EXHIBIT 2
SERVICE AGREEMENT
BY AND BETWEEN
RESPONSE ONCOLOGY, INC.
AND
ONCOLOGY HEMATOLOGY GROUP OF SOUTH FLORIDA, P.A.
January 2, 1996
SERVICE AGREEMENT
THIS SERVICE AGREEMENT dated as of January 2, 1996 by and between RESPONSE
ONCOLOGY, INC., a Tennessee corporation (together with the Acquired Corporation
(hereinafter defined), "Response") and ONCOLOGY HEMATOLOGY GROUP OF SOUTH
FLORIDA, P.A., a Florida professional association ("Oncology").
RECITALS:
WHEREAS, Response is in the business of owning certain assets of and
managing and operating medical clinics, and providing support services to and
furnishing medical practices with the necessary facilities, equipment,
personnel, supplies and support staff to operate a medical practice;
WHEREAS, effective January 2, 1996, Response will acquire (the "Stock
Purchase") from the stockholders of the Acquired Corporation (the
"Stockholders") all of the outstanding common stock of Response Oncology of
South Florida, Inc. (the "Acquired Corporation"), which has heretofore and
contemporaneous with the formation of Oncology, converted to a Florida business
corporation form of organization in contemplation of the Stock Purchase and
changed its name from Oncology Hematology Group of South Florida, P.A. to its
current name;
WHEREAS, the Stockholders have heretofore discontinued practicing medicine
in the name of the Acquired Corporation and have begun conducting their
respective medical practices as members of Oncology, which is a group medical
practice in Florida providing comprehensive oncology and hematology medical
care to the general public; and
WHEREAS, Oncology desires to retain Response to perform the practice
management functions described herein in order to permit Oncology and its
Stockholders to devote substantially full time and efforts on a concentrated
and continuous basis to the rendering of medical services to patients;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, effective January 2, 1996, Oncology and
Response agree to the terms and conditions provided in this Agreement.
ARTICLE 1.
RELATIONSHIP OF THE PARTIES
1.1. INDEPENDENT RELATIONSHIP. Oncology and Response intend to act and
perform as independent contractors, and the provisions hereof are not intended
to create any partnership, joint venture, agency or employment relationship
between the parties. Notwithstanding the authority granted to Response herein,
Response and Oncology agree that Oncology shall retain the authority to direct
the medical, professional, and ethical aspects of its medical practice. Each
party shall be solely responsible for and shall comply with all state and
federal laws pertaining to employment taxes, income withholding, unemployment
compensation contributions and other employment related statutes applicable to
that party.
1.2. RESPONSIBILITIES OF THE PARTIES. As more specifically set forth
herein, Response shall provide Oncology with offices and facilities, equipment,
supplies, support personnel, and management and financial advisory services.
As more specifically set forth herein, Oncology shall be responsible for the
recruitment and hiring of physicians and all issues related to medical practice
patterns and documentation thereof. Notwithstanding anything herein to the
contrary, no "designated health service" as defined in 42 U.S.C. 1395nn,
including any amendments or successors thereto, shall be provided by Response
under this Agreement.
1.3. ONCOLOGY'S MATTERS. Matters involving the internal agreements and
finances of Oncology, including the distribution of professional fee income
among the individual Physician Stockholders (as hereinafter defined), tax
planning, and pension and investment planning (and expenses relating solely to
these internal business matters), hiring, firing and licensing of Physician
Employees (hereinafter defined) shall remain the sole responsibility of
Oncology and the individual Physician Stockholders.
1.4. PATIENT REFERRALS. The parties agree that the benefits to Oncology
hereunder do not require, are not payment for, and are not in any way
contingent upon the admission, referral or any other arrangement for the
provision of any item or service offered by Response to any of Oncology's
patients in any facility or laboratory controlled, managed or operated by
Response.
1.5. PROFESSIONAL JUDGMENT. Each of the parties acknowledges and agrees
that the terms and conditions of this agreement pertain to and control the
business and financial relationship between and among the parties but do not
pertain to and do not control the professional and clinical relationship
between and among Oncology, Oncology's Employees, and Oncology's patients.
Nothing in this Agreement shall be construed to alter or in any way affect the
legal, ethical and professional relationship between and among Oncology and
oncology's patients, nor shall anything contained in this Agreement abrogate
any right, privilege, or obligation arising out of or applicable to the
physician-patient relationship.
ARTICLE 2.
DEFINITIONS
2.1. DEFINITIONS. For the purposes of this Agreement, the following
definitions shall apply:
Financial and Accounting Definitions:
(a) "Account Debtor" shall mean an account debtor or any other
Person obligated in respect of an Account Receivable.
(b) "Accounts Receivable" shall mean, with respect to Oncology, all
accounts and any and all rights to payment of money or other forms of
consideration of any kind now owned or hereafter acquired (whether classified
under the Uniform Commercial Code as accounts, chattel paper, general
intangibles, or otherwise) for goods sold or leased or for services rendered by
Oncology, including, but not limited to, accounts receivable, proceeds of any
letters of credit naming Oncology as beneficiary, chattel paper, insurance
proceeds, contract rights, notes, drafts, instruments, documents, acceptances,
and all other debts, obligations and liabilities in whatever form from any
other Person, provided that cash, checks and credit card purchases are not
included in the definition of Accounts Receivable.
(c) References to "amounts recorded" shall mean all amounts recorded
or recordable in accordance with GAAP (hereinafter defined), including, without
limitation, all billed Physician Services Revenue hereinafter defined and Non-
Physician Revenue hereinafter defined, earned Capitation Revenue hereinafter
defined and all expenses that are subject to accrual under GAAP.
(d) "Annual Surplus" shall mean Practice Revenue (hereinafter
defined) less the sum of the Clinic Expense Portion of the Base Service Fee
(hereinafter defined), Practice Retainage (hereinafter defined) and Physician
Employee Compensation (hereinafter defined).
(e) "Bad Debt Allowance" shall mean, with respect to Accounts
Receivable, an allowance for uncollectible Accounts Receivable determined based
on a methodology approved by the Oversight Committee.
(f) "Base Service Fee" shall mean the base fee set forth on Schedule
A hereto. The Base Service Fee will consist of the Clinic Expense Portion and
the Fixed Portion, both defined on Schedule A.
(g) "Base Draw" shall mean an amount payable monthly to Response by
Oncology equal to the Fixed Portion of the Base Service Fee set forth on
Schedule A .
(h) "Base Draw Excess" shall mean the excess (if any) of the
aggregate Base Draw over the Service Fees for a calendar year, which shall be
recorded as an advance payable by Response to Oncology pursuant to Section 8.2
below.
(i) "Capitation Revenue" shall mean amounts recorded consisting of
revenue from managed care organizations, where payment is made periodically on
a per member basis, administration payments, co-payments and all other payments
by managed care organizations, including, without limitation, managed care
variable expense bonuses, hospital expense bonuses or any other bonus or
payment which rewards Oncology for its medical performance under any managed
care arrangement.
(j) "Clinic Expenses" shall mean all amounts recorded comprising the
expenses incurred in the operation of any Clinic, including, without
limitation:
(A) salaries, benefits and other direct costs (except Physician
Employee Compensation) of any Executive Director employed pursuant to Section
5.6 below and all personnel employed by Response at a Clinic;
(B) obligations of Response under leases or subleases of
facilities and personal property utilized by Oncology, including, without
limitation, Clinics and medical offices, medical, laboratory and other
equipment utilized by Oncology;
(C) personal property and intangible taxes assessed against
properties and assets utilized by Oncology or otherwise deployed in any Clinic
commencing on the date of this Agreement; and
(D) other ordinary, necessary and reasonable expenses incurred
by Response in carrying out its obligations under this Agreement, including,
without limitation, depreciation on equipment utilized in the Clinics, interest
on secured loans (other than notes payable by Response to any Stockholder or
his/her assigns arising out of the Stock Purchase) incurred to purchase Clinic
equipment, insurance (except professional liability of physicians, which will
remain a physician expense), laundry, supplies, cost of goods sold from
inventory, utilities, telephone service, printing, stationery, advertising,
postage, medical transcribing and waste deposal.
All Clinic Expenses shall be computed in accordance with GAAP. To
the extent expenses incurred benefit multiple clinics, such Clinic Expenses
shall be allocated among such Clinics benefitting from such expenditure as
Response shall reasonably determine with the approval of the Oversight
Committee. Clinic Expenses shall not include (i) any corporate overhead
charges of Response, (ii) the cost of any capital expenditures incurred by
Response pursuant hereto, except to the extent of depreciation, amortization
(except amortization of the Service Agreement Intangible (hereinafter defined)
which shall not be a Clinic Expense), interest and other period charges under
GAAP in respect of such capital expenditures, (iii) any federal or state income
taxes, (iv) base rental payments under any sub-lease arrangement and (v) any
expenses which are expressly designated herein as expenses or responsibilities
of and are paid by Oncology.
(k) "Fee Adjustment" shall mean any adjustment for any discount,
non-allowed contractual or other adjustment under Medicare, Medicaid, any
preferred provider plan, workers' compensation plan, employee/dependent health
care benefit program or other contractual arrangement between Oncology and any
Third Party Payor, and any professional courtesy or other reasonable and
customary discount that results in fee revenue not being collected.
(l) "GAAP" shall mean generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity or other practices and procedures as may be
approved by a significant segment of the accounting profession or prescribed by
the Securities and Exchange Commission, which are applicable to the
circumstances as of the date of determination. For purposes of this Agreement,
GAAP shall be applied in a manner consistent with the historic practices used
by Response.
(m) "Governmental Receivables" shall mean an Account Receivable of
Oncology which (i) arises in the ordinary course of business of Oncology, (ii)
has as its Third Party Payor the United States of America or any state or any
agency or instrumentality of the United States of America or any state which
makes any payments with respect to Medicare or Medicaid or with respect to any
other program (including CHAMPUS) established by federal or state law, and
(iii) is required by federal or state law to be paid or to be made to Oncology
as a health care provider. Governmental Receivables shall not, however, refer
to amounts payable by private insurers under contract to provide benefits under
the Federal Employee Health Benefit Program.
(n) "Non-Physician Revenue" shall mean all amounts recorded as fees
(net of Fee Adjustments and Bad Debt Allowance) by or on behalf of either
Oncology or Response which are not Physician Services Revenue or Capitation
Revenue, but excluding any interest, investment, rental or similar payments or
income made or payable to Oncology or Response that are unrelated to the
provision of medical services or products.
