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SERVICE AGREEMENT
BY AND AMONG
RESPONSE ONCOLOGY, INC.
ROSENBERG & KALMAN, M.D., P.A.
R&K, M.D., P.A.,
AND
STOCKHOLDERS OF R&K, M.D., P.A.
DATED AS OF
SEPTEMBER 1, 1996
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION PURSUANT TO CLAIM FOR CONFIDENTIAL TREATMENT
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SERVICE AGREEMENT
THIS SERVICE AGREEMENT dated as of September 1, 1996 by and among
RESPONSE ONCOLOGY, INC., a Tennessee corporation ("Response"), ROSENBERG &
KALMAN, M.D., P.A., a Florida professional association (the "Corporation"),
R&K, M.D., P.A., a Florida professional association (the "Provider") and THE
STOCKHOLDERS OF R&K, M.D., P.A. (the "Stockholders").
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 September 1, 1996, Response Oncology, Inc. and the
Stockholders will execute a definitive agreement (the "Purchase Agreement")
pursuant to which Response will contract to acquire from the Stockholders all
of their rights, title and interests in and to all of the outstanding common
stock of the Corporation;
WHEREAS, the Stockholders have formed the Provider for the purpose of
continuing their medical practice following consummation of the transaction
contemplated by the Purchase Agreement;
WHEREAS, the Provider and the Stockholders desire to retain Response
to perform the practice management functions described herein in order to
permit the Provider and the 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 September 1, 1996, the
Provider, the Stockholders, the Corporation and Response agree to the terms and
conditions provided in this Agreement.
ARTICLE 1.
RELATIONSHIP OF THE PARTIES
1.1. Independent Relationship. The Provider 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 the Provider agree that the Provider 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 the Provider with offices and facilities,
equipment, supplies, support personnel, management, practice development and
financial advisory services. As more specifically set forth herein, the
Provider 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. Section 1395nn, including any amendments or successors
thereto, shall be provided by Response under this Agreement.
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1.3. Provider's Matters. Matters involving the internal agreements and
finances of the Provider, including the distribution of professional fee income
among individual Physician Stockholders (as hereinafter defined), tax planning,
and pension and investment planning (and expenses relating solely to these
internal business matters), and hiring, firing and licensing of Non-Physician
Employees (hereinafter defined) shall remain the sole responsibility of the
Provider and the individual Physician Stockholders.
1.4. Patient Referrals. The parties agree that the benefits to the
Provider 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 the Provider'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 the Provider, the Provider's employees, and the Provider'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 the
Provider and the Provider'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 the
Provider, 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 the Provider, including,
but not limited to, accounts receivable, proceeds of any letters of
credit naming the Provider 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 Base Service Fee (hereinafter defined)
and Practice Retainage (hereinafter defined).
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(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 .
(h) "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
the Provider for its medical performance under any managed care
arrangement.
(i) "Clinic Expenses" shall mean all amounts recorded
comprising the expenses incurred in the operation of any Clinic,
including, without limitation:
(A) Non-Physician Employee Compensation (hereinbelow
defined), regardless of by whom paid, salaries, benefits and
other direct costs 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 the Provider,
including, without limitation, Clinics and medical offices,
medical, laboratory and other equipment utilized by the
Provider;
(C) personal property and intangible taxes assessed
against properties and assets utilized by the Provider 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 ) 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 disposal.
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 benefiting from such
expenditure as Response shall reasonably determine with the approval
of the Oversight Committee. Clinic Expenses shall not include (i)
Physician Expense, (ii) any corporate overhead charges of Response
(which shall include any amortization of any intangible asset related
to this Service Agreement), (iii) the cost of any capital expenditures
excluding interest and other period charges under GAAP in respect of
such capital expenditures incurred by Response pursuant hereto, except
as otherwise provided herein, (iv) any federal or state income taxes,
and (v) any expenses which are expressly designated herein as expenses
or responsibilities of and are paid by the Provider; provided.
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(j) "Clinic Expense Portion" of the Service Fee shall have the
meaning set forth in Section 8.1 below.
(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 the Provider and any Third Party Payor, and any
professional courtesy or other reasonable and customary discount that
results in fee revenue not being collected.
(k) "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.
(l) "Governmental Receivables" shall mean an Account
Receivable of the Provider which (i) arises in the ordinary course of
business of the Provider, (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 the
Provider 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.
(m) "Non-Physician Employee Compensation" shall mean all
amounts recorded as salaries, wages (including overtime), benefits,
payroll taxes and other compensation expense by the Provider in
respect of Non-Physician Employees (hereinafter defined), which shall
be a Clinic Expense regardless of who pays the same.
(n) "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.
