SERVICE AGREEMENT
Service Agreement, dated as of November 1, 1994, between United Wisconsin
Services, Inc., a Wisconsin corporation ("UWS"), and Health Professionals, Inc.,
a Wisconsin nonstock corporation ("HPI").
RECITALS
Blue Cross & Blue Shield United of Wisconsin ("Blue Cross"), UWS,
University Health Care, Inc. ("UHC"), U-Care HMO, Inc. ("U-Care") and HPI have
formed a joint venture (the "UHC Joint Venture") pursuant to an amended and
restated joint venture agreement, dated as of October 31, 1994 (the "UHC Joint
Venture Agreement"). Blue Cross, UWS, UWS Acquisition Corporation, HMO-W,
Incorporated and HMO of Wisconsin Insurance Corporation ("HMOW") have formed a
joint venture (the "HMOW Joint Venture") pursuant to an agreement of merger and
joint venture, dated as of October 11, 1994 (the "HMOW Joint Venture Agreement"
and, together with the UHC Joint Venture Agreement, the "Joint Venture
Agreements"). The parties to the Joint Venture Agreements have agreed to
coordinate the efforts of the UHC Joint Venture and the HMOW Joint Venture in a
single joint venture (the "Joint Venture").
HPI has organized Health Professionals of Wisconsin, Inc. ("HPW") and,
concurrently with the execution of this Agreement, is transferring to HPW
substantially all of HPI's tangible assets in exchange for 13,500 shares of HPW
common stock, and HPW is selling
1,500 shares of preferred stock to Blue Cross for $1,500,000 in cash.
HPW and Blue Cross are entering into a Revolving Credit Agreement, dated as
of November 1, 1994, under which HPW may borrow up to $15,000,000 to expand and
operate HPI's existing provider network.
UWS desires to engage HPI to provide regular services that will further the
Joint Venture's business by acquiring physician practices and expanding and
managing the regional provider network, which will offer the Joint Venture's
managed care products.
Accordingly, UWS and HPI agree as follows:
A. SERVICES. During the term of the UHC Joint Venture, HPI shall perform
the following services:
(a) cooperate with UWS and HMOW to develop an acquisition strategy
and establish criteria to analyze providers for possible acquisition;
(b) identify, investigate and, through HPW, acquire physician
practices in the Applicable Geographical Area (as defined in Section 2(c)(i));
and
(c) as requested, advise the parties to the Joint Venture and its
governing board (the "Governing Board") on matters relating to the offering of
managed care products through regional provider networks.
2. PAYMENT FOR SERVICES.
(a) During the term of this Agreement, UWS shall make or cause to be
made payments to HPI (the "Service Payments"), in
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consideration for the services referred to in Section 1, calculated as follows:
(i) so long as the UHC Joint Venture and the HMOW Joint Venture
remain in effect, 10% of the aggregate income (loss) before income taxes
for the applicable period of all insured preferred provider organization
("PPO"), health maintenance organization ("HMO") and point of service
("POS") plans offered by the Joint Venture in the Applicable Geographical
Area, which means (A) for PPO plans, (1) net earned premium minus (2) the
sum of incurred claims and administrative expenses plus (3) net investment
income earned and (B) for HMO and POS plans, the amount determined in
accordance with generally accepted accounting principles; and
(ii) if the HMOW Joint Venture or the Service Period (as defined
in the Service Agreement, dated as of November 1, 1994 (the "LLC Service
Agreement"), between UWS and Community Health Systems, L.L.C. (the "LLC"))
terminates for any reason, 25% of the sum of:
(A) (1) the aggregate income (loss) before income taxes for the
applicable period of all HMO and POS plans offered by the UHC Joint Venture in
the Applicable Geographical Area, determined in accordance with the accounting
principles applied to prepare the financial statements of U-Care for the year
ended December 31, 1993, minus (2) an amount equal to U-Care's net profits for
1993 (or, in the case of the first distribution, an amount equal to the sum of
U-Care's net profits for 1993 and the fourth quarter of 1992), and
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(B) the aggregate income (loss) before income taxes for the applicable
period of all PPO plans offered by the UHC Joint Venture in the Applicable
Geographical Area (calculated as provided above).
(b) Service Payments shall be calculated for each calendar year or
portion thereof, commencing October 1, 1994, and ending on the date this
Agreement terminates in accordance with Section 3, by an independent accounting
firm of recognized standing selected by the Governing Board. Such accounting
firm shall make the calculation with respect to each year not later than March
31 of the next succeeding year and shall promptly notify the Governing Board,
Blue Cross, UWS, HPI, UHC and, unless the HMOW Joint Venture has terminated,
HMOW in writing of such calculation and shall set forth in reasonable detail the
basis therefor. Promptly following receipt of such notice, payment shall be
made to HPI by check mailed to its address specified in Section 11. Any
disputes between UWS and HPI regarding the calculation of Service Payments shall
be resolved in accordance with Section 4. The first calculation of Service
Payments shall be made for the period commencing October 1, 1994 and ending
December 31, 1995.
