Exhibit 10.1
HOSPITAL MANAGEMENT AGREEMENT
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This Agreement is entered into this 24th day of January, 1997, by and
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between ANNISTON HMA, INC., an Alabama corporation ("Manager"), and the TRUST
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CREATED UNDER THE LAST WILL AND TESTAMENT OF SUSIE P. STRINGFELLOW (the "Trust")
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which owns and operates the hospital located at 301 East 18th Street, Anniston,
Alabama, known as Stringfellow Memorial Hospital (the "Hospital").
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1. TERM.
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This Agreement shall commence on the date of execution of this
Agreement ("Commencement Date") and shall terminate, unless sooner terminated
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pursuant to Section 17, on the thirtieth (30th) anniversary of the date of such
execution (the "Term").
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2. RETENTION OF AUTHORITY BY HOSPITAL; REPRESENTATIONS AND WARRANTIES.
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(a) Control Retained by Trust. Throughout the Term of this Agreement,
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the Trust shall retain such authority and control over the business, policies,
operation, and assets of the Hospital that is consistent with the terms of this
Agreement. Manager shall perform the services described in this Agreement in
accordance with Hospital policies and directives as may be promulgated from time
to time by the Trust. By entering into this Agreement, the Trust does not
delegate to Manager any of the powers, duties, and responsibilities vested in
the Trust by law or by the Hospital's Medical Staff Bylaws.
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(b) Professional Medical Matters. All matters requiring professional
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medical judgments shall remain the responsibility of the Hospital's Medical
Staff, and Manager shall have no responsibility whatsoever for such judgments.
(c) Relationship between Manager and the Trust. The relationship
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between Manager and the Trust created by this Agreement is one of principal and
agent. The Trust and Manager are not partners, joint venturers, co-venturers,
or independent contractors, and it is agreed that Manager is acting solely as
the agent of the Trust in performing services to be provided by Manager
hereunder.
(d) Representations of the Trust. Except as disclosed in writing to
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Manager prior to the date hereof, the Trust represents this Agreement has been
duly authorized, executed, and delivered by the Trust and represents the legal,
valid, and binding agreement of the Trust and is enforceable against the Trust
in accordance with its terms, except as enforceability may be limited by
applicable equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws from time to time in effect affecting the
enforcement of creditors' rights generally.
(e) Representations of Manager. Except as disclosed in writing to the
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Trust prior to the date hereof, Manager represents this Agreement has been duly
authorized, executed, and delivered by Manager and represents the legal, valid,
and binding agreement of Manager and is enforceable against Manager in
accordance with its terms, except as enforceability may be limited by applicable
equitable principles or by bankruptcy, insolvency, reorganization, moratorium,
or similar laws from time to time in effect affecting the enforcement of
creditors' rights generally.
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3. DUTIES OF MANAGER.
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Manager shall perform the administrative services described herein
including responsibility for the day-to-day business affairs of the Hospital.
Nothing in this Agreement is intended to alter, weaken, displace, or modify the
responsibility of the Trust for the Hospital's direction and control as
minimally required by the Joint Commission for the Accreditation of Healthcare
Organizations ("JCAHO") or its successors. Manager shall use all reasonable
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efforts to cause the Hospital to provide the optimal achievable quality health
care consistent with Hospital policies, the financial resources available to the
Hospital, the competitive marketplace in which the Hospital is located, and the
requirements of, and restrictions arising from, participation in Medicare and
other third party reimbursement programs and other laws.
In discharging its duties hereunder, Manager shall adopt, implement
and follow appropriate policies and procedures of the Hospital. Further,
Manager may rely on the recommendations of the Hospital's Medical Staff (and its
designated committees and departmental chairman; collectively "Medical Staff")
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relative to the quality of professional services provided by individuals with
clinical privileges, and the professional competency, training, and requisite
supervision of medical technicians, and other medical staff. Manager shall have
the following duties:
(a) Personnel. Manager shall provide the Hospital with the services
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of all Hospital personnel ("Personnel") including the key personnel specified in
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Section 4 ("Key Personnel"). The Personnel shall be employees of Manager.
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(b) Budgets. Prior to the end of each fiscal year of the Hospital
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during the Term of this Agreement, in accordance with
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the Hospital's policies and procedures, Manager shall submit to the Trust for
its review and approval, the annual operating budget, annual capital
expenditures budget (if appropriate), and annual cash flow projections of the
Hospital, all designed to meet the goals and objectives of the Hospital and the
Trust (such budgets and projections referred to collectively hereinafter as the
"Budgets"). In addition, Manager will, subject to the review and approval of
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the Trust, supply any appropriate revisions to the Budgets to reflect material
changes during the fiscal year. Subject to the review and approval of
appropriate revisions to the Budgets referred to in the preceding sentence, once
the Trust reviews and approves the Budgets, Manager shall be entitled to proceed
with expenditures contemplated thereby without further review. Provided Manager
is current under its obligation to fund any cash short fall as set out in
Section 8 Trust's approval under this Subsection shall be automatically given
subject, however, to any fiduciary obligations of the trustees of the Trust.
(c) Accounting. Manager shall establish and administer accounting
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procedures and controls in accordance with generally accepted accounting
principles and shall cause to be prepared and delivered to the Trust on a
monthly basis cost reports and other materials required in connection with third
party reimbursement or payment contracts or programs in which the Hospital
participates. The Manager shall have access to such of the Hospital's business
records, audited reports, and other information, including records, reports, and
information created prior to the date of this Agreement as are necessary, in
Manager's reasonable judgment, to enable Manager to prepare such reports.