(o) "Physician Expense" shall mean the sum of (i) salaries,
bonuses and other compensatory payments to Physicians (hereinafter
defined) employed by or otherwise performing services for the
Provider, including Physician Stockholders; (ii) perquisites and
benefits provided to such persons; (iii) travel and entertainment
expense, continuing education expense, professional liability expense
and other expenses and payments that primarily benefit such persons;
provided, however, that any such expense incurred at the direction of
Response shall not be a Physician Expense and shall instead be a
Clinic Expense; and (iv) payroll taxes in respect of any of the
foregoing.
(p) "Physician Services Revenue" shall mean all amounts
recorded as fees and revenue (net of Fee Adjustments and Bad Debt
Allowance) by or on behalf of the Provider as a result of professional
medical services furnished to patients by Physicians and Non-Physician
Employees, whether rendered in an inpatient or outpatient setting, and
excluding any items approved pursuant to Section 4.2(c) below.
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(q) "Practice Retainage" shall mean an amount equal to the
percentage of Practice Revenue set forth on Schedule A hereto.
(r) "Practice Revenue" shall mean the sum of all amounts
recorded by the Provider as Physician Services Revenue, Capitation
Revenue and other revenue (including chemotherapy and other drug
revenue) attributable to the conduct of the Provider's medical
practice, but shall specifically exclude profits from any investment
of the Provider in any partnership, joint venture, corporation,
professional association and any other revenue not derived from the
providing of services by employees of the Provider or Response and all
items listed as excluded revenue on Exhibit 4.2(c).
(s) "Service Fee" shall mean the sum of the Base Service Fee
and the Performance Fee (if any).
Other Definitions:
(t) 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), the Provider is not
an affiliate of Response.
(u) "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.
(v) "CHAMPUS" shall mean the Civilian Health and Medical
Program of the Uniformed Services.
(w) "Clinic" shall mean the practice facility currently
utilized by the Provider, and any facility, related business and all
medical group business operations which the Provider and Response may,
in the future, mutually agree to characterize as a Clinic.
(x) "Corporation" shall have the meaning set forth in the
initial paragraph hereof.
(y) "Employment Agreement" shall mean an employment agreement
between each Physician now or hereinafter employed by the Provider and
the Provider pursuant to which the Physician shall be employed by the
Provider to provide medical services on behalf of the Provider, which
Employment Agreement shall be substantially in the form set forth as
Exhibit 7.1 hereof.
(z) "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.
(aa) "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 1395nn and 42 U.S.C.
Section 1320a-7b.
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(ab) "Liquidated Damages Amount" shall mean an amount equal to
the Liquidated Damages Amount set forth on Schedule A hereto.
(ac) "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.
(ad) "Medicare" shall mean any medical program established
under Title VIII of the Social Security Act and administered by the
Health Care Financing Administration.
(ae) "Necessary Authorization" shall mean with respect to the
Provider 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 the Provider's business.
(af) "Oversight Committee" shall mean a three (3) 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.
(ag) "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.
(ah) "Physician" shall mean any medical doctor employed by the
Provider or with whom the Provider has entered into independent
contractor or other non-employee relationships.
(ai) "Non-Physician Employees" shall mean all persons other
than Physicians who deliver billable medical or health care services
under the direction of the Provider and its Physicians or are
otherwise under contract with the Provider 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.
(aj) "Physician Extender Personnel" shall mean employees of
Response who deliver services to the Provider, including without
limitation nurse anesthetists, physician assistants, registered and
licensed practical nurses, nurse practitioners, psychologists, and
other such persons except Physicians and Non-Physician Employees.
(ak) "Physician Stockholders" shall mean those Physicians who
are from time to time hereafter stockholders of the Provider.
(al) "Practice Assets" shall have the meaning ascribed to that
term in Section 11.5 of this Agreement.
(am) "Provider" shall have the meaning set forth in the
initial paragraph hereof.
(an) "Provider Event of Default" shall have the meaning
ascribed to such term in Section 11.4 hereof.
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(ao) "Purchase Agreement" shall mean that certain Stock
Purchase Agreement dated as of September 1, 1996 by and among Response
Oncology, Inc. and the Stockholders.
(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 a Provider 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 from employment with the Provider at or after
age 55.
(aq) "Response" shall mean Response Oncology, Inc., a
Tennessee corporation, and its wholly owned subsidiaries, including
the Corporation.
(ar) "Response Event of Default" shall have the meaning
ascribed to such term in Section 11.3 of this Agreement.
(as) "Stockholder" shall mean each Stockholder of the Provider
as of the date hereof.
(at) "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.