(o) "Performance Fee" shall mean an amount payable to Response on a
calendar year basis as computed pursuant to the formula set forth in Schedule A
hereto.
(p) "Physician Employee Compensation" shall mean all amounts
recorded as salaries, wages (including overtime), benefits, payroll taxes and
other compensation expense by Oncology in respect of Physician Extender
Personnel (hereinafter defined) and Technical Employees (hereinafter defined)
who are Physician Employees (hereinafter defined), to the extent such amounts
are required to be paid by Oncology under Applicable Law or the reimbursement
policies of any Third Party Payor.
(q) "Physician Services Revenue" shall mean (a) all amounts recorded
as fees (net of Fee Adjustments and Bad Debt Allowance) by or on behalf of
Oncology as a result of professional medical services furnished to patients by
Physician Employees and Physician Extender Personnel, whether rendered in an
inpatient or outpatient setting plus (b) Capitation Revenue, and excluding any
items approved pursuant to Section 4.2(c) below.
(r) "Practice Retainage" shall mean an amount equal to the
percentage] of Practice Revenue set forth on Schedule A hereto.
(s) "Practice Revenue" shall mean the sum of all amounts recorded by
Oncology as Physician Services Revenue, Non-Physician Revenue, Capitation
Revenue and other revenue attributable to the conduct of Oncology's medical
practice, but shall specifically exclude profits from any investment of
Oncology in any partnership, joint venture, corporation, limited liability
company and any other revenue not derived from the providing of services by
employees of Oncology or Response.
(t) "Service Fees" shall mean the sum of the Base Service Fee and
the Performance Fee (if any).
Other Definitions:
(u) An "Affiliate" of a corporation shall mean (a) any person or
entity directly or indirectly controlled by such corporation, (b) any person or
entity directly or indirectly controlling such corporation, (c) any subsidiary
of such corporation if the corporation has a fifty percent (50%) or greater
ownership interest in the subsidiary, or (d) such corporation's parent
corporation if the parent has a fifty percent (50%) or greater ownership
interest in the corporation. For purposes of this Section 2.1(u), Oncology is
not an affiliate of Response.
(v) "Applicable Law" shall mean all applicable provisions of
constitutions, statutes, rules, regulations, ordinances and orders of all
Governmental Authorities and all orders and decrees of all courts, tribunals
and arbitrators, and shall include, without limitation, Health Care Law.
(w) "Acquired Corporation" shall mean Response Oncology of South
Florida, Inc., a Florida corporation which, prior hereto, was a Florida
professional association named Oncology Hematology Group of South Florida, P.A.
through which the Stockholders conducted their medical practice prior to
forming Oncology.
(x) "Acquisition Agreement" shall mean that certain Stock Purchase
Agreement dated as of December 20, 1995; by and among Response, the Acquired
Corporation and the Stockholders.
(y) "CHAMPUS" shall mean the Civilian Health and Medical Program of
the Uniformed Services.
(z) "Clinic" shall mean the practice facility currently utilized by
Oncology, and any facility, related business and all medical group business
operations which Oncology and Response may, in the future, mutually agree to
characterize as a Clinic.
(aa) "Employment Agreement" shall mean an employment agreement
between each physician now or hereinafter employed by Oncology and Oncology
pursuant to which the physician shall be employed by Oncology to provide
medical services on behalf of Oncology, which Employment Agreement shall be
substantially in the form set forth as Exhibit 2.1(aa) hereto.
(ab) "Governmental Authority" shall mean any national, state or
local government (whether domestic or foreign), any political subdivision
thereof or any other governmental, quasi-governmental, judicial, public or
statutory instrumentality, authority, board, body, agency, bureau or entity or
any arbitrator with authority to bind a party at law.
(ac) "Health Care Law" shall mean any Applicable Law regulating the
acquisition, construction, operation, maintenance or management of a health
care practice, facility, provider or payor, including without limitation 42
U.S.C. Section 1395 nn and 42 U.S.C. Section 1320a-7b.
(ad) "Liquidated Damages Amount" shall mean the difference obtained
pursuant to the following formula: [(4,000,000 x A/8) - ((B/180) x C)];
wherein (i) A equals the number of Remaining Physician Stockholders at the time
of occurrence of an Oncology Event of Default; (ii) B equals 4,000,000 x A/8;
and (iii) C equals the number of full calendar months between the effective
date of this Agreement and the date of the occurrence of the Oncology Event of
Default.
(ae) "Medicaid" shall mean any state program pursuant to which
health care providers are paid or reimbursed for care given or goods afforded
to indigent persons and administered pursuant to a plan approved by the Health
Care Financing Administration under Title XIX of the Social Security Act.
(af) "Medicare" shall mean any medical program established under
Title VIII of the Social Security Act and administered by the Health Care
Financing Administration.
(ag) "Necessary Authorization" shall mean with respect to Oncology
all certificates of need, authorization, certifications, consents, approvals,
permits, licenses, notices, accreditations and exemptions, filings and
registrations, and reports required by Applicable Law, including, without
limitation, Health Care Law, which are required, necessary or reasonably useful
to the lawful ownership and operation of Oncology's business.
(ah) "Oncology" shall mean Oncology Hematology Group of South
Florida, P.A., a Florida professional association recently formed by the
Stockholders to continue the operation of their group medical practice.
(ai) "Oncology Event of Default" shall have the meaning ascribed to
such term in Section 11.4 hereof.
(aj) "Oversight Committee" shall mean a five (5) member committee
established pursuant to Section 4.1. Except as otherwise provided, the act of
a majority of the members of the Oversight Committee shall be the act of the
Oversight Committee.
(ak) "Person" shall mean an individual, corporation, partnership,
joint venture, trust, association, or unincorporated organization, or a
government or any agency or political subdivision thereof including, without
limitation, a Third Party Payor.
(al) "Physician Employees" shall mean all physicians employed by
Oncology or with whom Oncology has entered into a practice management
agreement, and all other persons who deliver billable medical or health care
services under the direction of Oncology and its physicians or are otherwise
under contract with Oncology to provide professional services to Clinic
patients and, in each case, who are duly licensed to provide professional
medical services in the State of Florida and all Technical Employees. Such
definition shall include both Physician Stockholders and other physicians
employed by Oncology, including Junior Physician Employees, and may include
Physician Extender Personnel to the extent such Physician Extender Personnel
are required by Applicable Law or reimbursement policies of any Third Party
Payor to be employed by Oncology.
(am) "Physician Extender Personnel" shall mean employees of Response
who deliver services to Oncology, including without limitation nurse
anesthetists, physician assistants, registered and licensed practical nurses,
nurse practitioners, psychologists, and other such persons, other than
physicians, who are not Physician Employees.
(an) "Physician Stockholders" shall mean those physicians who are
stockholders of Oncology.
(ao) "Practice Assets" shall have the meaning ascribed to that term
in Section 11.5 of this Agreement.
(ap) "Remaining Physician Stockholder" shall mean any Physician
Stockholder who shall have been a Stockholder at the effective time of this
Agreement and who, at any time within one (1) year prior to the occurrence of
an Oncology Event of Default shall have been a Physician Stockholder; provided,
however, that such term shall not include any Stockholder who shall have,
within such one year period, ceased to be a Physician Stockholder by reason of
death, disability or retirement at normal retirement age.
(aq) "Response" shall mean Response Oncology, Inc., a Tennessee
corporation incorporated on June 26, 1984 under the name Biotherapeutics
Incorporated, whose name was changed to Response Technologies, Inc. by Charter
amendment on October 30, 1989, and subsequently to Response Oncology, Inc. by
Charter amendment on November 1, 1995, and its wholly owned subsidiaries,
including the Group.
(ar) "Response Event of Default" shall have the meaning ascribed to
such term in Section 11.3 of this Agreement.
(as) "Stockholder" shall mean the Stockholders of the Acquired
Corporation.
(at) "Technical Employees" shall mean technicians who provide
services in the diagnostic areas of Oncology's practice, such as employees of
any Clinic laboratory, radiology technicians and cardiology technicians. All
Technical Employees shall be Physician Employees.
(au) "Third Party Payor" shall mean each Person which makes payment
under a Third Party Payor Program, and each Person which administers a Third
Party Payor Program.
(av) "Third Party Payor Program" shall mean Medicare, Medicaid,
CHAMPUS, insurance provided by Blue Cross and/or Blue Shield, managed care
plans, and any other private health care insurance programs and employee
assistance programs as well as any future similar programs.
ARTICLE 3.
FACILITIES TO BE PROVIDED BY RESPONSE
3.1. FACILITIES. Response shall provide to Oncology for its use in its
group medical practice the offices and facilities more fully described in
Exhibit 3.1 hereto, the furnishings, fixtures and equipment located thereupon,
and shall pay all costs (all of which shall be Clinic Expense) of repairs,
maintenance and improvements, utility (telephone, electric, gas, water)
expenses, normal janitorial services, refuse disposal and all other costs and
expenses reasonably incurred in conducting the operations contemplated by this
Agreement in each Clinic during the term of this Agreement, including, without
limitation, related real or personal property lease cost payments and expenses,
taxes and insurance. Oncology shall comply with all terms and provisions of
any lease or other agreement with respect to such facility. Response shall
consult with Oncology regarding the condition, use and needs for the offices,
facilities and improvements, and any purchase, lease or improvement of any
offices, facilities or improvements, or change in any of the foregoing, shall
be approved by a majority of the Oversight Committee. Oncology shall not
amend, modify or terminate any sub-lease agreements without the prior written
consent of Response.
3.2. USE OF FACILITIES. Oncology shall not use or occupy any facility
owned or leased by Response for any purpose which is prohibited by any
Applicable Law, this Agreement, or the terms of any lease or other arrangement
with respect to the use or occupancy of such facility, or which may be
dangerous to life, limb, or property (except medical services provided in the
ordinary course of business), or which would increase the fire or extended
coverage insurance rate on such facility.
ARTICLE 4.
DUTIES OF THE OVERSIGHT COMMITTEE
4.1. FORMATION AND OPERATION OF THE OVERSIGHT COMMITTEE. The parties
shall establish an Oversight Committee which shall be responsible for
developing management and administrative policies for the overall operation of
each Clinic. The Oversight Committee shall consist of five (5) members.
Response shall designate, and shall have the right to remove and replace, in
its sole discretion, two (2) members of the Oversight Committee. Oncology
shall designate, and shall have the right to remove and replace, in its sole
discretion, three (3) members of the Oversight Committee. The Oversight
Committee shall have the authority to adopt bylaws (which shall include the
fixing of a quorum for the conduct of business by the Oversight Committee),
establish regular meeting times and places, call special meetings for any
purpose and elect a chairman and a secretary who shall preside over and record,
respectively, the proceedings at any meeting of the Oversight Committee.