Manager may rely on the accuracy of the information contained in such records,
without making any further investigation thereof. Manager shall prepare
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monthly and annual balance sheets and statements of income and loss. To the
extent that either the Trust or the Manager reasonably requires audited annual
statements, such statements shall be due no later than 120 days following the
close of each fiscal year during the Term of this Agreement.
(d) Charges and Cash Management. Manager shall supervise the issuance
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of bills and the collection of accounts, in accordance with established Hospital
charge schedules and collection policies. Manager shall be entitled to obtain
on behalf of the Trust the assistance of one or more collection agencies.
Manager shall on behalf of the Trust collect, hold and disburse all cash
collected in its own accounts. Manager shall exercise reasonable care in
managing the accounts and available cash of the Hospital operation by
maintaining accounts and/or financial instruments with Manager's established
financial institutions in the same manner and with the same care Manager
exercises in managing its own accounts and cash.
(e) Third Party Reimbursement.
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The Manager shall provide the Hospital with the following third party,
including (but not limited to) Medicare, Medicaid and Champus, reimbursement
services:
(a) Preparation and filing of third party payor cost reports.
(b) Coordination of the fiscal intermediary audits of such cost
reports.
(c) Assistance with the appeal of audit adjustments by fiscal
intermediaries to such cost report (External fees and incidental costs
including, but not limited to legal fees
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and court costs are the responsibility of the Hospital).
(d) Maintenance and update of the third party accounting system
including accounting entries to record third party cost reports.
(e) Monitoring and implementation of legislative and regulatory
changes to third party reimbursement including, but not limited to changes
to the Medicare inpatient prospective payment system, the Medicare
outpatient payment system and regulatory reporting requirements.
(f) Budgetary support for third party reimbursement.
(g) Monitoring third party payor cash flow.
(f) Payments. Manager shall exercise reasonable care in applying the
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Hospital's funds to the timely payment of its liabilities and other obligations.
Except as may be specifically set out in this Agreement, and more specifically
in Section 8, Manager shall not be liable either primarily or as guarantor for
debts of the Hospital or Trust arising prior to the commencement date (the
"Interim Commencement Date") of the Three-Year Management Agreement between the
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parties hereto (the "Three-Year Management Agreement").
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(g) Expenditures. Manager shall be solely responsible as to the
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ordering of equipment and supplies used in the diagnosis and treatment of
patients. Under purchasing policies established by the Manager and consistent
with those Budgets and Management Plans (as such term is defined in Section
3(j)) that have been
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approved by the Trust (the "Approved Budgets and Plans"), Manager shall have
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the authority to commit the Hospital's funds for the purchase or lease of
supplies, goods, and services reasonably necessary to the operation of the
Hospital and on behalf of the Trust to negotiate, enter into, administer, and
terminate contracts therefor.
(h) Purchasing Agreements. To the extent permitted by law and by the
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Purchasing Agreements as hereinafter defined, and as provided in this Agreement,
Manager will offer the Hospital access to volume purchasing agreements in which
Manager may from time to time participate or have access to. (These volume
purchasing agreements are hereinafter referred to as the "Purchasing
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Agreements.") It is anticipated that use of the Purchasing Agreements will
offer the Hospital overall purchasing savings when compared to alternative
purchasing arrangements available.
(i) Quality Assurance. Manager shall implement quality assurance
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programs designed to meet standards imposed by appropriate certifying agencies
and by the Hospital's policies. Manager shall carry out their day-to-day
implementation and shall report regularly to the Trust on the results of the
programs.
(j) Management Plan and Report. Manager shall submit to the Trust for
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its review an annual management plan (the "Management Plan") designed to
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implement the goals and objectives of the Hospital which will set forth the
efforts, methods, and resources to be used by Manager and the timetable to be
observed to achieve such goals and objectives. Along with the annual Management
Plan, Manager will submit to the Trust written information about the development
of the plan. The Trust hereby agrees to use its reasonable efforts, and to
cause the Medical Staff to use their reasonable efforts, to take or cooperate
with the actions
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recommended by an approved Management Plan (to the extent such actions are
within the control of the Trust, or the Medical Staff and not wholly within the
control of Manager).
Furthermore, Manager shall deliver to the Trust, within 120 days
following the close of each fiscal year (or with any audited annual statement
referenced in Section 3(c), if sooner) a written annual report on the completion
of the goals and objectives set forth in the Management Plan approved by the
Trust. Manager shall make available to the Trust the Manager consulting
services specified in the Management Plan for each year. Such services will be
those which from time to time Manager makes available to its other hospitals and
which are appropriate for and needed by the Hospital. The persons performing
said consulting services shall possess qualifications and skills determined
appropriate or necessary by Manager in its sole discretion. It is agreed and
understood, however, that Manager may, when it deems appropriate, carry out the
implementation of the consultants' recommendations by working with existing
staff of the Hospital.
Manager's services do not include goods and services provided by third
parties such as legal services, audit services, architectural services,
feasibility studies, certificate of need applications related to major capital
projects, and similar items. Such items will be charged to the Hospital on a
monthly basis at the same or comparable rate Manager allocates those expenses to
its own acute care hospitals.
(k) Special Reports. Manager may, from time to time, engage
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consultants to perform projects and studies who would not be employees of
Manager or its Affiliates. All of the reasonable expenses and fees of such
consultants shall be paid directly as a Hospital expense to the consultant so
engaged.