(au) "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 and/or the Corporation shall provide and
make available to the Provider 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 as
hereinafter provided 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. Response shall comply
with all terms and provisions of any lease or other agreement with respect to
such facility and shall maintain such facility and equipment used by the
Provider in updated, fully operational condition, ordinary wear and tear
excepted. Response shall consult with the Provider regarding the condition, use
and needs for the offices, facilities and improvements, and any purchase, lease
or improvement of any offices, facilities or equipment, or change in any of the
foregoing, shall be as directed and/or approved by a majority of the Oversight
Committee. Response shall follow all reasonable directions of the Oversight
Committee in respect of improvements to the offices, facilities and equipment
to be used by the Provider. The Provider shall not amend, modify or terminate
any sub-lease agreements without the prior written consent of Response.
3.2 Use of Facilities. The Provider shall not use or occupy any
facility or equipment 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
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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 three (3) members.
Response shall designate, and shall have the right to remove and replace, in
its sole discretion, one (1) member of the Oversight Committee. The Provider
shall designate, and shall have the right to remove and replace, in its sole
discretion, two (2) 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 and does not propose a commensurate reduction in other budget
items reasonably acceptable to Response, then such modification shall
be approved by a unanimous vote 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
unanimous vote 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 the Provider and Response, to
the extent allowed by Applicable Law, the Oversight Committee shall
review and advise the Provider as to an appropriate fee schedule for
all physician and ancillary services rendered by the Provider, which
fee schedule shall ultimately be determined by the Provider in its
sole discretion. In addition, the Oversight Committee shall approve
the credit collection policies of any Clinic.
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(f) 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 the Provider.
(g) Strategic Planning. The Oversight Committee shall develop
long-term strategic planning objectives.
(h) Capital Expenditures. The Oversight Committee shall
determine the priority of major capital expenditures benefiting the
Clinics.
(i) 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 Agreement.
(j) Executive Director. The selection and retention of any
Executive Director pursuant to Section 5.6 and the salary and cash
fringe benefits of each Executive Director shall be pursuant to the
direction and control of the Oversight Committee. If the Provider is
dissatisfied with the services provided by any Executive Director, the
Provider shall refer the matter to the Oversight Committee. The
Oversight Committee shall, 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.
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 in accordance with this Agreement 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. The Provider 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 the Provider'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 outpatient
treatment centers, renovations to Clinic facilities, the addition of satellite
locations and new and replacement equipment pursuant to Section 3.1, and new
services, including, without limitation, radiation therapy, radiology and stem
cell supported high dose chemotherapy. Upon the direction of the Oversight
Committee, Response agrees to provide funds to allow the Clinic to provide such
new services and to utilize such new technologies. Such budgets shall be
presented to the Oversight Committee at least sixty (60) days prior to the end
of the preceding calendar year. The Oversight Committee shall us its best
efforts to agree upon a budget at least thirty (30) days prior to the end of
such preceding
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Calendar year as provided in Section 4.2(b), and, once approved in such manner,
shall be binding upon Response and the Provider unless modified or revised in
like manner by the Oversight Committee.
5.3. Financial Statements. Response shall prepare annual financial
statements on an accrual basis reflecting the results of operations of the
Provider. If the Provider desires an audit of any financial statement, the
Provider 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 the
Provider 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 tax reporting.
5.4. Inventory and Supplies. Response shall order and purchase
reasonable and requested medical and office inventory, pharmaceuticals and
supplies required by the Provider in the day-to-day operations of its medical
practice.
5.5. Management Services and Administration.
(a) The Provider hereby appoints Response as its sole and
exclusive manager and administrator of all day-to-day business
functions connected with its group medical practice. The Provider
agrees that the purpose and intent of this Service Agreement is to
relieve the Provider, the Physicians and Non-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 the Provider, and only the Provider, 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 the Provider 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 the Provider in performing medical functions, all
Physician Extender Personnel performing patient care services obtained
and provided by Response shall be subject to the professional
direction and supervision of the Provider 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 the Provider. The Provider 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 the Provider or Non-Physician Employees.
(b) Response shall, on behalf of the Provider and under the
Provider's provider number, bill patients and Third Party Payors, and
shall collect the professional fees for medical services rendered by
the Provider in each Clinic, for services performed outside a Clinic
for the Provider'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. The Provider 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
the Provider's name and on its behalf; (ii) to collect Accounts
Receivable resulting from such billing in the Provider's name and on
its
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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
the Provider (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 the Provider or any Physician to collect any accounts and
monies owed to the Provider, Clinic or any Physician, to enforce the
rights of the Provider or any Physician 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 the Provider and shall be located
at Clinic facilities so that they are readily accessible for patient
care. The Physicians 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. Response shall indemnify and
hold the Provider harmless from and against any monetary loss suffered
by the Provider on account of Response's breach of the foregoing
confidentiality provisions.