Except as otherwise provided herein, the affirmative vote of a majority of the
members of the Oversight Committee shall be required for approval of any action
taken thereby.
4.2. DUTIES AND RESPONSIBILITIES OF THE OVERSIGHT COMMITTEE. The
Oversight Committee shall have the following duties and obligations:
(a) CAPITAL IMPROVEMENTS AND EXPANSION. Any renovation and
expansion plans and capital equipment expenditures with respect to any Clinic
shall be reviewed and approved by the Oversight Committee and shall be based
upon economic feasibility, physician support, productivity and then current
market conditions.
(b) ANNUAL BUDGETS. All annual capital and operating budgets
prepared by Response, as set forth in Section 5.2, shall be subject to the
review and approval of the Oversight Committee, which shall have the authority
to reject individual items in the budget and to fix such amounts so rejected;
provided, however, that in the event the Oversight Committee exercises such
authority and increases any budget amount by more than ten (10%) percent of the
amount proposed by Response, then such modification shall be approved by a vote
of four-fifths (4/5) of the Oversight Committee.
(c) EXCEPTIONS TO INCLUSION IN THE PHYSICIAN SERVICES CALCULATION.
The exclusion of any revenue from Practice Revenue, whether now or in the
future, shall be subject to the approval by a vote of four-fifths (4/5) of the
Oversight Committee. Current approved exceptions are listed in the attached
Exhibit 4.2(c).
(d) ADVERTISING. All advertising and other marketing of the
services performed at any Clinic shall be subject to the prior review and
approval of the Oversight Committee.
(e) PATIENT FEES; COLLECTION POLICIES. As a part of the annual
operating budget, in consultation with Oncology and Response, to the extent
allowed by Applicable Law, the Oversight Committee shall review and advise
Oncology as to an appropriate fee schedule for all physician and ancillary
services rendered by Oncology, which fee schedule shall ultimately be
determined by Oncology in its sole discretion. In addition, the Oversight
Committee shall approve the credit collection policies of any Clinic.
(f) NON-PHYSICIAN SERVICES. The Oversight Committee shall establish
Clinic-provided non physician services based upon the pricing, access to and
quality of such services.
(g) PROVIDER AND PAYOR RELATIONSHIPS. Decisions regarding the
establishment or maintenance of relationships with managed care organizations,
institutional health care providers and Third Party Payors shall be made by the
Oversight Committee in consultation with Response and Oncology.
(h) STRATEGIC PLANNING. The Oversight Committee shall develop long-
term strategic planning objectives.
(i) CAPITAL EXPENDITURES. The Oversight Committee shall determine
the priority of major capital expenditures benefitting the Clinics.
(j) PHYSICIAN HIRING. The Oversight Committee shall determine the
number and type of physicians required for the efficient operation of each
Clinic. The approval of the Oversight Committee shall be required for any
variations to the restrictive covenants in any physician employment contract.
(k) EXECUTIVE DIRECTOR. The selection and retention by Response of
any Executive Director pursuant to Section 5.6 and the salary and cash fringe
benefits of each Executive Director shall be subject to the reasonable approval
of the Oversight Committee. If Oncology is dissatisfied with the services
provided by any Executive Director, Oncology shall refer the matter to the
Oversight Committee. Response and the Oversight Committee shall each in good
faith determine whether the performance of such Executive Director could be
brought to acceptable levels through counsel and assistance, or whether the
Executive Director's employment should be terminated.
(l) GRIEVANCE REFERRALS. The Oversight Committee shall consider and
make final decisions regarding grievances pertaining to matters not
specifically addressed in this Agreement as referred to it by Oncology's Board
of Directors.
ARTICLE 5.
ADMINISTRATIVE SERVICES TO BE PROVIDED BY RESPONSE
5.1. PERFORMANCE OF MANAGEMENT FUNCTIONS. Response shall provide or
arrange for the services set forth in this Article 5, the cost of all of which
shall be paid by Response and included in Clinic Expenses. Response is hereby
expressly authorized to perform its services hereunder in whatever manner it
deems reasonably appropriate to meet the day-to-day requirements of Clinic
operations in accordance with the general standards approved by the Oversight
Committee, including, without limitation, performance of some of the business
office functions at locations other than a Clinic. Oncology will not act in a
manner which would prevent Response from efficiently managing the day-to-day
operations of each Clinic in a business-like manner.
5.2. FINANCIAL PLANNING AND GOALS. Response shall prepare annual capital
and operating budgets reflecting in reasonable detail anticipated revenue and
expenses, sources and uses of capital for growth in Oncology's practice and
medical services rendered at each Clinic. Response shall determine the amount
and form of capital to be invested annually in each Clinic and shall specify
the targeted profit margin for each Clinic which shall be reflected in the
overall budget. Response realizes that a Clinic may realize opportunities to
provide new services and utilize new technologies that will require capital
expenditures and anticipates that such opportunities may include ambulatory
surgery centers, renovations to Clinic facilities, the addition of satellite
locations and new and replacement equipment as may be economically justified.
Such budgets shall be presented to the Oversight Committee at least sixty (60)
days prior to the end of the preceding calendar year. The budget shall be
agreed upon by the Oversight Committee at least thirty (30) days prior to the
end of such preceding Calendar year as provided in Section 4.2(b), and, once
approved in such manner, shall be binding upon Response and Oncology unless
modified or revised in like manner by the Oversight Committee.
5.3. FINANCIAL STATEMENTS. Response shall prepare annual financial
statements on a cash basis for the separate operations of each Clinic and shall
prepare an annual pro-forma, accrual basis combined income statement for all
Clinics for purposes of determining the Annual Surplus. If Oncology desires an
audit of any financial statement, Oncology may obtain such an audit at its own
expense. Response shall prepare monthly unaudited financial statements
containing a combined balance sheet and statements of operations for the
Clinics, which shall be delivered to Oncology within thirty (30) days after the
close of each calendar month. Notwithstanding the foregoing, Response shall be
under no obligation to keep multiple sets of books for cash basis and accrual
basis methods of accounting, but shall be entitled to keep one set of books
maintained on an accrual basis method of accounting, which shall be converted
by workpaper-only entries to the cash basis method of accounting for purposes
of preparing the cash basis financial statements described above.
5.4. INVENTORY AND SUPPLIES. Response shall order and purchase
reasonable and requested medical and office inventory and supplies required by
Oncology to provide quality services in the day-to-day operations of its
medical practice.
5.5. MANAGEMENT SERVICES AND ADMINISTRATION.
(a) Oncology hereby appoints Response as its sole and exclusive
manager and administrator of all day-to-day business functions connected with
its group medical practice. Oncology agrees that the purpose and intent of
this Service Agreement is to relieve Oncology, the Physician Stockholders and
Physician Employees to the maximum extent possible of the administrative,
accounting, payroll, accounts payable, personnel and business aspects of its
practice, with Response assuming responsibility for and being given all
necessary authority to perform these functions. Response agrees that Oncology,
and only Oncology, will perform the medical functions of its practice.
Response will have no authority, directly or indirectly, to perform, and will
not perform, any medical function. Response may, however, advise Oncology as
to the relationship between its performance of medical functions and the
overall administrative and business functioning of its practice. To the extent
that they assist Oncology in performing medical functions, all clinical
personnel performing patient care services obtained and provided by Response
shall be subject to the professional direction and supervision of Oncology and,
in the performance of such medical functions, shall not be subject to any
direction or control by, or liability to, Response, except as may be
specifically authorized by Oncology. Oncology hereby indemnifies and holds
Response, its officers, directors, shareholders, agents and affiliates, their
successors and assigns ("Indemnified Persons") harmless, and shall reimburse
the Indemnified Persons for, from and against each claim, loss, liability, cost
and expense (including, without limitation, interest, penalties, costs of
preparation and investigation, and the reasonable fees and disbursement
expenses of attorneys and other professional advisors) directly or indirectly
relating to, resulting from or arising out of any medical function performed,
or which should have been performed, under the supervision of Oncology or
Physician Employees.
(b) Response shall, on behalf of Oncology, bill patients and Third
Party Payors, and shall collect the professional fees for medical services
rendered by Oncology in each Clinic, for services performed outside a Clinic
for Oncology's hospitalized patients, and for all other professional and Clinic
services. Response's billing and collection practice shall be consistent with
those of comparable, nationally recognized, well managed group medical
practices. Oncology hereby appoints Response for the term hereof to be its
true and lawful attorney-in-fact, for the following purposes: (i) to bill
patients in Oncology's name and on its behalf; (ii) to collect Accounts
Receivable resulting from such billing in Oncology's name and on its behalf;
(iii) to receive payments from insurance companies, prepayments from health
care plans, and payments from all other Third Party Payors; (iv) to take
possession of and endorse in the name of Oncology (and/or in the name of an
individual physician, such payment intended for purpose of payment of a
physician's bill) any notes, checks, money orders, insurance payments and other
instruments received in payment of Accounts Receivable; and (v) with the
advance consent of the Oversight Committee, to initiate legal proceedings in
the name of Oncology or any Physician Employee to collect any accounts and
monies owed to Oncology, Clinic or any Physician Employee, to enforce the
rights of Oncology or any Physician Employee as a creditor under any contract
or in connection with the rendering of any service, and to contest adjustments
and denials by any Governmental Authority (or its fiscal intermediaries) as
Third Party Payors. All adjustments made for uncollectible accounts,
professional courtesies and other activities that do not generate a collectible
fee shall be done in a reasonable and consistent manner.
(c) Response shall design, supervise and maintain custody of all
files and records relating to the operation of each Clinic, including but not
limited to accounting, billing, patient medical records, and collection
records. Patient medical records shall at all times be and remain the property
of Oncology and shall be located at Clinic facilities so that they are readily
accessible for patient care. The Physician Employees shall have the obligation
to oversee the preparation and maintenance of patient medical records, and to
provide such medical information as shall be necessary and appropriate to the
clinical function of such records, and to maintain such records so as to ensure
the availability of Third-party Payor reimbursement for services rendered. The
management of all files and records shall comply with applicable state and
federal statutes. Response shall use its best efforts to preserve the
confidentiality of patient medical records and use information contained in
such records only for the limited purpose necessary to perform the services set
forth herein; provided, however, in no event shall a breach of said
confidentiality be deemed a default under this Agreement.