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(l) Manager's Power to Contract, Purchase Capital Equipment and Make
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Capital Improvements. Manager shall have the authority to:
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(i) negotiate, enter into and terminate contracts with
physicians on behalf of the Trust.
(ii negotiate, enter into or terminate contracts with outside
consultants on behalf of the Trust.
(ii purchase capital assets as part of the Approved Budgets and
Plans, and where the cost of such assets are funded by a loan from Manager and
added to the principal amount due under the line of credit portion of the Loan
and Security Agreement between the parties hereto of even date herewith (the
"Loan Agreement").
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(iv enter into any leases of capital assets which, if purchased,
would be described in (iii) above (where all payments under such leases are
funded by a loan from Manager and added to the principal amount due under the
line of credit portion of the Loan Agreement) without the prior approval of the
Trust as part of the Approved Budgets and Plans.
(v) make capital improvements to the Hospital as part of the Approved
Budgets and Plans and where the cost of such capital improvements are funded by
a loan from Manager and added to the principal amount due under the line of
credit portion of the Loan Agreement.
(vi) enter into any leases not relating to capital assets without the
prior approval of the Trust as part of the Approved Budgets and Plans.
(m) Hospital Information. During the Term of this Agreement the Trust
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shall give Manager full access to the Hospital, its facilities, and its records.
Manager shall maintain the
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confidentiality of patient records, Hospital charges, wages, marketing
strategies, and other confidential information regarding the Hospital, except to
the extent that disclosure is required by law.
4. PERSONNEL.
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(a) Obligation to Provide. Manager shall provide the Hospital with
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the services of all hospital personnel including, but not limited to, a hospital
administrator, associate administrator, director of nursing and a controller
("Key Personnel"). The administrator shall serve as the chief executive officer
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of the Hospital, reporting to Manager's Vice President of Operations assigned to
the Hospital, the director of nursing shall serve as the director of all nursing
personnel and nursing services and the controller shall serve as the chief
accounting and financial officer of the Hospital. Manager shall determine the
number and qualifications of personnel required for the efficient operation of
the Hospital and in establishing and revising wage scales, employee benefit
packages, in-service training programs, staffing schedules, and job
descriptions, all in order to accomplish the goals and objectives of the
Hospital and in accordance with Manager's policies and procedures. All
Personnel shall be employees of Manager throughout the Term of this Agreement.
Manager shall determine the amount and nature of and shall pay compensation (as
hereinafter described) to the Personnel for all services rendered by them in
connection with this Agreement.
(b) Covenant Not to Hire. The Trust will not employ or offer to
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employ any Key Personnel until two years following the termination of this
Agreement unless Manager gives its written consent thereto.
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(c) Reimbursement of Compensation. In addition to Manager's fee
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hereunder, the Manager shall be reimbursed, within 30 days of Manager's payment
thereof, an amount equal to the Personnel's compensation, subject to the
limitations set forth herein. The amount of compensation and fringe benefits
reimbursable hereunder shall be subject to the Approved Budgets and Plans. The
amount of reimbursable fringe benefits hereunder shall be Manager's costs for
all fringe benefits which are or may become standard for personnel of Manager
(such as health insurance, disability insurance, life insurance, retirement
plans, without regard to forfeitures which reduce contributions made in respect
of employees who are not Personnel, seminar and related travel expenses,
professional dues, and, with respect to the administrator and assistant
administrator, incentive compensation and automobile and automobile expenses).
Furthermore, the Hospital shall reimburse Manager for employment, payroll, or
other taxes imposed because of employment of the Personnel, all as approved in
the Approved Budgets and Plans, and such taxes shall be deemed to be an
operating expense of the Hospital. It is specifically understood and agreed
that reimbursable compensation for Personnel shall be considered a payroll
obligation of the Hospital for purposes of setting priorities for payments of
Hospital obligations as described in Section 7 hereof.
(d) Payment of Relocation Expenses. Provided such expenses have been
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pre-approved by the Trust (whether as part of the Approved Budgets and Plans or
as specifically approved by the Trust), within 30 days of invoice, the Manager
shall be reimbursed for all expenses associated with relocating Personnel to the
Hospital area. Relocation expenses shall consist of those set forth in
Manager's written policy from time to time and may
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include, but not be limited to, the cost of house hunting trips, transporting
household belongings, transportation, and temporary lodging for the Personnel
and their families, and reimbursement related to the sale of a residence and the
replacement thereof normally afforded Manager administrative personnel.
(e) Interim Living Expenses. Should it be necessary to assign any
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interim Personnel to the Hospital on a temporary basis, the Manager shall be
reimbursed the interim Personnel's compensation in the same manner as provided
under Subsection (c) above, "Reimbursement of Compensation," within 30 days of
invoice for all interim living expenses, including lodging, food,
transportation, and other out-of-pocket expenses of such interim Personnel.