(d) Response shall supply to the Provider 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 public relations
programs on behalf of the Provider, with appropriate emphasis on
public awareness of the availability of services at the Provider's
Clinics. Any public relations program shall be conducted in compliance
with applicable laws and regulations governing advertising by medical
professionals and applicable canons or principles of professional
ethics governing the Provider and its physicians.
(f) Response shall provide the data necessary for the Provider
to prepare its annual income tax returns and financial statements, and
shall provide payroll and related services for Physicians and
Non-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 the Provider or any Physician employed thereby.
(g) Response shall assist the Provider in recruiting
additional Physicians and Non-Physician Employees, carrying out such
administrative functions as may be appropriate such as advertising for
13
and identifying potential candidates, checking credentials, and
arranging interviews; provided, however, the Provider shall interview
and make the ultimate decision as to the suitability of any Physician
or Non-Physician Employee to become associated with a Clinic. All
Physicians recruited by Response and accepted by the Provider shall be
the sole employees of the Provider, 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 or Non-Physician
Employees, 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
the Provider.
(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 the Provider, 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 persons who are
required to be Non-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 the Provider. If the Provider is dissatisfied with the services
of any person, the Provider 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 the optimal
quality of medical care consistent with the efficient operation of the Clinic.
Employee assignments shall be made to assure consistent and continued rendering
of the optimal quality medical support services consistent with the efficient
operation of the Clinic 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 reasonable effort
14
consistent with sound business practices to honor the specific requests of the
Provider with regard to the assignment of its employees.
In addition to the foregoing, Response shall advance to the Provider
from time to time the amount of any operating deficiency with respect to any
physician who is an employee but not a Physician Stockholder of the Provider
("Associate Physician"). Operating deficiency with respect to any Associate
Physician is hereby defined as the excess of the amount payable to such
Associate Physician pursuant to any salary guarantee over an amount ("Associate
Physician Net Operating Income") equal to the Associate Physician's net
revenues less direct expenses (excluding any such salary guarantee), as
determined in accordance with GAAP. Any advance pursuant to this paragraph
shall be repaid from time to time out of the excess of Associate Physician Net
Operating Income over such salary guarantee. Such advances shall be repaid in
full within thirty (30) days after the Associate Physician becoming a Physician
Stockholder.
5.8. Events Excusing Performance. Response shall not be liable to the
Provider 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 the Provider in
fulfilling its obligations to its patients to maintain the optimal quality of
medical and professional services consistent with the efficient operation of
the Clinic.
5.11. Provider Bank Accounts. The Provider agrees to establish and
maintain two (2) separate bank accounts. One such account, which shall be
referred to as the Provider Receipts Account, will be under the sole direct
control of the Provider and will be utilized only as a depository for Practice
Revenue. Such account shall be subject to, and the Provider agrees to execute
and deliver to an appropriate commercial bank, a Lockbox Operating Procedural
Agreement, and, pursuant thereto, shall instruct such bank to transfer
automatically all amounts deposited in the Provider Receipts Account to the
Provider Operating Account. The second account shall be referred to as the
Provider Operating Account, and shall be maintained for the purpose of (a)
depositing amounts swept from the Provider Receipts Account and advances from
the Receivables Line (defined below) pursuant to Section 5.12 and (b) paying
(i) all expenses which are solely the obligation of the Provider, including,
without limitation, Physician Expense, up to the amount of Practice Retainage,
(ii) Clinic Expenses payable directly by the Provider (including, without
limitation, Non-physician Employee Compensation, (iii) the Clinic Expense
Portion of the Base Service Fee owed pursuant to Section 8.1 of this Agreement,
(iv) the Fixed Portion of the Base Service Fee owed pursuant to Section 8.1 of
this Agreement, and (v) other distributions to the Provider, and the
distributions shall be made in that order of payment. To the extent Practice
Revenue of the Provider is insufficient to pay all amounts set forth above,
then any shortage shall be applied in reverse order to the order provided
above, with the Practice Retainage being the last item to be reduced by such
shortage. Provider hereby designates, constitutes and appoints Response,
through its duly authorized officers and employees as approved by the Oversight
Committee, as a signatory on the Provider Operating Account, with full power
and authority to sign checks and cause drafts and other debits to be made on
the Provider Operating Account in the name of the Provider and to otherwise
manage the cash resources and flow of the Provider. After the payment of all
items described in clauses (b)(i) through (iv) above, the Provider may withdraw
amounts for distributions to Physician Members. Provided that the Provider
shall establish its banking relationship with the financial institution
providing Response with cash
15
management services, Response shall cause a weekly report of cash receipts and
disbursements to be delivered to the Provider no later than Wednesday of each
week.
