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Preferred Provider Agreement

This is an actual contract between Pharmerica and Beverly Enterprises.

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Sectors: Biotechnology / Pharmaceuticals, Health+Products+and+Services
Governing Law: Delaware, View Delaware State Laws
Effective Date: January 01, 1998
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FORM OF PREFERRED PROVIDER AGREEMENT


FOR


PHARMACEUTICAL AND RELATED SERVICES


AGREEMENT, dated as of __________, 1997, between Beverly Enterprises, Inc., a Delaware corporation ("Company"), formerly known as New Beverly Holdings, Inc., and PharMerica Corporation, a Delaware corporation ("Provider"), formerly known as Capstone Pharmacy Services, Inc. ("Capstone").


WHEREAS, Company directly or through its subsidiaries, Beverly Health and Rehabilitation Services, Inc. and American Transitional Hospitals, Inc., or any other Subsidiary (as defined) or Affiliate (as defined) of Company (the applicable "Facility Operator"), operates (by reason of its ownership thereof, or its lease thereof, or by reason of management agreements or investments in joint ventures) long term care nursing facilities, assisted living facilities and/or certain transitional hospital facilities (all of such facilities currently operated being listed on Exhibit "A" hereto, and herein referred to as the "Company LTC Facilities"); and


WHEREAS, Provider is engaged in the business of providing pharmaceutical and related services as an independent contractor for health care facilities; and


WHEREAS, certain of the Company LTC Facilities prior to the effective date of this Agreement have had in effect one or more provider agreements relating to the provision of pharmaceutical and/or related services to such facilities ("Pre-Existing Provider Agreements") by Provider or one of Provider's predecessors, while certain other Company LTC Facilities currently have agreements with other providers for the provision of pharmaceutical and/or related services ("Other Provider Agreements"); and


WHEREAS, Company has found using several different providers of pharmaceutical product, distribution and dispensing services to service the Company LTC Facilities to be inefficient in many cases and believes it to be in its best interest to enter into an agreement pursuant to which such services will be available to it from a single provider; and


WHEREAS, Company has extensive knowledge of the quality of Provider's pharmaceutical product, distribution and dispensing services pursuant to the Pre-Existing Provider Agreements; and


WHEREAS, Company believes that due to the quality of Provider's operations and Provider's experience, size and national presence, Provider will be able to provide pharmaceutical product, distribution and dispensing services, as well as the other services which may be provided under this Agreement, to the Company LTC Facilities in a consistent manner and on terms and conditions more favorable to the Company LTC Facilities than are being rendered under Other Provider Agreements, and Provider desires to provide said services, in each case on the terms and subject to the conditions specified in this Agreement; and


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WHEREAS, Provider desires to provide the services described herein to the Company LTC Facilities and in consideration of its status as a preferred provider is willing to make certain long-term commitments to the Company LTC Facilities and their residents and patients as provided herein;


NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties hereto agree as follows:


1. AGREEMENTS.


(a) Replacement of Pre-Existing Provider Agreements. As soon as practicable after the execution of this Agreement, Company and Provider will cooperate to assure the execution of, and Company shall cause the applicable Facility Operator to replace the Pre-Existing Provider Agreements in each Company LTC Facility with, counterpart agreements, as applicable in the case of each Company LTC Facility which previously had one or more of such agreements, in the respective forms set forth as Exhibits "B," "C," "D" and "E" (such forms of agreement being referred to individually as a "Facility Agreement" and collectively as the "Facility Agreements"), so that after such counterpart Facility Agreements shall have been executed, Provider will continue to serve for the duration of the term of this Agreement, subject to the terms and conditions of this Agreement and the applicable Facility Agreements, as the provider in the applicable Company LTC Facility of the pharmaceutical and/or related services previously covered by the Pre-Existing Provider Agreements, all on the terms and conditions set forth therein, except that the pricing of pharmaceutical products and services to be in effect with respect to such Facility Agreements shall be as set forth on a schedule to be attached thereto. Upon such execution, each such Facility Agreement shall thereafter be referred to under this Agreement as an "Existing Facility Agreement."