(d) Response shall supply to Oncology necessary clerical,
accounting, payroll, bookkeeping and computer services, laundry, linen,
uniforms, printing, stationary, advertising, postage and duplication services,
medical transcribing services and any other ordinary, necessary or appropriate
item or service for the operation of a Clinic, the cost of all of which shall
be Clinic Expense.
(e) Subject to the provisions of Section 4.2(d), Response shall
design and implement adequate and appropriate marketing and public relations
programs on behalf of Oncology, with appropriate emphasis on public awareness
of the availability of services at Oncology's Clinics. Any marketing or public
relations program shall be conducted in compliance with applicable laws and
regulations governing advertising by medical professionals.
(f) Response shall provide the data necessary for Oncology to
prepare its annual income tax returns and financial statements, and shall
provide payroll and related services for Physician Employees. Response shall
have no responsibility for the filing of such tax returns, the payment of such
income taxes or the cost of preparation of income tax returns or financial
statements on behalf of Oncology or any physician employed thereby.
(g) Response shall assist Oncology in recruiting additional
physicians, carrying out such administrative functions as may be appropriate
such as advertising for and identifying potential candidates, checking
credentials, and arranging interviews; provided, however, Oncology shall
interview and make the ultimate decision as to the suitability of any physician
to become associated with a Clinic. All physicians recruited by Response and
accepted by Oncology shall be the sole employees of Oncology, to the extent
such physicians are hired as employees. Subject to the provisions of Section
6.4, any expenses incurred in the recruitment of physicians, including, but not
limited to, employment agency fees, relocation and interviewing expenses shall
be Clinic Expenses.
(h) Subject to the provisions of Section 4.2(g), Response shall
negotiate and administer all managed care contracts on behalf of Oncology.
(i) Subject to the provisions of Sections 5.3 and 5.5(f), Response
shall arrange for legal and accounting services related to Clinic operations
incurred traditionally in the ordinary course of business, including the cost
of enforcing any physician contract containing restrictive covenants, provided
such services shall be approved in advance by the Executive Director.
(j) Response shall provide for the proper cleanliness of the
physical premises occupied and/or utilized by Oncology, and maintenance and
cleanliness of the equipment, furniture and furnishings located upon such
premises.
5.6. EXECUTIVE DIRECTOR. Subject to the provisions of Section 4.2(k),
Response shall recruit, hire and appoint an Executive Director to manage and
administer all of the day-to-day business functions of each Clinic (it being
understood and agreed that, if reasonable, a single Executive Director may have
responsibility for multiple Clinics). Subject to Oversight Committee approval,
Response shall determine the salary, bonuses (if any) and fringe benefits of
each Executive Director, which salary, bonuses (which may be payable in
Response common stock or by issuance of options on Response common stock) and
benefits shall, to the extent the same are current expenses under GAAP, be
Clinic Expenses. At the direction, supervision and control of Response, the
Executive Director, subject to the terms of this Agreement, shall implement the
policies established by the Oversight Committee and shall generally perform the
duties and have the responsibilities of an administrator. The Executive
Director shall be responsible for organizing the agenda for the meetings of the
Oversight Committee referred to in Article 4.
5.7. PERSONNEL. Response shall provide Physician Extender Personnel and
other non-physician professional support (other than Technical Employees and
other persons who are required to be Physician Employees) and administrative
personnel, clerical, secretarial, bookkeeping and collection personnel
reasonably necessary for the conduct of operations at each clinic. Response
shall determine and cause to be paid the salaries and fringe benefits of all
such personnel, which shall be Clinic Expenses. Such personnel shall be under
the direction, supervision and control of Response, with those personnel
performing billable patient care services remaining employees of and being
subject to the professional supervision of Oncology. If Oncology is
dissatisfied with the services of any person, Oncology shall consult with
Response. Response shall in good faith determine whether the performance of
that employee could be brought to acceptable levels through counsel and
assistance, or whether such employee's employment should be terminated. All of
Response's obligations regarding staff shall be governed by the overriding
principle and goal of providing high quality medical care. Employee
assignments shall be made to assure consistent and continued rendering of high
quality medical support services and to ensure prompt availability and
accessibility of individual medical support personnel to physicians in order to
develop constant, familiar and routine working relationships between individual
physicians and individual members of the medical support personnel. Response
shall maintain established working relationships wherever possible and Response
shall make every effort consistent with sound business practices to honor the
specific requests of Oncology with regard to the assignment of its employees.
In addition to the foregoing, Response shall advance to Oncology from time to
time the amount of any operating deficiency with respect to any new physician
who is an employee but not a shareholder of Oncology ("Junior Physician").
Operating deficiency with respect to a Junior Physician is hereby defined as
the excess of the amount payable to such Junior Physician pursuant to any
salary guarantee over the amount of salary payable to such Junior Physician
under Oncology's normal and customary compensation system, as the same may be
modified from time to time by Oncology. Upon the earliest to occur of (i) the
Junior Physician becoming a shareholder of Oncology, or (ii) the Junior
Physician recognizing billings in excess of his cost (as determined by the
Oversight Committee, a "Surplus"), Oncology shall begin repaying the amounts
theretofore advanced in respect of such Junior Physician. Such advanced
amounts shall be repaid in full within thirty (30) days after the occurrence of
the event enumerated (i) above, and, in the event item (ii) above shall occur,
shall be repaid as Surplus is recognized, in quarterly amounts equal to such
surplus for each quarter, within sixty (60) days after the end of each such
quarter; provided, however, that all such advances shall be payable in full by
Oncology no later than the third anniversary of the employment date of such
Junior Physician.
5.8. EVENTS EXCUSING PERFORMANCE. Response shall not be liable to
Oncology for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies or other events over which Response has no control for so long as such
events continue, and for a reasonable period of time thereafter.
5.9. COMPLIANCE WITH APPLICABLE LAWS. Response shall comply with all
Applicable Law, in the conduct of its obligations under this Agreement.
5.10. QUALITY ASSURANCE. Response shall assist Oncology in fulfilling
its obligations to its patients to maintain a high quality of medical and
professional services.
5.11. ONCOLOGY OPERATING ACCOUNT. Oncology agrees to establish and
maintain a bank account, which shall be referred to as the Oncology Operating
Account, for the purpose of (a) depositing Practice Revenue and advances from
the Receivables Line (defined below) pursuant to Section 5.12 and (b) paying
(i) the Clinic Expense Portion of Service Fees owed pursuant to Section 8.1 of
this Agreement, (ii) expenses which are solely the obligation of Oncology,
including, without limitation, Physician Employee Compensation, (iii) the Fixed
Portion of Service Fees owed pursuant to Section 8.1 of this Agreement, and
(iv) distributions to Oncology, and the distributions shall be made in that
order of payment. Oncology hereby designates, constitutes and appoints the
Chief Financial Officer and Treasurer of Response as a signatory on the
Oncology Operating Account, with full power and authority to sign checks and
cause drafts and other debits to be made on the Oncology Operating Account in
the name of Oncology and to otherwise manage the cash resources and flow of
Oncology. After the payment of all Service Fees and expenses hereinabove
described, Oncology may withdraw amounts for distributions to Physician
Stockholders; provided, however, that Oncology agrees to maintain an adequate
balance in the Oncology Operating Account to pay the Clinic Expense Portion of
Service Fees as projected in the budget formulated pursuant to this Agreement.
5.12. CREDIT LINE. Response shall from time to time during the term of
this Agreement advance to Oncology, in readily available United State funds, by
wire transfer, intrabank transfer or other electronic means, to be deposited
into the Oncology Operating Account, an amount (the "Receivables Line") equal
to 100% of Accounts Receivable, net of any Bad Debt Allowance and all Fee
Adjustments with respect thereto. Amounts advanced by Response under the
Receivables Line will bear interest at a rate equal to the prime or base
lending rate quoted from time to time by First Tennessee Bank National
Association, plus one-half percent (.5%). Amounts advanced by Response
pursuant to this Section 5.12 shall be payable by Oncology upon demand, and if
no demand be made, upon termination of this Agreement. Response shall have the
authority from time to time pursuant to Section 5.11 above to make principal
payments on the Receivables Line. Interest on the outstanding Receivables Line
will be computed on a daily basis based on the total unpaid and outstanding
advances on the Receivables Line. Interest shall be payable to Response no
later than the fifth day of each month, in arrears. Advances on the
Receivables Line will be secured by a security interest in and to Accounts
Receivable granted pursuant to Section 15.8 below.
So long as an Oncology Event of Default has not occurred, advances on
the Receivables Line shall be made by Response as required to provide funds in
the Oncology Operating Account sufficient to pay, in the following order (i)
the Clinic Expense Portion of the Base Service Fee, (ii) Physician Employee
Compensation, (iii) other practice expenses which are not Clinic Expenses up to
an amount equal to the Physician Retainage, less the Base Draw, and (iv) the
Base Draw.
5.13. ANCILLARY SERVICES. Response shall operate such ancillary services
as approved by the Oversight Committee.
ARTICLE 6.
OBLIGATIONS OF ONCOLOGY
6.1. PROFESSIONAL SERVICES. Oncology shall provide professional services
to patients in compliance at all times with ethical standards, laws and
regulations applying to the medical profession, in a manner and to an extent
consistent with that established by Oncology prior to effectiveness of this
Agreement. Oncology shall also make all reports and inquiries to the National
Practitioners Data Bank and/or any state data bank required by Applicable Law.
Oncology shall ensure that each Physician Employee and Technical Employee
associated with Oncology to provide medical care to patients of Oncology is
licensed by the State of Florida to the extent required. In the event that any
disciplinary action or medical malpractice actions is initiated against any
physician or other person assisting in the providing of medical services,
Oncology shall immediately inform the Executive Director of such action and the
underlying facts and circumstances. Oncology shall develop a program to monitor
the quality of medical care practiced at each Clinic. In that regard, Oncology
shall at all times supervise and assume primary professional responsibility for
the delivery of all medical or other services to patients by Physician Extender
Personnel and any other employee of Response.
6.2. MEDICAL PRACTICE. Oncology shall use and occupy each Clinic
exclusively for the practice of medicine, and shall comply with all Applicable
Law and all standards of medical care. It is expressly acknowledged by the
parties that the medical practice or practices conducted at a Clinic shall be
conducted solely by physicians associated with Oncology, and no other physician
or medical practitioner shall be permitted to use or occupy a Clinic without
the prior written consent of Response and Oncology.
6.3. EMPLOYMENT OF PHYSICIAN EMPLOYEES. Oncology shall have complete
control of and responsibility for the hiring, compensation, supervision,
evaluation and termination of its Physician Employees, although at the request
of Oncology, Response shall consult with Oncology respecting such matters.