5.12. Credit Line. Response shall from time to time during the term of
this Agreement advance to Provider, in readily available United State funds, by
wire transfer, intrabank transfer or other electronic means, to be deposited
into the Provider 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 not bear interest except after termination of this
Agreement, in which event outstanding advanced amounts shall bear interest at
the maximum rate permitted to be lawfully charged. Amounts advanced by Response
pursuant to this Section 5.12 shall be payable by Provider upon termination of
this Agreement. Advances on the Receivables Line will be secured by a security
interest in and to Accounts Receivable granted pursuant to Section 15.7 below.
5.13. Ancillary Services. Response shall operate such ancillary
services as approved by the Oversight Committee.
ARTICLE 6.
OBLIGATIONS OF THE PROVIDER
6.1. Professional Services. The Provider 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 the Provider prior to effectiveness
of this Agreement. The Provider shall also make all reports and inquiries to
the National Practitioners Data Bank and/or any state medical licensing board
required by Applicable Law. The Provider shall use its best efforts to ensure
that each Non-Physician Employee and Technical Employee associated with the
Provider to provide medical care to patients of the Provider is licensed by the
State of Florida to the extent required. The Provider shall promptly notify
Response in writing, citing the underlying circumstances, in the event the
Provider or any Physician or Non-Physician Employee associated therewith (i)
shall be or become the subject of any investigation into or proceeding with
respect to allegations of professional misconduct or incompetence; (ii) shall
be or become the subject of any investigation by any Federal or state
regulatory agency with respect to any possible violation of any Federal or
state law regulating the providing of health care services; (iii) shall be
named party to any proceeding alleging violation of any law relating to such
person's professional activities or seeking to revoke or suspend such person's
professional license or privileges to practice in any hospital or medical
center; or (iv) shall become the subject of any proceeding to exclude such
person from any Federal or state reimbursement program or shall suffer the
revocation or suspension of such person's Medicare provider number, DEA permit,
professional license or privileges to practice in any hospital or medical
center. 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, the Provider shall immediately inform the
Executive Director and/or Response of such action and the underlying facts and
circumstances. The Provider shall develop a program to monitor the quality of
medical care practiced at each Clinic. In that regard, the Provider 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. The Provider 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 the Provider, and no other
physician or medical practitioner shall be permitted to use or occupy a Clinic
without the prior written consent of Response and the Provider.
16
6.3. Employment of Physicians and Non-Physician Employees. The
Provider shall have complete control of and responsibility for the hiring,
compensation, supervision, evaluation and termination of its Physicians and
Non-Physician Employees, although at the request of the Provider, Response
shall consult with the Provider respecting such matters. The Provider shall be
responsible for the payment of all Physician Expense and Non-Physician Employee
Compensation now or hereafter applicable to Physicians and Non-Physician
Employees; provided, however, that Response shall provide the payroll service
for computing, accounting for and disbursing or paying all salaries and
benefits of the Provider employees, all of whom may be paid out of the Provider
Operating Account. With respect to Physicians, the Provider shall only employ
and contract with licensed Physicians meeting applicable credentialling
guidelines established by the Provider.
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 Non-Physician Employees, notwithstanding their
employment by the Provider. The cost of such items shall be Clinic Expense.
Response shall not provide any benefit to such persons to the extent the
Provider 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), the Provider and Physicians shall be solely
responsible for payment of the cost of professional licenses and dues for
membership in professional associations and continuing professional education
costs. The Provider shall ensure that each of its Physicians and Non-Physician
Employees participates in such continuing medical education as is necessary for
such person to maintain current practical and academic knowledge of the field
of medicine and health care in which the Provider is engaged.
6.5. Professional Insurance Eligibility. The Provider shall be
primarily responsible, with assistance from Response, if requested, for
obtaining and retaining of professional liability insurance by assuring that
its Physicians and Non-Physician Employees are insurable, and participating in
an ongoing risk management program. Professional liability insurance with
respect to Physicians shall be paid for by the Provider or its Physicians and
shall not be Clinic Expense. Professional liability insurance with respect to
Non-Physician Employees shall be paid for by Response and shall be Clinic
Expense.
6.6. Events Excusing Performance. The Provider 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 the Provider has no control for so long as such
events continue, and for a reasonable period of time thereafter.
6.7. Fees for Professional Services. The Provider shall be solely
responsible for legal, accounting and other professional service fees incurred
by the Provider, except as set forth in Section 5.5(i) herein.