(b) Addition of New Provider Agreements. If, during the term of this Agreement:


(i) any Other Provider Agreement shall expire or be terminated for any reason at a Company LTC Facility or a New Facility (as hereinafter defined);


(ii) any Existing Provider Agreement shall expire or be terminated for any reason at a Company LTC Facility other than for cause as provided therein or as a result of the circumstances described in Paragraph 7(h), below; or


(iii) any long term care or assisted living facility or transitional hospital which is not a Company LTC Facility on the effective date of this Agreement is hereafter acquired, owned, operated or managed (collectively, an "Acquisition") by the Company or a Facility Operator (a "New Facility"), which New Facility at the time at the time of Acquisition is not served by an Other Provider Agreement required pursuant to contractual obligations;


then the Company or the applicable Facility Operator and Provider shall, upon the terms and subject to the conditions and procedures of this Agreement, negotiate in good faith to enter into


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one or more Facility Agreements in the form and substance attached as Exhibits "B" through "E" inclusive (each, a "New Provider Agreement") pursuant to which Provider shall agree to provide such Qualifying Competitive Services (as hereinafter defined) as may be covered by the particular Facility Agreement for a term of years commencing on the date of said Facility Agreement, subject to renewal as provided therein; provided, that no such New Provider Agreement shall have a term exceeding the then remaining and unexpired term of this Agreement, without regard for renewal or extension of the term described herein. The foregoing agreement to enter into one or more New Provider Agreements is subject to the following proviso: if either the Company or Provider reasonably determines in good faith that, due to legitimate business reasons, it is not feasible to enter into New Provider Agreements with respect to an Acquisition as described in Section 1(b)(iii) herein, the party making such determination of non-feasibility shall promptly notify the other party of its reasons for such determination, and the parties shall thereupon cooperate in good faith to the extent feasible to: (1) eliminate or cure the conditions adversely affecting the reasonability of entering into the New Provider Agreements with respect to the New Facility, or (2) concur that the New Facility should be excused from the requirement to enter into a New Provider Agreement.


(c) Certain Definitions. As used in this Agreement:


(i) "Affiliate" of any person means any person or entity which on the date in question, directly or indirectly is controlled by such person; and, for such purposes, a person shall be deemed to "control" another person or entity if is the "beneficial owner" (as that term is defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of greater than twenty percent (20%) of any class of voting securities (or other voting interests) of a controlled entity which is a publicly-traded entity, or forty percent (40%) of an privately-held entity, or if such person possesses, directly or indirectly, the power to direct or cause the direction of the management of policies of the controlled entity with respect to the matters covered by this Agreement, whether through ownership of stock, by contract or otherwise.


(ii) "Material Number" when used in connection with an aggregation of Pre-Existing Provider Agreements or, as applicable, Existing Provider Agreements and New Provider Agreements, means at any time of determination a number of long term care facilities equal to ten percent (10%) of the aggregate of the Company's long term care facilities at the time (including both Company LTC Facilities and New Facilities) having Pre-Existing Provider Agreements or, as applicable, Existing Provider Agreements and New Provider Agreements.


(iii) "Qualifying Competitive Services" means Services offered by Provider with respect to a Company LTC Facility or a New Facility which at the time are equivalent to or more competitive (in terms of price, terms and conditions, quality, timeliness and the range and type of services and products) than those then being provided to the Company LTC Facility or New Facility, as determined by the Facility Operator in its good faith judgment. During the initial term of this Agreement, the price, terms and conditions with respect to contracts for Services provided under Existing Provider Agreements to any Company LTC Facility shall be deemed to be Qualifying Competitive Services.


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(iv) "Services" means any one or more pharmaceutical and related services, consulting services, clinical laboratory services, intravenous ("IV") services, enteral/urological services, wound care services, the provision of medical-surgical supplies and participating in clinical trials research activities.


(v) "Subsidiary" of any party means any entity if such party possesses, directly or indirectly, greater than a 50% ownership interest thereof.


(d) Restriction on Certain Activities. Company for itself and its Subsidiaries and Affiliates agrees that during the initial term hereof neither Company, any Subsidiary or any Affiliate will engage in the provision of Services to any person or entity; provided, that this covenant shall be subject to and shall not be construed to limit, inhibit or restrict the Company, any Subsidiary or Affiliate at any time or in any way from engaging in any conduct or activity permitted by the terms of the Non-competition Agreement of even date between Company and Capstone, a true copy of which is attached hereto as Exhibit "F."