Oncology shall be responsible for the payment of all Physician Employee
Compensation now or hereafter applicable to Physician Employees; provided,
however, that Response shall provide the payroll service for computing,
accounting for and disbursing or paying all salaries and benefits of Oncology
employees, all of whom may be paid out of the Oncology Operating Account. With
respect to physicians, Oncology shall only employ and contract with licensed
physicians meeting applicable credentialling guidelines established by
Oncology.
To the extent permissible under the Employee Retirement and Income
Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986,
as amended (the "Code"), and applicable Health Care Law and to the extent such
practice does not violate Applicable Law or jeopardize reimbursement for
medical related services provided by any person associated with a Clinic,
Response shall pay any overtime or other non-salary compensation of and shall
provide employee benefits to Physician Employees, notwithstanding their
employment by Oncology. The cost of such items shall be Clinic Expense.
Response shall not provide any benefit to such persons to the extent Oncology
is required to provide same under ERISA, the Code or any other statute or
regulation.
6.4. LICENSING FEES, PROFESSIONAL DUES AND EDUCATION EXPENSES. Except as
provided in Section 5.5(g), Oncology and its Physician Employees shall be
solely responsible for payment of the cost of professional licenses and dues
for membership in professional associations and continuing professional
education costs. Oncology shall ensure that each of its Physician Employees
participates in such continuing medical education as is necessary for such
physician to remain current.
6.5. PROFESSIONAL INSURANCE ELIGIBILITY. Oncology shall be primarily
responsible, with assistance from Response, if requested, for obtaining and
retaining of professional liability insurance by assuring that its Physician
Employees are insurable, and participating in an on-going risk management
program. Professional liability insurance shall be paid for by Oncology or its
Physician Employees and shall not be Clinic Expense.
6.6. EVENTS EXCUSING PERFORMANCE. Oncology shall not be liable to
Response for failure to perform any of the services required herein in the
event of strikes, lock-outs calamities, acts of God, unavailability of supplies
or other events over which Oncology has no control for so long as such events
continue, and for a reasonable period of time thereafter.
6.7. FEES FOR PROFESSIONAL SERVICES. Oncology shall be solely
responsible for legal, accounting and other professional service fees incurred
by Oncology, except as set forth in Section 5.5(i) herein.
6.8. PEER REVIEW. Oncology agrees to cooperate with Response in
establishing a system of peer review as necessary to obtain provider contracts.
In connection therewith, Oncology agrees to assist in the formulation of
oncology and cancer care provider guidelines for each treatment or surgical
modality, and agrees to abide by said guidelines, and further agrees to submit
to periodic reviews by a third party to monitor compliance with said
guidelines. Oncology acknowledges that the establishment of provider
guidelines may be necessary to obtain PPO, HMO, IPA and other similar provider
contracts, both private and government funded. To the extent that said
provider guidelines must be filed or registered with any Third Party Payor,
Oncology agrees to cooperate with Response in making such filings or
registrations. it is agreed and acknowledged that all such peer review
guidelines shall be established and monitored by medical personnel on the staff
of Oncology and other practices that are part of the peer review process, and
shall not be promulgated, established or enforced independently by Response.
To the extent possible, all information obtained through the peer review
process shall remain confidential and the parties shall take all steps
reasonably necessary to assure that all privileges and immunities provided by
Applicable Law remain intact.
ARTICLE 7.
EMPLOYMENT AGREEMENTS, RESTRICTIVE COVENANTS AND REMEDIES
The parties recognize that the services to be provided by Response
shall be feasible only if Oncology operates an active medical practice to which
the physicians associated with Oncology devote their full time and attention.
To that end:
7.1. EMPLOYMENT AGREEMENTS WITH PHYSICIANS. As a condition to Response's
continuing obligations hereunder, Oncology and each physician now or
hereinafter employed thereby shall execute and deliver to each other an
employment contract substantially in the form set forth as Exhibit 2.1(aa)
hereto ("Employment Agreement").
7.2. RESTRICTIVE COVENANTS BY PHYSICIANS. Oncology shall obtain in each
Employment Agreement and use its best efforts to enforce (subject to Response's
obligations under Section 5.5 of this Agreement) formal agreements from each
physician pursuant to which the physician agrees not to establish, operate or
provide physician services at any medical office, clinic or outpatient and/or
ambulatory treatment or diagnostic facility providing services substantially
similar to those provided by Oncology pursuant to this Agreement within Dade
and Monroe Counties in Florida (the "Practice Territory") during the term of
the Employment Agreement and for a period of five (5) years after any
termination of employment with Oncology. Notwithstanding the foregoing, any
such restrictive covenant shall not restrict such physician from (i) delivering
physician services that are unrelated to the fields of hematology or oncology,
including the practice of internal medicine, (ii) teaching hematology and/or
oncology or (iii) assuming directorships of hospices following termination of
any such employment relationship with Oncology.
7.3. RESTRICTIVE COVENANTS OF RESPONSE. During the term of this
Agreement, neither Response nor any Affiliate, officer, director or employee of
Response or any Affiliate shall, without the consent of Oncology, purchase or
otherwise acquire any oncology or hematology practice within the Practice
Territory or establish, operate or enter into a service agreement with, or
provide service similar to those provided under this Agreement to, any medical
group or physician engaged in the practice of oncology or hematology within the
Practice Territory.
7.4. ENFORCEMENT. Response and Oncology acknowledge and agree that since
a remedy at law for any breach or attempted breach of the provisions of this
Article 7 shall be inadequate, either party shall be entitled to specific
performance and injunctive or other equitable relief in case of any such breach
or attempted breach, in addition to whatever other remedies may exist by law.
All parties hereto also waive any requirement for the securing or posting of
any bond in connection with the obtaining of any such injunctive or other
equitable relief. If any provision of Article 7 relating to the restrictive
period, scope of activity restricted and/or the territory described therein
shall be declared by a court of competent jurisdiction to exceed the maximum
time period, scope of activity restricted or geographical area such court deems
reasonable and enforceable under applicable law, the time period, scope of
activity restricted and/or area of restriction held reasonable and enforceable
by the court shall thereafter be the restrictive period, scope of activity
restricted and/or the territory applicable to the restrictive covenant
provisions in this Article 7. The invalidity or non-enforceability of this
Article 7 in any respect shall not affect the validity or enforceability of the
remainder of this Article 7 or of any other provisions of this Agreement.
ARTICLE 8.
FINANCIAL ARRANGEMENTS
8.1. SERVICE FEES. In consideration for its services hereunder, Response
shall receive the Base Service Fee and Performance Fee, computed pursuant to
Schedule A hereto, as compensation for its services hereunder, payable by means
of the Base Draw procedure set forth in Section 8.2 below.
8.2. BASE DRAW. The Clinic Expense Portion of the Base Service Fee shall
be payable by Oncology to Response out of the Oncology Operating Account as
Clinic Expenses are incurred by Response, subject to ordinary, reasonable and
customary payment terms on invoices for goods and services. The Base Draw
shall be payable by Oncology to Response out of the Oncology Operating Account
on a monthly basis for the purpose of paying the Fixed Portion of the Base
Service Fee and providing Response with an advance on its annual Performance
Fee (if any). The Base Fee and the Performance Fee will be computed as of the
end of each calendar year based on amounts recorded as Practice Revenue and
during the calendar year. In the event that it shall be finally determined
that the sum of the Base Service Fee and the Performance Fee are less than the
Base Draw paid by Oncology for such year, then such excess shall be deemed an
advance by Oncology, shall be recorded and reflected as a current account
payable by Response and an Excess Base Draw receivable by Oncology and shall be
settled by cash payment from Response to Oncology no later than the 15th day of
March of the next succeeding calendar year, or by such other settlement method
as may be mutually agreed upon.
ARTICLE 9.
RECORDS
9.1. PATIENT RECORDS. Upon termination of this Agreement, Oncology shall
retain all patient medical records maintained by Oncology or Response in the
name of Oncology. Response shall, at its option, and if allowed under
Applicable Law be entitled to have reasonable access during normal business
hours to Oncology's patient medical records applicable to the period of
Response's performance under this Agreement. Moreover, Oncology shall, at its
option, be entitled to retain copies of financial and accounting records
relating to all services performed by Oncology or Response under this
Agreement. All parties agree to maintain the confidentiality of patient
identifying information and not to disclose such information except as may be
required or permitted by Applicable Law.
9.2. RECORDS OWNED BY RESPONSE. All records relating in any way to the
operation of a Clinic which are not the property of Oncology under the
provisions of Section 9.1 above, shall at all times be the property of
Response.
9.3. ACCESS TO RECORDS. During the term of this Agreement, and
thereafter, Oncology or its designee shall have reasonable access during normal
business hours to Oncology's and Response's financial records, including, but
not limited to, records of collections, expenses and disbursements as key by
Response in performing Response's obligations under this Agreement, and
Oncology may copy any and or all such records.
9.4. GOVERNMENT ACCESS TO RECORDS. To the extent required by Section
1861(v)(1)(I) of the Social Security Act, each party shall, upon proper
request, allow the United States Department of Health and Human Services, the
Comptroller General of the United States, and their duly authorized
representatives access to this Agreement and to all books, documents, and
records necessary to verify the nature and extent of the costs of services
provided by either party under this Agreement, at any time during the term of
this Agreement and for an additional period of four (4) years following the
last date services are furnished under this Agreement. If either party carries
out any of its duties under this Agreement through an agreement between it and
an individual or organization related to it or through a subcontract with an
unrelated party, that party to this Agreement shall require that a clause be
included in such agreement (the value of which is in excess of $10,000.00) to
the effect that until the expiration of four (4) years after the furnishing of
services pursuant to such agreement, the related organization shall make
available, upon request by the United States Department of Health and Human
Services, the Comptroller General of the United States, or any of their duly
authorized representatives, all agreements, books, documents, and records of
such related organization that are necessary to verify the nature and extent of
the costs of services provided under that agreement.
ARTICLE 10.
INSURANCE AND INDEMNITY
10.1. INSURANCE TO BE MAINTAINED BY ONCOLOGY. Throughout the term of
this Agreement, Oncology shall maintain comprehensive professional liability
insurance with limits of not less than $500,000 per claim and with aggregate
policy limits of not less than $1,000,000 per physician and a separate limit
for Oncology. Oncology shall be responsible for all liabilities in excess of
the limits of such policies. Response shall have the option, with Oversight
Committee approval, of providing such professional liability insurance through
an alternative program, provided such program meets the requirements of the
Insurance Commissioner of the State of Florida. Response shall reimburse
Oncology for any unearned professional liability insurance premiums paid by
Oncology to the extent not reimbursed or reimbursable by Oncology's insurance
carrier if Oncology's existing professional liability insurance program is
cancelled and replaced by a comparable professional liability insurance program
initiated by Response.