6.8. Peer Review; Clinical Trials. At Response's request, the Provider
agrees to participate in Response's clinical trials program or any data
collection and analysis program maintained by Response from time to time. The
Provider agrees to cooperate with Response in establishing a system of peer
review as necessary to obtain provider contracts. In connection therewith, the
Provider 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. The Provider
acknowledges that the establishment of provider guidelines may be necessary to
obtain PPO, HMO, IPA and other similar provider contracts, both private and
government
17
funded. To the extent that said provider guidelines must be filed or registered
with any Third Party Payor, the Provider 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 the Provider 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.
6.9 Provider Employee Benefit Plans.
(a) Effective as of the date of the closing under the Acquisition
Agreement, the Provider shall amend the tax-qualified retirement plan(s)
described on EXHIBIT 6.9(A) (the "Provider Plan") to provide that employees of
Response who are classified as "leased employees" (as defined in Code Section
414(n)) of the Provider shall be treated as the Provider's employees for
purposes described in Code Section 414(n)(3). Not less often than annually, the
Provider and Response shall agree upon and identify in writing those
individuals to be classified as leased employees of the Provider (the
"Designated Leased Employees"). The Provider and Response shall establish
mutually agreeable procedures with respect to the participation of Designated
Leased Employees in the Provider Plan. Such procedures shall be designed to
avoid the tax disqualification of the Provider Plan, similar plans of practices
similarly situated, (collectively, the "Plans").
(b) If the Oversight Committee determines that the relationship
between Response and the Provider (and other practices similarly situated)
constitutes an "affiliated service group" (as defined in Code Section 414(m)),
Response and the Provider shall take such actions as may be necessary to avoid
the tax disqualification of the Plans. Such actions may include the amendment,
freeze, termination or merger of the Provider Plan.
(c) The Plans described on EXHIBIT 6.9(A) attached hereto are approved
by Response. The Provider shall not enter into any new "employee benefit plan"
(as defined in Section 3(3) of the Employment Retirement Income Security Act of
1974, as amended ("ERISA") without the consent of Response (which will not be
unreasonably withheld). In addition, the Provider shall not offer any
retirement benefits or make any material retirement payments other than under
the Provider Plan to any Stockholder of the Provider without the express
written consent of Response (which will not be unreasonably withheld). Except
as otherwise required by law, the Provider shall not materially amend, freeze,
terminate or merge the Provider Plan without the express written consent of
Response (which will not be unreasonably withheld). In the event of either of
the foregoing, Response's consent shall not be withheld if such action would
not jeopardize the qualification of any of the Plans. The Provider agrees to
make such changes to the Provider Plan, including the amendment freeze,
termination or merger of the Provider Plan, as may be approved by the Oversight
Committee and Response but only if such changes are necessary to prevent the
disqualification of any of the Plans and do not have a material adverse impact
on Provider.
(d) Expenses incurred in connection with the Provider Plan or other
Provider employee benefit plans, including, without limitation, the
compensation of counsel, accountants, corporate trustees, and other agents
shall be included in Clinic Expenses.
(e) The contribution and administration expenses for the Designated
Leased Employees shall be included in the Provider's operating budget. The
Provider and Response shall not make employee benefit plan contributions or
payments to the Provider for their respective employees in excess of such
budgeted amounts unless required by law or the terms of the Provider Plan.
Response shall make contributions or payments with respect to the Provider Plan
or other Provider employee benefit plans, as a Clinic Expense, on behalf of
18
eligible Designated Leased Employees, and other eligible Provider employees. In
the event a Provider Plan or other Provider employee benefit plan is
terminated, Response shall be responsible, as a Clinic Expense, for any funding
liabilities related to eligible Designated Leased Employees; provided, however,
Response shall only be responsible for the funding of any liability accruing
after the date of the Acquisition Agreement.
(f) Response shall have the sole and exclusive authority to adopt,
amend or terminate any employee benefit plan for the benefit of its employees,
regardless of whether such employees are Designated Leased Employees, unless
such actions would require the amendment, freeze or termination of the Provider
Plan to avoid disqualification of the Provider Plan, in which case any such
action would be subject to the express prior written consent of the Oversight
Committee. Response shall have the sole and exclusive authority to appoint the
trustee, custodian and administrator of any such plan.
(g) In the event that any "employee welfare benefit plan" (as defined
in ERISA Section 3(l)) maintained or sponsored by the Provider must be amended,
terminated, modified or changed as a result of the Provider or Response being
deemed to be a part of an affiliated service group, the Oversight Committee
will replace such plan or plans with a plan or plans that provides those
benefits approved by the Oversight Committee. It shall be the goal of the
Oversight Committee in such event to provide substantially similar or
comparable benefits if the same can be provided at a substantially similar cost
to the replaced plan.
