primary care physicians,
specialist physicians, laboratory' and x-ray, hospitals and others. COB
and HPR Code review, charge backs and other sanctions. Negotiation of
claims.
- - Maintain reinsurance arrangements
- - Credentialing - Includes the management of the credentialing process
- - Continue Quality Assurance activities
- - Manage Out-of-Area Coverage
- - Provider Network Maintenance - Updating addresses and tax I.D. numbers
and processing periodic fee schedule and medical policy changes
- - Reconciliation of Provider Network Monthly Membership Recap to Monthly
Premium Report
- - Providing all necessary Claims Administration Reports
- - Providing all necessary Member Reports, including eligibility
information to providers
- - Provide all necessary Provider Network Data for Analysis
- - Continue Provider Network Integration activities
- - Provide administrator, data and support to all committees appointed by
the board
10
<PAGE> 11
- - Inpatient and Outpatient Utilization Management Services - Inpatient
and outpatient utilization management services as defined by PHPNJ's
medical policy procedures. Utilization management services include
support of PHPNJ's utilization. quality assurance, medical advisory
committees or their peer review and physician selection committees, and
necessary reports.
- - Services
- Respond to Claim Status Inquiries
- Receive and Acknowledge Inquiries
- Investigate Appeals/Claim and present to Committee for
decision
- Conduct Network training and education program as it relates
to claims payment. referral and benefit policies and other
policies and procedures
- - Member Services
- Receive. process and respond to all grievances in accordance
with protocols established by the grievance committee
- Provide appropriate Member notification of claims denials and
appeal rights through system generated correspondence
- Investigate Member appeals consistent with Committee policies
and procedures and deliver to PHPNJ for decision
- Process direct member inquiries regarding claims and
claims-related issues
- Dial up access for inquiry into PHPNJ membership
- File requested reports with New Jersey Department of Health
and Senior Services
- Provide continuation of services for the Health Care Payor
Coalition Account
FINANCIAL
- Reconcile bank statements
- Monitor late payments, notify group accounts of same and
terminate, if necessary
- Handle accounts payable
- Verify and pay broker commissions
- Manage cash and investments in accordance with PHPNJ policies
- File monthly and quarterly financial reports with the State of
New Jersey
- File small employer reports with State of New Jersey
- Handle compliance requirements for State employee accounts
- Transfer funds from Operating Fund to Claims Fund to cover
claims payment o Reconcile PPO receipts with utilization data
- Audit monthly pharmacy reports and make recommendations for
action as
11
<PAGE> 12
necessary
PERFORMANCE
- Enter eligibility within 5 business days of receipt
- Enter group information within 5 business days of receipt
- Distribute premium billings by 20th of each month
- Distribute renewals to groups 60 days prior to anniversary
date
- Provide financial statements by the 15th of each month
- Pay broker commissions by the 10th of each month
- Notification of referrals/pre-certification request within
24-48 hours for routine: 4 hours for urgent/emergent
- Phone responses - less than 3% abandonment: answer within 45
seconds
- Enter provider file maintenance within 10 business days from
day of receipt
- Maintain credentialing as stated in program
- Submit regulatory filings as required
- Distribute ID cards within 15 business days (initial renewal
and PCP changes)
- Respond to initial appeal within 5 business days from date of
receipt
- Distribute new member packet within 15 business days from
effective date
- Distribute master group contracts within 15 business days from
effective date
- Post cash receipts before billing run each month
- Distribute notices of late payment on the 20th of each month
- Distribute termination notice for non-payment on the 1st of
each month
- Process accounts payable every two weeks
- Perform reinsurance accounting and reporting by the 5th of
each month
- Distribute eligibility listing to PCPs by the 1st of each
month
- Fund check runs within 24 hours of request
- Transfer eligibility to vendors on the 1st of each month
- Adjudicate claims within 15 business days from date of receipt
- Maintain a 98% accuracy rate for claims processing
12
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