10.2. INSURANCE TO BE MAINTAINED BY RESPONSE. Throughout the term of
this Agreement, Response shall make available, provide and/or maintain
comprehensive professional liability insurance for all Physician Employees who
are not physicians and all professional employees of Response, the cost of
which shall be a Clinic Expense, with limits as determined reasonable by
Response in its national program, and comprehensive general liability and
property insurance covering each Clinic premises and operations.
10.3. ADDITIONAL INSUREDS. Oncology and Response each agrees to use its
best efforts to have the other named as an additional insured on the their
respective professional liability insurance programs.
10.4. INDEMNIFICATION MATTERS INVOLVING THIRD PARTIES. Oncology and
Response ("Indemnitor") shall indemnify, hold harmless and defend the other
("Indemnitee") from and against any and all liability, loss, damage, claim,
causes of action, and expenses (including reasonable attorneys' fees, except to
the extent limited below), whether or not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of the
acts (intentional or negligent) or omissions by, in the case of Oncology, by
any Physician Stockholder or other person acting under the supervision and
control thereof, or, in the case of Response, by any employee thereof who is
not acting under the supervision and control of a Physician Stockholder of
Oncology.
(a) If any third party shall notify an Indemnitee with respect to any
matter (a "Third Party Claim") which may give rise to a claim for
indemnification under this Section 10.4, then the Indemnitee shall promptly
notify the Indemnitor in writing; provided, however, that no delay on the part
of the Indemnitee in notifying the Indemnitor shall relieve the Indemnitor from
any obligation hereunder unless (and then solely to the extent) the Indemnitor
is prejudiced by such delay.
(b) The Indemnitor will have the right to defend the Indemnitee
against the Third Party Claim with counsel of its choice satisfactory to the
Indemnitee so long as (A) the Indemnitor notifies the Indemnitee in writing
within 15 days after the Indemnitee has given notice of the Third Party Claim
that the Indemnitor will indemnify the Indemnitee from and against the entirety
of any Adverse Consequences (hereinbelow defined) the Indemnitee may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim, (B) the Indemnitor provides the Indemnitee with evidence
acceptable to the Indemnitee that the Indemnitor will have the financial
resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnitee, likely to establish a
precedential custom or practice adverse to the continuing business interests of
the Indemnitee, and (E) the Indemnitor conducts the defense of the Third Party
Claim actively and diligently.
(c) So long as the Indemnitor is conducting the defense of the Third
Party Claim in accordance with Section 10.4(b) above, (A) the Indemnitee may
retain separate co-counsel at its sole cost and expense and participate in the
defense of the Third Party Claim, (B) the Indemnitee will not consent to the
entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnitor (not to be
withheld unreasonably), and (C) the Indemnitor will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnitee.
(d) In the event any of the conditions in Section 10.4(b) above is or
becomes unsatisfied, however, (A) the Indemnitee may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it may deem appropriate (and the
Indemnitee need not consult with, or obtain any consent from, the Indemnitor in
connection therewith), (B) the Indemnitor will reimburse the Indemnitee
promptly and periodically for the costs of defending against the Third Party
Claim (including attorneys' fees and expenses), and (C) the Indemnitor will
remain responsible for any Adverse Consequences the Indemnitee may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 10.4.
10.5. Determination of Adverse Consequences. The parties hereto shall
take into account the time cost of money (using the Applicable Rate as the
discount rate) in determining Adverse Consequences for purposes of this Section
10.
10.6. Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any party may have for breach of
representation, warranty, or covenant.
ARTICLE 11.
TERM AND TERMINATION
11.1. TERM OF AGREEMENT. This Service Agreement shall be effective as of
the closing of the Stock Purchase and shall expire on December 31, 2035 unless
earlier terminated pursuant to the terms hereof.
11.2. EXTENDED TERM. Unless earlier terminated as provided for in this
Agreement, the term of this Agreement shall be automatically extended for
additional terms of five (5) years each, unless either party delivers to the
other party, not less than one hundred eighty (180) days prior to the
expiration of the preceding term, written notice of such party's intention not
to extend the term of this Agreement.
11.3. RESPONSE EVENT OF DEFAULT. The occurrence of any of the following
events shall constitute a default by Response (a "Response Event of Default")
under this Agreement, giving Oncology the right to the remedies set forth in
Section 11.5 below:
(a) the filing by Response of a petition in voluntary bankruptcy or
an assignment by Response for the benefit of creditors, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by Response, except for the filing of a petition in
involuntary bankruptcy against Response which is dismissed within thirty (30)
days thereafter.
(b) any material default by Response in the performance of any of
its duties or obligations under this Agreement and such default shall continue
for a period of sixty (60) days (fifteen (15) days in the case of Response's
failure to provide required advances under the Receivables Line) after written
notice thereof has been given to Response by Oncology.
(c) in the event Response shall, intentionally or in bad faith,
misapply funds or assets of Oncology or commit a similar act which cause
material harm to Oncology.
11.4. ONCOLOGY EVENT OF DEFAULT. The occurrence of any of the following
events shall constitute a default by Oncology (an "Oncology Event of Default")
under this Agreement, giving Response the right to the remedies set forth in
Section 11.6 below:
(a) the filing by Oncology of a petition in voluntary bankruptcy or
an assignment by Oncology for the benefit of creditors, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by Oncology, except for the filing of a petition in
involuntary bankruptcy against Oncology which is dismissed within thirty (30)
days thereafter.
(b) any material default by Oncology in the performance of any of
its duties or obligations under this Agreement and such default shall continue
for a period of ninety (90) days after written notice thereof has been given to
Oncology by Response.
(c) the termination or suspension of Oncology's Medicare or Medicaid
Provider Number as a result of the action or inaction of physicians, and such
termination or suspension shall continue for ninety (90) days, unless Oncology
shall at that time be acting in good faith (and shall provide reasonable
evidence of the action being taken) to reverse such termination or suspension.
Notwithstanding any good faith effort on the part of Oncology to reverse such
termination or suspension, if such termination or suspension shall not be
reversed within ninety (90) days after occurrence, an event of default shall be
deemed to have occurred.
(d) the termination or suspension of the Medicare or Medicaid
Provider Numbers of a majority of the physicians employed by Oncology, and such
termination or suspension shall continue for sixty (60) days, unless such
physicians shall be acting in good faith (and shall provide reasonable evidence
of the action being taken) to reverse such termination or suspension.
Notwithstanding any good faith effort on the part of any physicians to reverse
such termination or suspension, if such termination or suspension with respect
to that number of physicians required to cause a majority of such physicians to
retain their Medicare or Medicaid Provider Numbers shall not be reversed within
one hundred fifty (150) days after occurrence, an event of default shall be
deemed to have occurred.
11.5. REMEDIES UPON RESPONSE EVENT OF DEFAULT. Upon the occurrence of a
Response Event of Default, Oncology shall have the right to terminate this
Agreement by written notice to Response without any further obligation to
Response for Service Fees after the giving of such notice. Upon termination of
this Agreement by Oncology, Response's obligations under that certain long-term
promissory note given by Response to the Stockholders in connection with the
Stock Purchase will terminate. In addition to the foregoing, in such event
Oncology shall have the option to purchase from Response, and upon proper
exercise of such option by Oncology in the manner hereinbelow provided,
Response shall sell to Oncology, all assets and properties, tangible and
intangible (except that intangible assets shall not include any intangible
asset related to this Service Agreement), owned by Response and used by
Oncology in its medical practice ("Practice Assets") for a price, payable in
cash, equal to the fair market value of the Practice Assets. Oncology shall
exercise such option by giving written notice to Response within sixty (60)
days after the occurrence of the Response Event of Default. Upon delivery of
such exercise, Response and Oncology shall negotiate in good faith the fair
market value of the assets to be acquired. In the event that, after at least
fifteen (15) days of good faith negotiation, Response and Oncology shall not
have agreed upon the fair market value of the Practice Assets, each party shall
select an appraiser who shall provide an evaluation report with respect to the
fair market value of the Practice Assets. If the valuations of the appraisers
are within $25,000.00 of each other, then the lowest appraisal shall be deemed
the fair market value of the Practice Assets, and Oncology shall purchase the
Practice Assets for such value. If the valuation of the appraisers are more
than $25,000.00 different, then the two appraisers shall agree upon a third
appraiser, and the average value set forth in the three appraisals shall be
deemed the fair market value of the Practice Assets, and Oncology shall
purchase the Practice Assets for such value.
11.6. REMEDIES UPON ONCOLOGY EVENT OF DEFAULT. Upon the occurrence of an
Oncology Event of Default, Response shall have the right to terminate this
Agreement by written notice to Oncology, and Oncology shall have no further
obligation to Response for Service Fees after the date such notice is received.
In such event, Response's obligations under that certain long-term promissory
note given by Response to the Stockholders in connection with the Stock
Purchase shall terminate. In addition, in such event, Oncology shall be
obligated to pay to Response the Liquidated Damages Amount in complete
satisfaction of any and all damages suffered by Response hereunder. Such
Liquidated Damages Amount shall be payable by Oncology in cash within sixty
(60) days after occurrence of the Oncology Event of Default. Each Stockholder
hereby severally, and not jointly, guarantees the foregoing obligation of
Oncology and agrees to pay to Response his pro rata share of the Liquidated
Damages Amount provided that and to the extent he is a Remaining Physician
Stockholder for purposes of this Agreement, with the pro rata share being equal
to the portion of the Liquidated Damages Amount not paid by Oncology divided by
the number of Remaining Physician Stockholders as of the date of occurrence of
an Oncology Event of Default. Moreover, in such event Oncology shall have the
option to purchase from Response, and upon proper exercise of such option by
Oncology in the manner hereinbelow provided, Response shall sell to Oncology,
all Practice Assets for a price, payable in cash, equal to the fair market
value of the Practice Assets. Oncology shall exercise such option by giving
written notice to Response within sixty (60) days after the occurrence of the
Response Event of Default. Upon delivery of such exercise, Response and
Oncology shall negotiate in good faith the fair market value of the assets to
be acquired. In the event that, after at least fifteen (15) days of good faith
negotiation, Response and Oncology shall not have agreed upon the fair market
value of the Practice Assets, each party shall select an appraiser who shall
provide an evaluation report with respect to the fair market value of the
Practice Assets. If the valuations of the appraisers are within $25,000.00 of
each other, then the lowest appraisal shall be deemed the fair market value of
the Practice Assets, and Oncology shall purchase the Practice Assets for such
value. If the valuation of the appraisers are more than $25,000.00 different,
then the two appraisers shall agree upon a third appraiser, and the average
value set forth in the three appraisals shall be deemed the fair market value
of the Practice Assets, and Oncology shall purchase the Practice Assets for
such value.