ARTICLE 7.
EMPLOYMENT AGREEMENTS, RESTRICTIVE COVENANTS AND REMEDIES
The parties recognize that the services to be provided by Response
shall be feasible only if the Provider operates an active medical practice to
which the Physicians associated with the Provider devote their full time and
attention. To that end:
7.1. Employment Agreements with Physicians. As a condition to
Response's continuing obligations hereunder, the Provider and each Physician
now or hereinafter employed thereby shall execute and deliver to each other an
Employment Agreement.
7.2. Restrictive Covenants by Provider and Physicians. As a material
inducement to Response to consummate the Purchase Agreement and execute,
deliver and perform this Service Agreement, the Provider shall not engage in
the practice of oncology or hematology, including providing or supervising the
provision of chemotherapy, radiation treatment or other cancer therapies,
within Broward County, Florida (the "Practice Territory") during the term of
this Agreement and for a period of five (5) years after any termination of this
Agreement. Each Physician Stockholder shall not engage in the above-described
activities during the term of his employment by the Provider and for a period
of five (5) years after cessation of a Physician's employment with the
Provider. Notwithstanding the foregoing, (A) 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, (iii) assuming
directorships of hospices, or (iv) performing such services that render revenue
excluded from Practice Revenue as listed on Schedule 4.2(c) following
termination of any such employment relationship with the Provider; and (B) such
restrictive covenant shall not apply to any Stockholder if this Agreement shall
be terminated by the Provider pursuant to Section 11.5 below upon a Response
Event of Default.
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 the Provider, purchase
or otherwise acquire any oncology or hematology practice within Broward County,
Florida or establish, operate or enter into a service agreement with, or
provide services similar to those provided under
19
this Agreement to, any medical group or physician engaged in the practice of
oncology or hematology within the Practice Territory. In that regard, the
Provider and the Stockholders hereby consent to Response acquiring the
practices of and entering into management services agreements with Drs. Rymer,
Faig and Zaravinos in Fort Lauderdale, Florida, Drs. Weisberg, Weiss and
Weinreb in Tamarac, Florida, and The Center for Hematology-Oncology, P.A., Boca
Raton, Florida (which operates a clinic in North Broward County, Florida).
7.4. Enforcement. Response, the Provider and the Stockholders
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 provision of this Agreement.
ARTICLE 8.
FINANCIAL ARRANGEMENTS
8.1. Service Fees. Subject to the terms of Section 5.11, 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. The Service Fees shall be determined
on an annual basis, based on annual financial statements prepared pursuant to
Section 5.3 above. The Base Service Fee shall be payable by means of the
procedure set forth in Section 8.2 below. Notwithstanding the foregoing or any
other provision in this Service Agreement, in the event the sum of the Base
Service Fee, Non-physician Employee Compensation and Practice Retainage shall
exceed the aggregate Practice Revenue of the Provider, then (i) first, the
Fixed Portion of Base Service Fee shall be reduced by the amount of such
excess, and (ii) to the extent such excess is greater than the Fixed Portion,
such remaining excess will be reimbursed by Response to the Provider. Any
reimbursement pursuant to this Section 8.1 shall be made by Response no later
than the 15th day of March following the year in which such deficiency arose.
In the event that Response is required to fund any deficiency pursuant to this
Section 8.1, then in any future year in which an Annual Surplus exists, such
Annual Surplus will first be paid to Response to the extent of any cumulative
deficiency funded by Response.
8.2. Base Service Fee. The Clinic Expense Portion of the Base Service
Fee shall be payable by the Provider to Response out of the Provider Operating
Account as Clinic Expenses are incurred by Response, subject to ordinary,
reasonable and customary payment terms on invoices for goods and services, and
subject to Section 5.11 and the adjustments as set forth in Section 8.1 above.
The Fixed Portion of the Base Service Fee shall be payable by the Provider to
Response out of the Provider Operating Account on a monthly basis, based on
monthly financial statements prepared pursuant to Section 5.6 above, provided
that Response shall have made all advances pursuant to the Receivables Line
pursuant to Section 5.12 above, and, provided, further, that if at any time
there shall be insufficient funds in the Provider Operating Account to pay all
or any part of the Fixed Portion, then such unpaid Fixed Portion (if any) shall
be accrued. The Performance Fee will be computed as of the end of each calendar
year based on amounts recorded during the calendar year.
20
ARTICLE 9.