(c) For purposes of calculating Service Payments:
(i) "Applicable Geographical Area" means (A) so long as the
UHC Joint Venture and the HMOW Joint Venture remain in effect, the
following Wisconsin counties: Xxxxx, Columbia, Xxxxxxxx, Xxxx, Dodge, Fond
du Lac, Grant, Green, Green Lake, Iowa, Juneau, Lafayette, Marquette,
Monroe,
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Richland, Sauk, Xxxxxx, Waushara and Winnebago and (ii) if the HMOW Joint
Venture terminates for any reason, the following Wisconsin counties:
Columbia, Dane, Dodge, Grant, Iowa, Juneau, Lafayette, Marquette, Richland
and Sauk;
(ii) income does not include investment income attributable to
funds of UWS not withdrawn from the Joint Venture or attributable to
additional capital contributions from UWS or one of its affiliates to HMOW;
(iii) the administrative expenses of each plan offered shall
not exceed the actual costs incurred by the underwriter(s) of such plan;
(iv) the amount of an aggregate loss for the applicable period
shall carry over and reduce income from the plans offered by the Joint
Venture in the successive applicable period(s) to the extent of such loss;
(v) no expense, loss or liability attributable to the
approximate $4.4 million debt assumed and outstanding by U-Care to
University of Wisconsin Hospital and Clinics referred to in Section 13.4 of
the UHC Joint Venture Agreement shall be taken into account;
(vi) income (loss) shall be computed without regard to
(A) administrative service payments by UWS affiliates to UWS pursuant to
any administrative service agreement between UWS and its affiliates in
connection with the payments to (1) LLC under the LLC Services Agreement,
(2) HPI under this Agreement or (3) U-Care under the License Agreement,
dated as of November 1, 1994, between UWS and U-
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Care, (B) any payment to LLC under the LLC Services Agreement, (C) any
payment to HPI under this Agreement or (D) any payment to U-Care under the
License Agreement, dated as of November 1, 1994, between UWS and U-Care;
and
(vii) If the HMOW Joint Venture terminates other than on
December 31 of any year, the Service Payment for that year shall be
calculated in accordance with Section 2(a)(i) for the period prior to
termination and in accordance with Section 2(a)(ii) for the period after
termination.
(d) UWS and HPI expect that the amount of services performed by HPI
under this Agreement will vary from year to year and, in any year, may be more
or less than they anticipated as of the date of this Agreement. Accordingly,
UWS shall pay HPI the amount calculated under Section 2, without increase or
decrease for the services performed in any given year.
3. TERMINATION AND FINAL ACCOUNTING.
(a) This Agreement will terminate automatically if the UHC Joint
Venture terminates for any reason, including, without limitation, UHC's exercise
of its option to reacquire the U-Care business pursuant to Article 8 of the UHC
Joint Venture Agreement. If this Agreement terminates, a payment shall be
calculated for the period commencing October 1, 1994 and ending on the date of
termination (the "Total Service Payment") in accordance with the method for
calculating Service Payments under Section 2(a), subject to Section 2(c). To
the extent the Total Service Payment exceeds the aggregate Service Payments
previously received by HPI, the excess shall be paid to HPI within 60 days of
the date of
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termination. To the extent the aggregate Service Payments previously received
by or owed to HPI exceeds the Total Service Payment, HPI shall pay to UWS such
excess less the amount of any Service Payment owed to HPI (which shall be
canceled) within 60 days of the date of termination, but not in an amount
greater than the aggregate Service Payments received by HPI hereunder.
4. ARBITRATION. If UWS and HPI cannot resolve a dispute arising from
this Agreement, the dispute will be submitted to arbitration in accordance with
this Section 4.
(a) Each side shall appoint an individual as arbitrator and the two
so appointed shall then appoint a third arbitrator. If either side refuses or
neglects to appoint an arbitrator within 30 days of receipt of a written notice
of demand for arbitration, the other side may appoint the second arbitrator. If
the two arbitrators do not agree on a third arbitrator within 30 days of their
appointment, each of the arbitrators shall nominate three individuals. Each
arbitrator shall then decline two of the nominations presented by the other
arbitrator. The third arbitrator shall then be chosen from the remaining two
nominations by drawing lots. The arbitrators shall be active or former officers
of insurance or reinsurance companies, managed care organizations, or Lloyd's of
London Underwriters; the arbitrators shall not have a personal or financial
interest in the result of the arbitration.
(b) The arbitration hearings shall be held in Madison, Wisconsin, or
such other place as may be mutually agreed. Each side shall submit its case to
the arbitrators within 30 days of
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the selection of the third arbitrator or within such longer period as may be
agreed by the arbitrators. The arbitrators shall not be obliged to follow
judicial formalities or the rules of evidence except to the extent required by
governing law, that is, the state law of the situs of the arbitration as herein
agreed; they shall make their decisions according to the practice of the
reinsurance business. The decision rendered by a majority of the arbitrators
shall be final and binding on both sides. Such decision shall be a condition
precedent to any right of legal action arising out of the arbitrated dispute
which either side may have against the other. Judgment upon the award rendered
may be entered in any court having jurisdiction thereof.