11.7. CLOSING OF REPURCHASE BY ONCOLOGY AND EFFECTIVE DATE OF
TERMINATION. Oncology shall pay cash for Practice Assets repurchased
hereunder. The amount of the purchase price shall be reduced by the amount of
debt and liabilities of Response assumed by Oncology and shall also be reduced
by any payment Response has failed to make under this Agreement, provided that
such payments or obligations are not otherwise accounted for in the liabilities
assumed by Oncology in connection with the repurchase described herein. The
closing date for the repurchase shall be determined by Oncology, but shall in
no event occur later than 180 days from the date of the notice of termination.
In the event of exercise of such option, each party shall use its best efforts
to obtain such consents and authorizations to such transaction as may be
required by Applicable Law or otherwise. In such event, Response shall execute
and deliver to Oncology such assignments to leases and other contracts and such
bills of sale and other transfer or closing documents necessary to effect such
transaction. Oncology shall execute and deliver to Response such officers'
certificates, assumption agreements and other closing documents necessary to
close such transaction.
ARTICLE 12
DAMAGE AND LOSS; CONDEMNATION
12.1. USE OF INSURANCE PROCEEDS. All insurance or condemnation proceeds
payable by reason of any physical loss of any of the improvements comprising
the facilities or the furniture, fixtures and equipment used by the Clinics,
shall be available for the reconstruction, repair or replacement, as the case
may be, of any damage, destruction or loss. The Oversight Committee, in
consultation with Oncology, shall review and approve such reconstruction,
repair or replacement.
12.2. TEMPORARY SPACE. In the event of substantial damage to or the
condemnation of a significant portion of the facilities, Response shall use its
best efforts to provide temporary facilities until such time as the facilities
can be restored or replaced.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES OF ONCOLOGY
Oncology represents, warrants, covenants and agrees with Response that:
13.1. VALIDITY. Oncology is a professional association duly organized,
validly existing and in good standing under the laws of the State of Florida.
Oncology has the full power and authority to own its property, to carry on its
business as presently being conducted, to enter into this Agreement, and to
consummate the transactions contemplated hereby.
13.2. LITIGATION. There is no suit, action, proceeding at law or in
equity, arbitration, administrative proceeding or other proceeding pending, or
threatened against, or affecting Oncology, or any of the assets to be conveyed
hereunder, or to the best of Oncology's knowledge, any hematology or oncology
provider or other health care professional associated with or employed by
Oncology as pertains to any claim involving the providing of health care
related services, and to the best of Oncology's knowledge there is no basis for
any of the foregoing.
13.3. PERMITS. Oncology and all physicians and other health care
professionals associated with or employed by Oncology have all permits and
licenses and other Necessary Authorizations required by all Applicable Laws,
except where failure to secure such licenses, permits and other Necessary
Authorizations does not have a material adverse effect; have made all
regulatory filings necessary for the conduct of Oncology's business; and are
not in violation of any of said permitting or licensing requirements.
13.4. AUTHORITY. The execution of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action, and this Agreement is a valid and binding Agreement of Oncology,
enforceable in accordance with its terms. Oncology has obtained all third
party consents necessary to enter into and consummate the transaction
contemplated by this Agreement. Neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby, nor
compliance by Oncology with any of the provisions hereof, will:
(a) violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of, any lien,
security interest, charge or encumbrance upon any of the assets to be conveyed
hereunder, Oncology's charter or bylaws or any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
agreement or other instrument or obligation to which Oncology is a party, or by
which either Oncology or any of the assets to be conveyed hereunder is bound;
or
(b) violate any order, writ, injunction, decree, statute, rule or
regulation applicable either to Oncology or any of the assets to be conveyed
hereunder.
13.5. COMPLIANCE WITH APPLICABLE LAWS. To the best of Oncology's
knowledge and belief, Oncology has operated in compliance with all federal,
state, county and municipal laws, ordinances and regulations applicable thereto
and neither Oncology nor any physician or other Person associated with or
employed by Oncology has received payment or any remuneration whatsoever to
induce or encourage the referral of patients or the purchase of goods and/or
services as prohibited under 42 U.S.C. 1320a 7b(b), or otherwise perpetrated
any Medicare or Medicaid fraud or abuse, nor has any fraud or abuse been
alleged within the last five (5) years by any Governmental Authority, a carrier
or a Third Party Payor.
13.6. HEALTH CARE COMPLIANCE. Oncology is presently participating in or
otherwise authorized to receive reimbursement from or is a party to Medicare,
Medicaid, and other Third Party Payor Programs. All necessary certifications
and contracts required for participation in such programs are in full force and
effect and have not been amended or otherwise modified, rescinded, revoked or
assigned as of the date hereof, and no condition exists or event has occurred
which in itself or with the giving of notice or the lapse of time or both would
result in the suspension, revocation, impairment, forfeiture or non-renewal of
any such Third Party Payor Program. Oncology is in full compliance with the
requirements of all such Third Party Payor Programs applicable thereto.
13.7. FRAUD AND ABUSE. Oncology and persons and entities providing
professional services for Oncology, have not, to the knowledge of Oncology,
after due inquiry, engaged in any activities which are prohibited by or are in
violation of the rules, regulations, policies, contracts or laws pertaining to
any Third Party Payor Program, or which are prohibited by rules of professional
conduct ("Governmental Rules and Regulations"), including but not limited to
the following: (a) knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued
right to any benefit or payment on Oncology's own behalf or on behalf of
another, with intent to fraudulently secure such benefit or payment; or (d)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay or receive such remuneration (i) in return
for referring an individual to a person for the furnishing or arranging for the
furnishing or any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (ii) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
13.8. ONCOLOGY COMPLIANCE. Oncology has all licenses necessary to
operate the Clinic in accordance with the requirements of all Applicable Laws
and has all Necessary Authorizations for the use and operation, all of which
are in full force and effect. There are no outstanding notices of deficiencies
relating to Oncology issued by any Governmental Authority or Third Party Payor
requiring conformity or compliance with any Applicable Law or condition for
participation of such Governmental Authority or Third Party Payor, and after
reasonable and independent inquiry and due diligence and investigation,
Oncology has neither received notice nor has any knowledge or reason to believe
that such Necessary Authorizations may be revoked or not renewed in the
ordinary course.
13.9. RATES AND REIMBURSEMENT POLICIES. The jurisdiction in which
Oncology is located does not currently impose any restrictions or limitations
on rates which may be charged to private pay patients receiving services
provided by Oncology. Oncology does not have any rate appeal currently pending
before any Governmental Authority or any administrator of any Third Party Payor
Program. Oncology has no knowledge of any Applicable Law which has been
enacted, promulgated or issued within the eighteen (18) months preceding the
date of this Agreement or any such legal requirement proposed or currently
pending in the jurisdiction in which Oncology is located which could have a
material adverse effect on Oncology or may result in the imposition of
additional Medicaid, Medicare, charity, free care, welfare, or other discounted
or government assisted patients at Oncology or require Oncology to obtain any
necessary authorization which Oncology does not currently possess.
13.10. FULL DISCLOSURE. When considered in the context of all
information contained herein, no representation or warranty made by Oncology in
this Agreement contains or will contain any untrue statement of a material
fact. All representatives and warranties contained in this Agreement are true
and correct as of the date of their Agreement and shall remain true and correct
throughout the term of this Agreement.
13.11. EXHIBITS. All the facts recited in Exhibits annexed hereby (as
updated as of the effective date hereof) shall be deemed to be representations
of fact by Oncology as though recited in this Article 13.
ARTICLE 14
REPRESENTATIONS AND WARRANTIES OF RESPONSE
Response represents, warrants, covenants and agrees with Oncology as
follows:
14.1. ORGANIZATION. Response is a corporation duly organized, validly
existing and in good standing under the laws of the State of Tennessee.
Response has the full power to own its property, to carry on its business as
presently conducted, to enter into this Agreement and to consummate the
transactions contemplated hereby.
14.2. AUTHORITY. Response has taken all necessary action to authorize
the execution, delivery and performance of this Agreement, as well as the
consummation of the transactions contemplated hereby. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, violate any provisions of the charter or the
bylaws of Response or any indenture, mortgage, deed of trust, lien, lease,
agreement, arrangement, contract, instrument, license, order, judgment or
decree or result in the acceleration of any obligation thereunder to which
Response is a party or by which it is bound.
14.3. ABSENCE OF LITIGATION. No action or proceeding by or before any
court or other Governmental Authority has been instituted or is, to the best of
Response's knowledge, threatened with respect to the transactions contemplated
by this Agreement.
14.4. PERMITS. Response has all permits and licenses and other Necessary
Authorizations required by all Applicable Laws, except where failure to secure
such licenses, permits and other Necessary Authorizations does not have a
material adverse effect; have made all regulatory filings necessary for the
conduct of Response's business; and are not in violation of any of said
permitting or licensing requirements.
14.5. COMPLIANCE WITH APPLICABLE LAWS. To the best of Response's
knowledge and belief, Response has operated in compliance with all federal,
state, county and municipal laws, ordinances and regulations applicable thereto
and neither Response nor any other Person associated with or employed by
Response has received payment or any remuneration whatsoever to induce or
encourage the referral of patients or the purchase of goods and/or services as
prohibited under 42 U.S.C. 1320a 7b(b), or otherwise perpetrated any Medicare
or Medicaid fraud or abuse, nor has any fraud or abuse been alleged within the
last five (5) years by any Governmental Authority, a carrier or a Third Party
Payor.