2. PROCEDURE.


During the term of this Agreement, thirty (30) days prior to the scheduled expiration of, or as promptly as practicable prior to, or, if not practicable prior to, then promptly following the termination of any Other Provider Agreement with any Company LTC Facility which continues to be operated by Company or one of its Subsidiaries or Affiliates, or in the case of Acquisition by the Company of a New Facility, within thirty (30) days after such Acquisition:


(a) Notice. Company shall give notice to Provider of such expiration or termination of an Other Provider Agreement at a Company LTC Facility or the Acquisition of a New Facility described in Paragraph 1(b)(iii), such notice to include a statement as to whether or not such New Facility will continue to be covered by an Other Provider Agreement pursuant to Paragraph 1(b)(iii), and expressing the reasons therefor (any Company LTC Facility or New Facility as to which an Other Provider Agreement is contemplated to terminate or expire or has terminated or expired being referred to as an "Available Facility");


(b) Completion of New Provider Agreement. Provider and the applicable Facility Operator shall in good faith negotiate to complete, with respect to a proposed New Provider Agreement for such Available Facility, any items which remain blank on the applicable Facility Agreement providing for such Services as the parties may agree upon, and any other terms or conditions necessary to provide Qualifying Competitive Services, including, without limitation, the pricing of services and products to be supplied pursuant to said Facility Agreement;


(c) Required Approvals Obtained. The applicable Facility Operator shall diligently pursue obtaining any customary consent or approval of any person or entity, or of any Federal, state, local or other governmental or quasi-governmental agency, bureau, board, administrator, court, commission, department, instrumentality, body or other authority having jurisdiction over it or the operation of its business or its assets, and if applicable, of the owner of any Available Facility managed by Company or the applicable Subsidiary or Affiliate, in each


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case, necessary or appropriate to entering into the proposed New Provider Agreement and the performance of the transactions contemplated thereby ("Required Approvals");


(d) Representations and Warranties Reaffirmed. Provider and Company each automatically shall be deemed to have remade each of their representations and warranties made in this Agreement as of the date of the execution and delivery of the applicable proposed New Provider Agreement; and


(e) Execution of New Provider Agreement. The applicable Facility Operator and Provider shall execute and deliver the applicable proposed New Provider Agreement and such New Provider Agreement shall become effective immediately upon termination (or expiration) of the applicable Other Provider Agreement, or if such Other Provider Agreement already shall have been terminated, then immediately upon execution and delivery of the New Provider Agreement, or upon such other date as the applicable Facility Operator and Provider shall agree.


3. CONDITIONS.


(a) Satisfaction of Conditions. Neither Company or any Facility Operator, on the one hand, nor Provider on the other hand, shall have any obligation to enter into any proposed New Provider Agreement with respect to any Available Facility unless the following conditions shall have been satisfied within thirty (30) days after delivery by Company to Provider of the notice required pursuant to Paragraph 2(a), above:


(i) the applicable New Provider Agreement shall provide for Qualifying Competitive Services, and shall provide that said Services shall continue thereafter to be Qualifying Competitive Services within the meaning of Paragraph 1(c)(iii) hereof; and


(ii) all Required Approvals shall have been obtained.


(b) Provider Breach of Representations and Warranties. Neither Company nor any Facility Operator shall be obligated to enter into any proposed New Provider Agreement with respect to any Available Facility if Provider shall have breached, which breach shall be continuing, any of its material representations, warranties or obligations under this Agreement or under a Material Number, in the aggregate, of Pre-Existing Provider Agreements, or as applicable, Existing Provider Agreements and New Provider Agreements.


(c) Company or Facility Operator Breach of Representations and Warranties. Provider shall not be obligated to enter into any proposed New Provider Agreement if Company or any Facility Operator shall have breached, which breach shall be continuing, any of its material representations, warranties or obligations under this Agreement or under a Material Number of Pre-Existing Provider Agreements or, as applicable, Existing Provider Agreements and New Provider Agreements.


4. CONFLICTING PROVISIONS. If any of the provisions of this Agreement shall conflict with or be inconsistent with any of the provisions of any New Provider Agreement, the


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provisions of such New Provider Agreement shall govern with respect to the subject matter of such New Provider Agreement.


5. REPRESENTATIONS AND WARRANTIES OF COMPANY.


(a) Corporate Power and Authority. Company has the full corporate power and authority to make, execute, deliver and perform its obligations under this Agreement, including all Schedules and Exhibits hereto, and the other agreements, instruments, certificates and documents required or contemplated hereby or thereby to be executed or delivered by it ("Company Transaction Documents"), and all of the transactions contemplated hereby and thereby to be performed by it. Such execution, delivery, performance and consummation have been duly authorized by all necessary action, corporate or otherwise, on the part of Company, its directors and stockholders.