(f) Employees of the Hospital. (i) The Manager shall continue to
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employ each person who is an employee of the Hospital on the Commencement Date
(the "Affected Employees"); however, nothing in this Agreement shall be deemed
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to require the Manager to cause to be continued any Affected Employee's
employment for a definite period, except pursuant to the provisions of any
contracts relating to employment. For a period of at least one (1) year after
the Closing, the Manager shall provide each Affected Employee with compensation
and benefits that are substantially comparable in the aggregate to the
compensation and benefits listed in Schedule 4(f) hereto. The Manager shall
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give each Affected Employee full credit for all service with the Hospital and
its affiliates for purposes of eligibility to participate in, vesting and
payment of benefits under, and eligibility for early retirement or any
subsidized benefit provided under (but not for purposes of determining the
amount of any benefit under), any employee benefit plan (including, but not
limited to, any "employee benefit plan" as
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defined in Section 3(3) of ERISA) maintained by the Manager. The Manager shall
allow rollovers and direct transfers of all accounts of the Affected Employees
in any employee benefit plan maintained by the Trust to a comparable benefit
plan maintained by the Manager, but only to the extent such rollover or transfer
is allowed by law. The Manager agrees to give credit (or cause its insurance
carriers to give credit) to each Affected Employee, on a dollar-for-dollar
basis, toward the deductible and co-payment requirements of Manager's group
health plans for any such amounts paid by any Affected Employee (or eligible
dependent) for the plan year during which the Commencement Date occurs under
Trust's applicable group health plan; provided, however, that such Affected
Employee shall provide the Manager reasonable evidence of the amounts credited
toward such Affected Employee's deductible and co-payment requirements.
Notwithstanding anything in this subsection 4(f)(i) to the contrary, the Manager
shall give each Affected Employee full credit for all service with the Hospital
and its affiliates for all purposes (including, without limitation, the amount
of benefits payable) under the vacation pay plan or policy and any severance
policy maintained after the Commencement Date by the Manager.
(ii) Notwithstanding anything in subsection 4(f)(i) to the contrary,
in the event that any Affected Employee is discharged without cause by the
Manager within 12 months after the Commencement Date, the Manager shall either
(i) pay the discharged Affected Employee an amount equal to two weeks' pay or
(ii) provide the Affected Employee with notice two weeks prior to such
discharge. The Manager shall retain and be responsible for all severance
payments, relating to any Affected Employee, that may be found to be payable as
a result of any termination of employment of
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any such Affected Employee deemed to occur as a result of the transactions
contemplated by this Agreement.
(iii) The Manager shall not take any actions that could result in
the imposition on the Trust of any liability under the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. (S) 2101 et seq.
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(g) Severance. In the event of the termination by the Manager of
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either Michael Cassidy or Linda Burdette, the Manager shall recognize and pay
severance compensation and benefits consistent with the letter from Juliette
Doster to Michael Cassidy dated August 15, 1989 (with respect to Michael
Cassidy) and the Severance Agreement dated March 3, 1994 between the Trust and
Linda Burdette (with respect to Linda Burdette), copies of which have been
provided to the Manager.
(h) Expenses Nonrecourse. All costs, expenses and liabilities
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described in this Section 4 (other than any liability described in Section 4(b))
shall be deemed to be operating expenses of the Hospital and payable out of
funds arising from the operation of the Hospital or funded by the Manager as
described in Section 8, and the Trust shall not be liable for any other funds.
5. LOANS TO TRUST.
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For and in consideration of the Execution of this Agreement and for
the effective and quality operation of the Hospital during the term of this
Agreement Manager shall lend the Trust $15,000,000, more or less, more
specifically set out in a Loan Agreement to be entered into simultaneously with
this Agreement (the "Loan Agreement"). The terms and security of said loan
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shall be in accordance with the Loan Agreement.
In addition thereto should Manager desire, in its
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discretion, to make capital improvements or add additional capital equipment to
the Hospital then the capital cost of such improvements shall be loaned to the
Trust pursuant to the Loan Agreement and shall become added to the line of
credit amount due under the Loan Agreement.
6. "STIPEND" TO TRUST
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Prior to the payment of all operating expenses of the Hospital,
including all monies required to be reimbursed to manager under this Agreement,
all payments due Manager under the Loan Agreement and the payment of all
expenses set forth in Section 7 of this Agreement, the Trust shall be entitled
to retain $300,000 per year from Hospital operations for its sole and exclusive
use (the "Stipend"). The Stipend shall be retained by the Trust from the first
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revenues of the Hospital each calendar year, and to the extend that revenues are
insufficient to pay other expenses and obligations of the Hospital, any
shortfalls shall be funded by the Manager pursuant to the terms of Section 8
hereof.
7. DISTRIBUTION OF CASH AND MANAGERS FEE
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Manager shall, on behalf of the Trust, apply (no less than monthly,
but subject to Section 8) all cash collections to the following expenses in
strict order of priority:
(a) Payment of employee compensation and benefits paid to employees
provided by Manager to operate and staff the Hospital pursuant to Section
4.
(b) Payment of all other Hospital operating expenses including those
provided by Manager pursuant to Section 3(j) but not included in the
Manager's Fee but not including capital lease payments relating
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to capital leases entered into since the Interim Commencement Date.
(c) Payment of amounts then due (or in arrears) Manager under the term
loan portion of the Loan Agreement.
(d) [Intentionally Left Blank]
(e) Payment of amounts then due (or in arrears) Manager under the line
of credit portion of the Loan Agreement and any capital lease payments
relating to capital leases entered into since the Interim Commencement
Date.
(f) Manager's Fee shall constitute the surplus cash after payment of
all other Hospital expenses or obligations and payment of all items
described in (a) through (e) above (the "Manager's Fee"). All compensation
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to Manager for the provision of computer equipment and services to the
Hospital shall be included in the Manager's Fee and subordinated in
accordance with Section 8.
8. SUBORDINATION OF FEES AND PAYMENTS, MANAGER TO FUND CASH
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SHORTFALLS.
Manager and Trust both acknowledge the priority of payments and
obligations set out in Section 7. The rights to receive such payments are
cumulative; however, each party subordinates its rights to receive payments
under Section 7 until each class of expenses above it shall have been fully
funded.