14.6. FRAUD AND ABUSE. Response and persons and entities providing
professional services for Response, have not, to the knowledge of Response,
after due inquiry, engaged in any activities which are prohibited by or are in
violation of the rules, regulations, policies, contracts or laws pertaining to
any Third Party Payor Program, or which are prohibited by rules of professional
conduct ("Governmental Rules and Regulations"), including but not limited to
the following: (a) knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any application for any
benefit or payment; (b) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in determining
rights to any benefit or payment; (c) failing to disclose knowledge by a
claimant of the occurrence of any event affecting the initial or continued
right to any benefit or payment on Response's own behalf or on behalf of
another, with intent to fraudulently secure such benefit or payment; or (d)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay or receive such remuneration (i) in return
for referring an individual to a person for the furnishing or arranging for the
furnishing or any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (ii) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
ARTICLE 15
COVENANTS OF ONCOLOGY
15.1. MERGER, CONSOLIDATION AND OTHER ARRANGEMENTS. Oncology shall not
incorporate, merge or consolidate with any other entity or individual or
liquidate or practice at any location other than the Clinics or dissolve or
wind-up Oncology's affairs or enter into any partnerships, joint ventures or
sale-leaseback transactions or purchase or otherwise acquire (in one or a
series of related transactions) any part of the property or assets (other than
purchases or other acquisitions of inventory, materials and equipment in the
ordinary course of business) of any other person or entity without first
obtaining the prior written consent of Response. Oncology acknowledges and
agrees that such consent may be withheld if Response and Oncology cannot
mutually agree upon the terms and conditions of a new Service Agreement with
Oncology.
15.2. NECESSARY AUTHORIZATIONS/ASSIGNMENT OF LICENSES AND PERMITS.
Oncology shall maintain all licenses, permits, certifications, or other
Necessary Authorizations and shall not assign or transfer any interest in any
license, permit, certificate or other Necessary Authorization granted to it by
any Governmental Authority, nor shall Oncology assign, transfer, or remove or
permit any other individual or entity to assign, transfer or remove any records
of Oncology, including without limitation, patient records, medical and
clinical records (except for removal of such patient records as directed in
writing by the patients owning such records or as otherwise required under any
Applicable Law).
15.3. TRANSACTION WITH AFFILIATES. Oncology shall not enter into any
transaction or series of transactions, whether or not related or in the
ordinary course of business, with any Affiliate of Response, other than on
terms and conditions substantially as favorable to Oncology as would be
obtainable by Oncology at the time in a comparable arms-length transaction with
a person not an Affiliate of Response.
15.4. COMPLIANCE WITH ALL LAWS. Oncology shall comply with all laws and
regulations relating to Oncology's practice and the operation of any eye care
facility, including, but not limited to, all state, federal and local laws
relating to the acquisition or operation of a health care practice.
Furthermore, Oncology shall not violate any Applicable Laws.
15.5. THIRD PARTY PAYOR PROGRAMS. Oncology shall maintain Oncology's
compliance with the requirements of all Third Party Payor Programs in which
Oncology is currently participating or authorized to participate.
15.6. CHANGE IN BUSINESS OR CREDIT AND COLLECTION POLICY. Oncology shall
not make any change in the character of Oncology's business or in the credit
and collection policy, which change would, in either case, impair the
collectibility of any Accounts Receivable or otherwise modify, amend or extend
the terms of any such account other than in the ordinary course of business.
15.7. SECURITY INTEREST.
(a) Oncology shall, effective as of the date hereof, be deemed to
have granted (and Oncology does hereby grant) to Response a first priority
security interest in and to any and all of the Accounts Receivable and the
proceeds thereof to secure the repayment of all amounts advanced to Oncology
hereunder with accrued interest thereon, and this Agreement shall be deemed to
be a security agreement. With respect to such grant of a security interest,
Response may at its option exercise from time to time any and all rights and
remedies available to it under the UCC or otherwise. Oncology agrees that five
(5) days shall be reasonable prior notice of the date of any public or private
sale or other disposition of all or part of the purchased Accounts Receivable.
Oncology represents and warrants that the location of Oncology's principal
place of business, and all locations where Oncology maintains records with
respect to its Accounts Receivables are set forth under its name in Section
16.5 hereof. Oncology agrees to notify Response in writing thirty (30) days
prior to any change in any such location. The exact name of Oncology is as set
forth at the beginning of this Agreement, and except as set forth on the
signature page hereof, Oncology has not changed its name in the last five (5)
years, and during such period Oncology did not use, nor does Oncology now use,
any fictitious or trade name. Oncology shall notify Response in writing thirty
(30) days prior to any change in any such name.
(b) Oncology shall, effective as of the date hereof, be deemed to
have granted (and Oncology does hereby grant) to Response a first priority
security interest in and to that certain promissory note of even date herewith,
and to the proceeds thereof, to secure the payment of the Fixed Portion of the
Base Service Fee; and this Agreement shall be deemed to be a security
agreement.
15.8. REPRESENTATIONS AND WARRANTIES. Oncology agrees to notify Response
in the event that any representation or warranty contained in Article 13 of
this Agreement becomes untrue.
ARTICLE 16.
GENERAL PROVISIONS
16.1. ASSIGNMENT. Response shall have the right to assign its rights
hereunder to any person, firm or corporation under common control with Response
and to any lending institution, for security purposes or as collateral, from
which Response obtains financing. Except as set forth above, neither Response
nor Oncology shall have the right to assign their respective rights and
obligations hereunder without the written consent of the other party.
16.2. NO PRACTICE OF MEDICINE. The parties acknowledge that Response is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of medicine. To the extent any act or
service required of Response in this Agreement should be construed or deemed by
any Governmental Authority or court to constitute the practice of medicine, the
performance of said act or service by Response shall be deemed waived and
forever unenforceable.
16.3. WHOLE AGREEMENT; MODIFICATION. This Agreement supersedes all prior
agreements between the parties, and there are no other agreements or
understandings, written or oral, between the parties regarding this Agreement,
the Exhibits and the Schedules, other than as set forth herein. This Agreement
shall not be modified or amended except by a written document executed by both
parties to this Agreement, and such written modification(s) shall be attached
hereto.
16.4. ARBITRATION OF DISPUTES; LEGAL FEES. Any dispute arising under
this Service Agreement shall be submitted by the parties to binding arbitration
pursuant to the Florida Uniform Arbitration Act, with any such arbitration
proceeding being conducted in accordance with the rules of the American
Arbitration Association. Any arbitration panel presiding over any arbitration
proceeding hereunder is hereby empowered to render a decision in respect of
such dispute, to award costs and expenses (including reasonable attorney fees)
as it shall deem equitable and to enter its award in any court of competent
jurisdiction. Each of the parties submits to the jurisdiction of any state or
federal court sitting in Miami, Dade County, Florida for purposes of
enforcement of any arbitration award hereunder. Each party also agrees not to
bring any action or proceeding arising out of or relating to this Service
Agreement in any other court. Each of the parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought
and waives any bond, surety, or other security that might be required of any
other Party with respect thereto.
16.5. NOTICES. All notices required or permitted by this Agreement shall
be in writing and shall be addressed as follows:
To Response: Response Oncology, Inc.
1775 Moriah Woods Blvd.
Memphis, Tennessee 38117
Attn: Daryl P. Johnson, CFO
With copies to: Baker, Donelson, Bearman & Caldwell
165 Madison Ave., Suite 2000
Memphis, Tennessee 38103
Attn: John A. Good
To Oncology: Oncology Hematology Group of South
Florida, P.A.
8940 N. Kendall Drive
Suite 300-E, East Tower
Miami, Florida 33176
Attn: Leonard Kalman
With copies to: Alan R. Chase, Esq.
Cohen, Chase, Hoffman & Trautman, P.A.
Suite 600, 9400 South Dadeland Blvd.
Miami, Florida 33156
or to such other addresses as either party shall notify the other.
16.6. BINDING ON SUCCESSORS. Subject to Section 16.1, this Agreement
shall be binding upon the parties hereto, and their successors, assigns, heirs
and beneficiaries.
16.7. WAIVER OF PROVISIONS. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a
waiver of any other terms and conditions hereof.
16.8. GOVERNING LAW. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with the laws
of the State of Florida. The parties acknowledge that Response is not
authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of medicine. To the extent any act or
service required of Response in this Agreement should be construed or deemed,
by any governmental authority, agency or court to constitute the practice of
medicine, the performance of said act or service by Response shall be deemed
waived and forever unenforceable.
16.9. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and if any portion shall be held invalid, illegal or unenforceable
for any reason, the remainder of this Agreement shall be effective and binding
upon the parties.
16.10. ADDITIONAL DOCUMENTS. Each of the parties hereto agrees to
execute any document or documents that may be requested from time to time by
the other party to implement or complete such party's obligations pursuant to
this Agreement.
16.11. TIME IS OF THE ESSENCE. Time is hereby expressly declared to be
of the essence in this Agreement.
16.12. CONFIDENTIALITY. Except for disclosure to its bankers,
underwriters or lenders, or as necessary or desirable for conduct of business,
including negotiations with other acquisition candidates, neither party hereto
shall disseminate or release to any third party any information regarding any
provisions of this Agreement, or any financial information regarding the other
(past, present or future) that was obtained by the other in the course of the
negotiations of this Agreement or in the course of the performance of this
Agreement, without the other party's written approval; provided, however, the
foregoing shall not apply to information which (i) is generally available to
the public other than as a result of a breach of confidentiality provisions;
(ii) becomes available on a non-confidential basis from a source other than the
other party or its affiliates or agents, which source was not itself bound by a
confidentiality agreement, or (iii) which is required to be disclosed by law or
pursuant to court order.
16.13. CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS. In the event
any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decisions, a regulatory agency or legal counsel in such a manner as to
indicate that the structure of this Agreement may be in violation of such laws
or regulations, Oncology and Response shall amend this Agreement as necessary.
To the maximum extent possible, any such amendment shall preserve the
underlying economic and financial arrangements between Oncology and Response.
16.14. REMEDIES CUMULATIVE. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
16.15. LANGUAGE CONSTRUCTION. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. The parties acknowledge that each
party and its counsel have reviewed and revised this Agreement and that the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
16.16. NO OBLIGATION TO THIRD PARTIES. None of the obligations and
duties of Response or Oncology under this Agreement shall in any way or in any
manner be deemed to create any obligation of Response or of Oncology to, or any
rights, in, any person or entity not a party to this Agreement.
16.17. COMMUNICATIONS. Oncology and Response agree that good
communication between the parties is essential to the successful performance of
this Agreement, and each pledges to communicate fully and clearly with the
other on mattes relating to the successful operation of Oncology's practice at
a Clinic.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
ONCOLOGY HEMATOLOGY GROUP OF
SOUTH FLORIDA, P.A.
By:______________________________________
Title:___________________________________
RESPONSE ONCOLOGY, INC.
By:______________________________________
Title:___________________________________
PHYSICIANS:
_________________________________________
RESPONSE ONCOLOGY, INC.
SERVICE AGREEMENT
SCHEDULE A
The information contained in this Schedule has been omitted from this
Schedule and filed separately with the Securities and Exchange Commission
pursuant to Rule 24b-2 under the Securities Exchange Act of 1934.