(b) No Conflicts or Breaches. Neither the execution or delivery of this Agreement or any of the Company Transaction Documents by Company nor the performance by Company of the transactions contemplated hereby and thereby, conflicts with, or constitutes a breach of or a default under (i) its certificate of incorporation or by-laws; or (ii) any applicable judgment, order, writ, injunction, or decree of any court.


(c) Agreements in Full Force and Effect. Each of the Pre-Existing Provider Agreements or, as applicable, Existing Provider Agreements and New Provider Agreements in effect on the date this representation and warranty is made is in full force and effect and Company and the Facility Operators are not in material default under a Material Number of such agreements.


(d) Authority to Bind Subsidiaries, etc. Company has the requisite authority to cause this Agreement to be binding on its Subsidiaries, Affiliates and Facility Operators.


6. REPRESENTATIONS AND WARRANTIES OF PROVIDER.


(a) Corporate Power and Authority. Provider has the full corporate power and authority to make, execute, deliver and perform its obligations under this Agreement, including all Schedules and Exhibits hereto, and the other agreements, instruments, certificates and documents required or contemplated hereby or thereby to be executed or delivered by it ("Provider Documents"), and all of the transactions contemplated hereby and thereby to be performed by it. Such execution, delivery, performance and consummation have been duly authorized by all necessary action, corporate or otherwise, on the part of Provider, its directors and stockholders.


(b) No Conflicts or Breaches. Neither the execution or delivery of this Agreement or any of the Provider Documents by Provider nor the performance by Provider of the transactions contemplated hereby and thereby, conflicts with, or constitutes a breach of or a default under (i) its certificate of incorporation or by-laws; or (ii) any applicable judgment, order, writ, injunction, or decree of any court.


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(c) Agreements in Full Force and Effect. Each of the Pre-Existing Provider Agreements or, as applicable, Existing Provider Agreements and New Provider Agreements in effect on the date of this representation and warranty is made is in full force and effect and Provider is not in material default under a Material Number of any such agreements.


7. TERM.


(a) Length of Agreement. This Agreement shall commence as of the date hereof (the "Commencement Date") and shall terminate on the fifth anniversary of the Commencement Date (the "Scheduled Termination Date"), unless sooner terminated as hereinafter provided.


(b) Right of First Refusal. In order to encourage continuity and uniformity in the provision of quality Services, that parties agree that Provider shall be granted a right of first refusal with respect to renewal of this Agreement for one subsequent five year renewal term, subject to all of the terms and conditions of this Paragraph 7.


(c) Negotiation for Renewal. Within 180 days, but not less than 120 days prior to the Scheduled Termination Date, Provider shall, if it desires to renew this Agreement, submit to Company and the applicable Facility Operator, Provider's proposed prices with respect to each category of Services proposed to be provided at the Company LTC Facilities and the New Facilities (the "Proposed Prices"), which Provider shall certify in Provider's best judgment as being, together with other terms and conditions set forth in the applicable agreements, Qualifying Competitive Services. The parties shall thereafter negotiate in good faith regarding adoption of such Proposed Prices to be in effect during the proposed renewal term of this Agreement under the Existing Facility Agreements and New Facility Agreements. If the parties are able to reach agreement on the Proposed Prices, this Agreement and each Existing Facility Agreement and New Facility Agreement shall thereupon be renewed on the Scheduled Termination Date for a term of five years.


(d) Qualifying Alternative Bids. If the parties are unable to reach agreement on the Proposed Prices, and in any event at the Company's option, not later than 90 days prior to the Scheduled Termination Date, the Company may solicit proposals (each a "Qualifying Alternative Bid" and collectively, the "Qualifying Alternative Bids") from any other national pharmacy provider for it to provide the Services to the Company and covering at least 75% of the Company LTC Facilities and New Facilities then being served by Provider (such number of facilities being collectively referred to in this Paragraph 7 as the "Requisite Facilities") during the ensuing five year period. As used herein, "national pharmacy provider" means a provider of institutional pharmacy services which alone or with Affiliates has the capability of servicing at least 75% of the Company's LTC Facilities and New Facilities then being served by Provider.