As part of its financial obligations under this Agreement Manager
shall also fully fund (i) the Stipend due the Trust should during each calendar
year there be a shortage of cash from the Hospital operations and (ii) the
obligations and expenses set out
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in Section 7(a) and (b) should there be any shortage of cash therefore and, such
fundings shall not increase the amounts due Manager under the Loan Agreement. To
the extent Manager funds any shortage of cash, such amount shall be repaid to
Manager prior to any distributions described in Sections 7(c)-(f).
Neither Trust nor Manager waives its right to collect its payments due
but subordinated hereunder. The Hospital records shall reflect an accrual of
the amount owed thereunder which shall be paid in full prior to the next
obligation or payment being made.
9. DUTY TO COOPERATE.
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The parties acknowledge that the parties' mutual cooperation is
critical to the ability of Manager to perform its duties hereunder successfully
and efficiently. Accordingly, each party agrees to cooperate with the other
fully in formulating and implementing goals and objectives which are in the
Hospital's best interest.
10. OWNERSHIP OF INFORMATION; CONFIDENTIALITY.
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(a) Manager Systems - Ownership. Manager retains all ownership and
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other rights in all systems, manuals, computer software, materials, and other
information, in whatever form, provided by or developed by Manager in the
performance of its obligations hereunder (hereinafter collectively referred to
as "Systems"); and nothing contained in this Agreement shall be construed as a
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license or transfer of such Systems or any portion thereof, either during the
Term of this Agreement or thereafter. Upon the termination or expiration of this
Agreement, Manager shall have the right to retain all such Systems, and the
Trust shall upon request deliver to Manager all such Systems in its possession;
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provided, however, that the Trust shall be allowed a reasonable time to deliver
such Systems to prevent a disruption in the operation of the Hospital.
Notwithstanding the foregoing, any Systems specifically tailored or designed for
the Hospital and any records or information stored in the system to the extent
related to the Hospital may be retained by the Trust upon the termination or
expiration of this Agreement.
(b) Manager Systems-Confidentiality. The Trust acknowledges that
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Manager has invested a significant amount of its resources in developing and
maintaining the Systems and that the value to Manager of these Systems may be
diminished or destroyed if the Trust discloses information concerning the
Systems or any portion thereof to a third party. Accordingly, the Trust shall
maintain the confidentiality of the Systems. The Trust shall not duplicate or
permit the duplication of any portion of the Systems and shall not permit access
to the systems by the Trust's personnel or any third party other than on a
strict "need-to-know" basis and in the ordinary course of business. The Trust
shall take at least those steps that it would take to protect its own
confidential information. The Trust shall not loan, lease, or otherwise permit
the use of any of the Systems by any other person or entity, regardless of its
relationship to the Hospital. The Trust shall notify Manager of any suspected
or actual breach of these confidentiality requirements. The provisions of this
section shall survive any termination or expiration of this Agreement.
11. MANAGERS RIGHT TO ATTEND TRUST MEETINGS.
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The Hospital Administrator and the Manager's Vice President of
Operations shall be given adequate notice of and allowed to make reasonable
presentations at all Trustee Board
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meetings where Hospital business is discussed or where any contractual
relationship between the Trust and Manager is discussed.
12. LICENSING; ACCREDITATION.
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The Manager shall take all steps reasonably necessary to keep the
Hospital fully licensed and, if eligible, duly accredited by the JCAHO, and
Trust shall cooperate in said endeavors. The Trust shall do nothing willful to
jeopardize Medicare, Medicaid, or other third-party reimbursement arrangements.
Both the Trust and Manager shall abide by all relevant laws, ordinances, rules,
and regulations of state, local or federal governments. This Section does not
constitute Manager's guarantee that the Hospital shall be continually accredited
by JCAHO or its successor organization.
13. INSURANCE.
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The Trust and Manager shall use their reasonable efforts to cause the
Hospital to obtain and maintain at the Hospital's sole cost and expense and
shall maintain throughout the Term of this Agreement the insurance coverage
attached hereto as Schedule 13 which coverage shall be deemed an expense of the
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Hospital. In the event that a change in coverage or policies results in a
period of time in which the Hospital would not be covered by insurance
substantially similar to that on Schedule 13, the Manager shall obtain on behalf
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of (and at the expense of, in priority of payment in accordance with Section
7(b)) the Hospital "tail coverage" or "retro coverage" adequate to insure such
uncovered period.
Property damage insurance shall insure against loss or direct physical
damage to Hospital buildings, furnishings, equipment, machinery, and boiler
under standard all-risk coverage
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(including but not limited to fire, smoke, lightning, windstorm, explosion,
aircraft or vehicle damage, riot, civil commotion, vandalism, and malicious
mischief) and shall also include damage due to flood and earthquake unless
waived by Manager. Manager, its parent company, and their agents, servants,
employees, officers, and directors shall be named as additional insureds, with
respect to this Agreement, under the comprehensive general and hospital
professional liability policies, their rights to invoke the protection of such
policies shall be severable from and independent of the Trust's rights, and
these policies shall not be terminable or non-renewable except upon thirty (30)
days prior written notice to Manager. No later than thirty (30) days following
the execution of this Agreement and thirty (30) days following the end of each
policy year, the Hospital shall give to Manager a copy of the endorsements
naming Manager and its parent company as additional insureds.