(c) Each side shall pay (i) the fees and expenses of its own
arbitrator, (ii) one-half of the fees and expenses of the third arbitrator and
(iii) one-half of the other expenses that the parties jointly incur directly
related to the arbitration proceeding. Other than as set forth above, each
party shall bear its own costs in connection with any such arbitration,
including, without limitation, (i) all legal, accounting and other professional
fees and expenses and (ii) all other costs and expenses each party incurs to
prepare for such arbitration.
(d) Except as provided above, arbitration shall be based, insofar as
applicable, upon the Commercial Arbitration Rules of the American Arbitration
Association.
5. REPRESENTATIONS AND WARRANTIES. Each of UWS and HPI represents to the
other that (a) it has the corporate power and authority to enter into, execute
and deliver this Agreement and to
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consummate the transactions contemplated hereby, and (b) the execution and
deliver of this Agreement and the consummation of such transactions (i) have
been duly authorized by all necessary corporate action and (ii) will not
conflict with, or result in a violation of, any contract, commitment, agreement
or arrangement to which it is a party.
6. AMENDMENTS. This Agreement may be amended only by a written agreement
signed by UWS and HPI.
7. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and bind UWS and HPI and their respective successors and assigns. Neither this
Agreement nor any right hereunder may be assigned by either party without the
prior written consent of the other.
8. CONFIDENTIAL INFORMATION. UWS and HPI acknowledge that all
information of either of them that has or will come into the possession of the
other in connection with this Agreement is non-public, confidential or
proprietary in nature. UWS and HPI agree to hold such information in strictest
confidence, not to make use thereof other than for the performance of this
Agreement, and not to release or disclose it to any third party other than for
the performance of this Agreement or as required by law. In the event that USW
or HPI (the "Disclosing Party") is requested pursuant to, or required by,
applicable law or regulation or by legal process to disclose any such
information of a third party, the Disclosing Party shall promptly notify the
other party to this Agreement of such request to enable such other party to seek
an appropriate protective order. The Disclosing Party shall cooperate with the
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other party in connection with such matter.
9. INDEPENDENT CONTRACTOR. HPI shall at all times be an independent
contractor. HPI shall have no authority to bind UWS, Blue Cross or HMOW to any
agreement, except to the extent such authority is expressly conferred upon it by
UWS in writing (exclusive of this Agreement) and HPI will not take any actions
inconsistent with the provisions of this Section 9.
10. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law, and if the
rights or obligations of any party will not be materially and adversely affected
thereby, (a) such provision will be fully severable, (b) this Agreement will be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof, (c) the remaining provisions of this
Agreement will remain in full force and effect and will not be affected by the
illegal, invalid, or unenforceable provision or by its severance herefrom, and
(d) in lieu of such illegal, invalid, or unenforceable provision, there will be
added automatically as a part of this Agreement, a legal, valid, and enforceable
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible.
11. WAIVER. A waiver by a party of any breach by the other party of any
provision of this Agreement shall not be deemed to be a waiver by such first
party of any subsequent breach.
12. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Wisconsin (without giving effect to
principles of conflicts of laws)
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applicable to a contract executed and to be performed in such state.
13. HEADINGS, ETC. The headings used in this Agreement have been inserted
for convenience and do not constitute matters to be construed or interpreted in
connection with this Agreement. Unless the context of this Agreement otherwise
requires, (a) words using the singular or plural number also include the plural
or singular number, respectively, and (b) the terms "hereof," "herein," "hereby"
and derivative or similar words refer to this entire Agreement.
14. NOTICES. Any notice or communication given pursuant to this Agreement
must be in writing and will be deemed to have been duly given if mailed (by
registered or certified mail, postage prepaid, return receipt requested), or if
transmitted by facsimile, or if delivered by courier, as follows:
To UWS
United Wisconsin Services, Inc.
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Facsimile: 000-000-0000
Attention: President
To HPI
Health Professionals, Inc.
000 Xxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxx 00000
Facsimile: 000-000-0000
Attention: Xxxxx Xxxxxxxxx
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this paragraph will, whether sent by mail,
facsimile or courier, be deemed given upon the first business day after actual
delivery to the party to
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whom such notice or other communication is sent (as evidenced by the return
receipt or shipping invoice signed by a representative of such party or by the
facsimile confirmation). Either party from time to time may change its address
for the purpose of notices to that party by giving a similar notice specifying a
new address, but no such notice will be deemed to have been given until it is
actually received by the party sought to be charged with the contents thereof.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which will
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the date first set forth
above.
UNITED WISCONSIN SERVICES, INC.
By:
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Name:
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Title:
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HEALTH PROFESSIONALS, INC.
By:
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Name:
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Title:
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