(e) Procedure for Renewal. Upon receipt of such Qualifying Alternative Bids to provide the Services to the Company and the Requisite Facilities during the ensuing five years, if such Qualifying Alternative Bid or Bids are equal to or greater than the Proposed Prices offered by the Provider, this Agreement, the Existing Provider Agreements and the New Provider Agreements shall thereupon be renewed with Provider for a five year term, commencing on the


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Scheduled Termination Date, on the terms and conditions set forth herein and therein, except that the prices for the Services shall be the Proposed Prices during such renewal term. If such Qualifying Alternative Bid or Bids are less than the Proposed Prices with respect to the provision of the Services, Company shall provide such Qualifying Alternative Bids to Provider, not less than 45 days prior to the Scheduled Termination Date. Provider shall thereupon have the opportunity to revise its offer to provide the Services and adjust its Proposed Prices in all Company LTC Facilities and New Facilities then being served by Provider for the ensuing five year period to an amount (the "Average Alternative Prices") equal to (i) the average of the three lowest Qualifying Alternative Bids received by the Company with respect to such Requisite Facilities, or (ii) if there are less than three national pharmacy providers at the time which submit Qualifying Alternative Bids, the average of the two Qualifying Alternative Bids received by the Company with respect to such Requisite Facilities, or (iii) if there are less than two national pharmacy providers at the time which submit Qualifying Alternative Bids, the Qualifying Alternative Bid received by the Company with respect to the Requisite Facilities.


(f) Notification of Exercise of First Refusal Right. If Provider elects to meet the Qualifying Alternative Bid or Bids, as applicable, with respect to the Requisite Facilities, it shall notify Company not less than 30 days prior to the Scheduled Termination Date of Provider's election to continue to provide the Services at the Average Alternative Prices to the Company LTC Facilities and New Facilities then being served by Provider for the ensuing five years, and this Agreement, the Existing Provider Agreements and the New Provider Agreements shall thereupon be renewed on such terms and conditions as are set forth herein and therein, subject to the modifications as to prices for the Services as hereinabove set forth.


(g) Expiration of Agreement Upon Failure to Exercise First Refusal Right. If Provider does not elect to provide the Services at the Average Alternative Prices as hereinabove set forth, then this Agreement, the Company LTC Agreements and the New Provider Agreements shall expire and terminate on the Scheduled Termination Date.


(h) Termination. This Agreement may be terminated and, except as to liabilities or claims of either party hereto which shall have theretofore accrued or arisen, the obligations of the parties hereto with respect to this Agreement may be terminated, upon the happening of any of the following events:


(i) (A) if a Bankruptcy Event (as hereinafter defined) shall occur with respect to Provider; or


(B) if Provider, after written notice thereof by Company to Provider, shall fail to keep, observe, or perform any of the material covenants, agreements, terms or provisions of this Agreement (and such default shall continue for a period of sixty (60) days after notice of such default) or of an aggregate Material Number of Pre-Existing Provider Agreements or, as applicable, Existing Provider Agreements and New Provider Agreements to be kept, observed, or performed by Provider (and such default shall continue uncured during any appropriate grace period set forth in such agreements); or


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(C) if Provider shall, in any material respect, breach (as of the date made) any representations or warranty contained in this Agreement, or if Provider shall in any material respect breach (as of the date made) any representation or warranty contained in a Material Number of Pre-Existing Provider Agreements or, as applicable, Existing Provider Agreements and New Provider Agreements;


then in case of any such event and upon the expiration of the period of grace applicable thereto (if any), the term of this Agreement shall be terminated, at the option of Company, upon written notice to Provider.


(ii) (A) if a Bankruptcy Event shall occur with respect to Company; or


(B) if Company shall fail to keep, observe, or perform any material covenant, agreement, term or provision of this Agreement to be kept, observed, or performed by it (and such default shall continue for a period of sixty (60) days after notice of such default) or if Company and/or the Facility Operators shall fail to keep, observe, or perform any of the material covenants, agreements, terms or provisions of an aggregate Material Number of Pre-Existing Provider Agreements or, as applicable, Existing Provider Agreements and New Provider Agreements to be kept, observed, or performed by Company and/or Facility Operators (and such default shall continue uncured during any applicable grace period set forth in such agreements); or


(C) If Company shall, in any material respect, breach (as of the date made) any representation or warranty contained in this Agreement, or if Company and/or the Facility Operators shall breach, in any material respect, any representation or warranty contained in an aggregate Material Number of any Pre-Existing Provider Agreements or, as applicable, Existing Provider Agreements and New Provider Agreements;


then in case of any such event and upon the expiration of the period of grace applicable thereto (if any), the term of this Agreement shall b
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