14. ACCESS TO BOOKS AND RECORDS.
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Upon the written request of the Secretary of Health and Human Services
or the Comptroller General or any of their duly authorized representatives,
Manager and any of its Affiliates providing services with a value or cost of
$10,000 or more over a twelve-month period shall make available to the Secretary
the contract, books, documents, and records that are necessary to verify the
nature and extent of the cost of providing such services. Such inspection shall
be available up to four years after the rendering of such services. The parties
agree that any applicable attorney-client, accountant-client, or other legal
privilege shall not be deemed waived by virtue of this Agreement.
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15. BREACH.
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In the event of a breach of any obligation or covenant under this
Agreement by either party, the non-breaching party may give the breaching party
written notice of the specifics of the breach, and the breaching party shall
have 90 days in which to cure the breach (the "Cure Period"); provided, however,
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that in the event such breach impairs the ability of the Hospital to maintain
any license, permit, certificate or accreditation necessary to operate the
Hospital as it is then being operated, the Cure Period shall be shortened so
that the Hospital's maintenance of such license, permit, certificate or
accreditation shall not be impaired. The non-breaching party shall only be
entitled to pursue any remedies it may have by reason of the breach if the
breach is not cured within said Cure Period; provided, however, that the non-
breaching party shall be entitled to recover for any damages actually sustained.
Termination as a remedy for Breach by Manager shall only be available pursuant
to Section 18. A waiver of any breach of this Agreement shall not constitute a
waiver of any future breaches of this Agreement, whether of a similar or
dissimilar nature.
16. CASUALTY LOSS.
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In the event that the physical plant of the Hospital is destroyed or
is so damaged that it is reasonably anticipated that the Hospital will not
within 90 days be able to resume full operation, then Manager shall on behalf of
the Trust, apply all insurance proceeds, if any, received for such damage or
destruction plus may apply any additional capital from its own funds to repair
or reconstruct the Hospital on either the same or a replacement site. Manager
may apply the proceeds of any business interruption
33
insurance to all Hospital expenses and fees set out in Section 7 of this
Agreement.
17. TERMINATION OF AGREEMENT.
------------------------
This Agreement may be terminated prior to the expiration of the Term
only pursuant to this Section 18 and only as follows, and any such termination
shall not affect any rights or obligations arising prior to the effective date
of termination:
(a) Breach. In the event of a material breach of this Agreement by
------
the Trust which is not cured within the Cure Period set forth in Section 16,
"Breach," or in the event of a breach by the Trust as to which no Cure Period is
provided by this Agreement, Manager may terminate this Agreement upon no less
than 90 days' notice. This remedy shall be in addition to any other remedy
available at law or in equity. Failure to terminate this Agreement shall not
waive any breach of this Agreement.
(b) Insolvency. Either party may terminate this Agreement upon 90
----------
days' notice in the event (i) the other party becomes insolvent or fails to pay,
or admits in writing its inability to pay, its debts as they mature; (ii) a
trustee, receiver or other custodian is appointed for such other party for all
or a substantial part of such other party's property and is not discharged
within 30 days; (iii) any bankruptcy reorganization, debt, arrangement, or other
proceeding under any bankruptcy or insolvency law or any dissolution or
liquidation proceeding is instituted by or against such other party and if
instituted by or against such other party is consented to or acquiesced in by
such other party or remains for 60 days undismissed; or (iv) any warrant or
attachment is issued against any substantial portion of the property of such
other party which is not released within 30 days
34
of service.
(c) Licenses. The Trust may terminate this Agreement upon 90 days
--------
written notice in the event any material license or certification required by
the Hospital to operate is suspended, terminated, or revoked through the
malfeasance or nonfeasance of Manager; provided, however, that should Manager
formally dispute the said suspension, termination or revocation in the event
such license or certification is reinstated within the statutory, legislative or
regulatory periods of appeal (both administrative and judicial) the Cure Period
shall be extended and this Agreement shall not terminate.
(d) For Cause. The Trust may terminate this Agreement on 30 days'
---------
written notice provided that Manager does not cure within the notice period for
the following purposes:
(1) Manager has abandoned its duties under this Agreement.
(2) Manager has engaged in willful malfeasance that has caused a
substantial impact on the asset value of the Hospital.
(3) Manager has failed to fund a short fall in cash for the
operation of the Hospital as required in Section 8 of this Agreement for a
period of 2 consecutive fiscal quarters; provided, however, that the Trust
may terminate this Agreement pursuant to this Section 17(d) in the event
that (i) Manager has failed to fund a short fall in cash, (ii) a third
party has sought to collect from the Trust any obligation of the Hospital,
and (iii) Manager has failed to provide evidence
35
reasonably satisfactory to the Trust that Manager will indemnify the Trust
for any liabilities, costs or damages (including all expenses) incurred by
the Trust relating to such third party claim.
(4) Manager is convicted of a felony arising out of its
operations of the Hospital.
18. EFFECTS OF TERMINATION.
----------------------
In the event of the termination of this Agreement Manager shall be
entitled, subject to the priorities described in Section 7, to all management
fees theretofore earned and reimbursed for all expenses incurred that are
reimbursable pursuant to the terms hereof. Termination shall have no effect on
the parties' obligations to the other under the Loan Agreement and the security
thereon. The termination of this Agreement for any reason shall be without
prejudice to any payments or obligations which may have accrued or become due
hereunder prior to the date of termination or which may become due after such
termination. If either party commences legal action alleging any violation of
this Agreement, the non-prevailing party shall pay all costs and reasonable
attorneys' fees incurred by the prevailing party in connection with such action.
19. INDEMNIFICATION AND HOLD HARMLESS.
---------------------------------
(a) Indemnification By The Trust. The Trust agrees to indemnify and
----------------------------
hold harmless Manager, its Affiliates, and each of their shareholders,
directors, officers, employees, and agents ("Manager Indemnified Party") from
-------------------------
and against any and all losses, claims, damages, liabilities, costs, and
expenses (including
36
reasonable attorneys' fees and expenses related to the defense of any claims)
(collectively, "Losses"), joint or several, which may be asserted against any
------
of the Manager Indemnified Parties or for which they may now or hereafter become
subject arising in connection with the activity of the Trust prior to the
Interim Commencement Date including but not limited to: (i) any pending or
threatened, at the Interim Commencement Date, medical malpractice or other tort
claims asserted against Manager but only to the extent of professional liability
insurance; (ii) any action against Manager brought by any of the Personnel for
actions arising prior to the Interim Commencement Date; (iii) any violation
prior to the Interim Commencement Date of any requirement applicable to the
Trust under any federal, state, or local environmental, hazardous waste or
similar law or regulation; and (vi) any breach prior to the Interim Commencement
Date by the Trust of a contract between the Trust and a third party provided
that such claims have not been caused by the negligence or willful or wanton
misconduct of the Manager Indemnified Party seeking indemnification pursuant to
this Agreement.
(b) Indemnification By Manager. Manager agrees to indemnify and hold
--------------------------
harmless the Trust, its Affiliates, and each of their trustees, members,
officers, employees and agents ("Trust Indemnified Party") from and against all
-----------------------
Losses, joint or several, which may be asserted against a Trust Indemnified
Party, as a result of any personnel or other action brought against a Trust
Indemnified Party or any Key Personnel relating to any acts performed by Manager
or such Key Personnel, or the negligence of Manager, in fulfilling its
obligations and exercising its rights hereunder.
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20. LIMITATIONS ON THE TRUST'S INDEMNIFICATION.
------------------------------------------
Notwithstanding anything to the contrary contained in this Agreement,
the obligations of the Trust to provide indemnification and hold harmless shall
be subject to the limitations set forth below.
(a) No claim for indemnification or hold harmless from the Trust may
be asserted by a Manager Indemnified Party, and the Trust shall have no
obligation with respect to any claim for indemnification or hold harmless
asserted, after twelve (12) months from the Commencement Date. Anything in this
Agreement to the contrary notwithstanding, no claim for indemnification or hold
harmless may be brought against the Trust, and no litigation with respect
thereto commenced, unless written notice specifying in detail the nature of the
claim and the basis for indemnification shall have been given to the Trust
within a reasonable time after knowledge by a Manager Indemnified Party of the
matter giving rise to the claim, but in no event later than the expiration of
twelve (12) months following Commencement Date.
(b) The Trust shall have no liability for indemnification or hold
harmless to a Manager Indemnified Party with respect to any Losses unless and
until the aggregate amount of all Losses subject to indemnification hereunder
and those Losses (as such term is defined therein) under the Three-Year
Management Agreement exceeds $250,000 and then only to the extent such Losses
exceed $250,000. The maximum obligation of the Trust hereunder shall be
$500,000 and any Losses subject to indemnification by the Trust under the Three-
Year Management Agreement shall be applied against the maximum obligation of the
Trust hereunder.
(c) The Trust agrees to assign to the Manager the Trust's right, if
any, to receive insurance proceeds with respect
38
to any indemnifiable claim.
(d) Losses shall include only Losses actually paid or incurred by
reason of any breach or nonperformance and shall not include (i) any amounts
recovered from any surety, insurance carrier or third party obligor, nor the
cost of maintaining any surety or insurance policies, and no right of
subrogation against the Trust shall accrue hereunder to or for the benefit of
any surety, insurance company or any third party; (ii) any incidental or
consequential damages which the Manager may suffer; or (iii) any cost or expense
previously counted in determining Losses. The Manager agrees to submit in a
timely manner to any applicable surety, insurance carrier or third party obligor
all claims for indemnifiable Losses for which such entity may have liability.
21. NOTICE AND DEFENSE OF CLAIMS.
----------------------------
The Trust and Manager agree to notify each other promptly of
commencement of or indication that any claim may be asserted against any
indemnified party or of any litigation or proceedings against it or any of its
officers, directors, or trustees, as appropriate, of which it may be advised
which could give rise to a claim by any indemnified party. The indemnitor shall
be entitled to participate in the defense of any such action at indemnitor's own
expense, but such defense shall be conducted by counsel of recognized standing
and satisfactory to the indemnified party. Unless the indemnitor timely assumes
the defense thereof, the indemnified party may through its own or independent
counsel defend such claim(s). Each indemnitor agrees that no settlement of any
claim involving the indemnified party will be made without the consent of such
indemnified party. The indemnitor will furnish to the indemnified party copies
of all pleadings in any action
39
hereunder, permit the indemnified party to be an observer therein, and apprise
the indemnified party of all developments therein, all at the indemnitor's
expense.
(a) Payment of Claims. Each indemnitor covenants that, immediately
-----------------
upon demand, it will pay its indemnified parties any and all sums of money which
any or all of such indemnified parties shall pay or become liable to pay by
reason of the claim(s), including any and all costs incurred in connection with
the investigation or defense of any claim (whether successful or unsuccessful)
including attorneys fees and costs incurred by reason of any litigation
(including any appeals or the cost of other action taken in connection with
judgments or orders rendered in any such litigation). In the event judgment is
rendered against any indemnified party in any such litigation or in the event a
settlement is made on the advice of such counsel, its indemnitor shall pay the
full amount of such judgment or settlement sum together with any interest,
attorneys fees and other costs due or payable by the indemnified party in
connection therewith to the party in whose favor the judgment is rendered within
thirty (30) days of the date of the final adjudication ("Final Adjudication")
------------------
or, as to an indemnified party with whom an "approved settlement" is made, on or
before the date for payment under the approved settlement. "Final Adjudication"
as used herein shall mean the decision of the trial court, but in the event of
appeal then it shall mean the decision of the Appellate Court after petition for
re-hearing has been denied or the time for filing such petition (or for the
filing of further appeal) has expired (provided that as to an appeal the
indemnitor hereby agrees at its sole cost and expense to post the requisite bond
to stay enforcement of the judgment).
(b) Non-Payment of Claims. In the event an indemnitor
---------------------
40
fails to pay, timely and fully, any amounts due relative to any claims, its
indemnified party may pay such claim to a third party. In such event, such
indemnified party may recover from its indemnitor in addition to the amount so
paid, interest on the amount claimed at 18% per annum or such maximum amount of
interest as is permitted by law and also recover the costs of such indemnified
party's reasonable attorneys fees in connection with the enforcement of this
Agreement.
22. NOTICES.
-------
All notices permitted or required by this Agreement shall be deemed
given when in writing and delivered personally or deposited in the United States
mail, postage prepaid, return receipt requested, addressed to the other party at
the address set forth below or such other address as the party may designate in
writing.
To Manager: Anniston HMA, Inc.
c/o Health Management Associates, Inc.
Suite 500, 5811 Pelican Bay Blvd.
Naples, FL 33963
Attn.: President
FAX: 813-597-5794
To the Trust: Stringfellow Memorial Hospital
301 East 18th Street
Anniston, AL 36201
Attn.: Chairman of the Board
of Trustees
with a required copy to:
Jones, Day, Reavis & Pogue
3500 One Peachtree Center
303 Peachtree Street, N.E.
Atlanta, GA 30308
Attn.: Barry J. Stein, Esq.
41
23. AFFILIATES.
----------
As used in this Agreement the term "Affiliate" means (a) in the case
of Manager any corporation owning 50% or more of the voting stock of Manager,
any subsidiary corporation of which Manager owns 50% or more of the voting
stock, and any subsidiary of a parent corporation (owning 50% or more of the
voting stock of Manager) of which the parent corporation owns 50% or more of the
voting stock and (b) in the case of the Trust any entity controlling or
controlled by the Trust.
24. ASSIGNMENT.
----------
Either party may assign this Agreement to an Affiliate provided
however that the assigning party shall remain fully liable to the other for the
faithful performance of its obligations hereunder. Manager may assign this
Agreement to any entity that has assumed control of Manager or any parent of
Manager, provided that entity agrees in writing to assume all the duties and
obligations of Manager under this Agreement and that the Manager shall remain
fully liable to the Trust for the faithful performance of its obligations
hereunder. Further, in the event that any future merger or acquisition shall
cause Manager to be in violation or potential violation of either federal or
state antitrust laws, statutes or regulations, Manager may assign this Agreement
to any entity other than an Affiliate; provided, however, that such disposition
must be pursuant to an order, decree or similar requirement of an applicable
federal or state court, agency or other governmental entity. Otherwise neither
party may assign this Agreement without the prior written consent of the other.
42
25. MISCELLANEOUS.
-------------
(a) Headings. Section headings are for convenience of reference only
--------
and shall not be used to construe the meaning of any provision of this
Agreement.
(b) Counterparts. This agreement may be executed in any number of
------------
counterparts, each of which shall be an original, and all of which shall
together constitute one agreement.
(c) Severance. Should any part of this agreement be invalid or
---------
unenforceable such invalidity or unenforceability shall not affect the validity
or enforceability of the remaining portions.
(d) Law. This Agreement shall be construed in accordance with the
---
laws of the State of Florida.
(e) Amendment. This Agreement may not be modified except in writing
---------
executed by the party to be charged.
(f) Entire Agreement. This Agreement, the Loan Agreement and the Real
----------------
Estate Purchase Agreement between the parties hereto of even date herewith
constitute the entire agreement of the parties hereto and supersede all prior
agreements and representations with respect to the subject matter hereof.
43
IN WITNESS WHEREOF, each party hereto has executed or caused this
Agreement to be executed on its behalf, all on the day and year first above
written.
Trust Created Under the Last
Will and Testament of
Susie P. Stringfellow
By: /s/ Juliette P. Doster
--------------------------
Title: Chairman
--------------------
ANNISTON HMA, INC.
By: /s/ Robb L. Smith
--------------------------
Title: Senior Vice President
----------------------
The undersigned, as the ultimate parent of Anniston HMA, Inc. ("Anniston"), does
hereby, as a primary obligor, absolutely, unconditionally and irrevocably
guarantee the prompt payment and performance of all of the obligations of
Anniston under and pursuant to the foregoing Agreement without any requirement
of notice or demand, or failure to perform by, Anniston; and this guaranty by
the undersigned shall be an obligation for full and prompt payment and
performance rather than a secondary guaranty of collectabiilty. No change,
amendment or modification of the foregoing Agreement or waiver of any of its
terms shall diminish, release or discharge the liability of the undersigned
under the foregoing Agreement. The liability of the undersigned under this
guaranty is continuing and shall only be discharged by the full performance of
Anniston of all of its obligations under the foregoing Agreement.
HEALTH MANAGEMENT ASSOCIATES, INC.
By: /s/ Joseph V. Vumbacco
--------------------------
Executive Vice President
44