RECORDS
9.1. Patient Records. Upon termination of this Agreement, the Provider
shall retain all patient medical records maintained by the Provider or Response
in the name of the Provider. Response shall, at its option, and if allowed
under Applicable Law be entitled to have reasonable access during normal
business hours to the Provider's patient medical records applicable to the
period of Response's performance under this Agreement. Moreover, the Provider
shall, at its option, be entitled to retain copies of financial and accounting
records relating to all services performed by the Provider 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 the Provider 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, the Provider or its designee shall have reasonable access during
normal business hours in Tamarac, Florida to the Provider's and Response's
financial and accounting records, including, but not limited to, records of
collections, expenses and disbursements, as kept by Response in performing
Response's obligations under this Agreement, and the Provider 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 the Provider. Throughout the term
of this Agreement, the Provider 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 the Provider. The Provider 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 the Provider for any unearned professional liability
insurance premiums paid by the Provider to the extent not reimbursed or
reimbursable by the
21
Provider's insurance carrier if the Provider's existing professional liability
insurance program is canceled 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 provide and/or maintain comprehensive
professional liability insurance for all Non-Physician Employees and Physician
Extender Employees, 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. Moreover, Response shall, at its election, be entitled to acquire
a "tail policy" covering potential claims against the Corporation for which the
Corporation might be liable after consummation of the transaction contemplated
by the Purchase Agreement, the cost of which coverage shall be a Clinic
Expense.
10.3. Additional Insureds. The Provider 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. The Provider
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 ("Adverse
Consequences"), 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 the Provider, any Physician Stockholder or other person acting
under the supervision and control thereof, or, in the case of Response, by any
employee, agent, officer, director or shareholder thereof who is not acting
under the supervision and control of a Physician Stockholder of the Provider.
(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
reasonably 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 in accordance with this
Article 10, (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) 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 (D) 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
22
to the Third Party Claim without the prior written consent of the
Indemnitee (not to be unreasonably withheld).
(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 September 1, 1996 and shall expire on July 31, 2036, 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 the Provider 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 sixty (60) days thereafter.
(b) any material default by Response in the performance of any
of its duties or obligations under this Agreement or breach of its
representations and warranties as set forth in Article 14, and such
default or breach 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 the Provider.
23
(c) in the event Response shall, intentionally or in bad
faith, misapply funds or assets of the Provider or commit a similar
act which cause material harm to the Provider.
11.4. Provider Event of Default. The occurrence of any of the
following events shall constitute a default by the Provider (an "Provider Event
of Default") under this Agreement, giving Response the right to the remedies
set forth in Section 11.6 below:
(a) the filing by the Provider of a petition in voluntary
bankruptcy or an assignment by the Provider 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 the Provider, except for the filing of a petition in
involuntary bankruptcy against the Provider which is dismissed within
sixty (60) days thereafter; provided, further, that if the Physicians
comprising the Provider are lawfully able, within 60 days after the
occurrence of such event, to reorganize the practice or form a new
entity to continue the practice, and if such new entity and its
principal stockholders or owners, with the reasonable consent of
Response, assumes all of the obligations of the Provider under the
Service Agreement or enter into a new Service Agreement with Response
for the remaining term and containing substantially the same terms and
conditions as the original Service Agreement, then Response will not
terminate the original Service Agreement.
(b) any material default by the Provider in the performance of
any of its material duties or obligations under Sections 6.1, 6.8,
7.2, 8.1, 8.2 and 15.1 of this Agreement , and such default or breach
shall continue for a period of sixty (60) days after written notice
thereof has been given to the Provider by Response; provided, however,
that such curative period shall be extended for an additional 60 days
if the Provider shall be acting in good faith to cure such default
throughout the initial curative period.
(c) the final determination of termination or suspension of
the Provider's Medicare or Medicaid Provider Number, or the Medicare
or Medicaid Provider Numbers of a majority of the Physicians employed
thereby, and such termination or suspension shall continue for sixty
(60) days, or if any Physician employed by the Provider shall have his
license to practice medicine or DEA license revoked or suspended and
the affected Physician or the Provider, as the case may be, shall not,
within 90 days, either gain reinstatement of such license or otherwise
find a suitable replacement for such Physician (which replacement may
be the shifting of case load to an existing Physician employee of the
Provider); provided, however, that the foregoing curative period shall
be extended for an additional 60 days if the Provider shall be acting
in good faith to cure such default throughout the initial curative
period.
11.5. Remedies upon Response Event of Default. Upon the occurrence of
a Response Event of Default, the Provider shall have the right to terminate
this Agreement by written notice to Response without any further obligation to
Response for the Service Fee after the giving of such notice. In such event the
Provider shall have the option to purchase from Response, and upon proper
exercise of such option by the Provider in the manner hereinbelow provided,
Response shall sell to the Provider, all assets and properties, tangible and
intangible (which intangible assets shall not include any intangible asset
related to this Service Agreement), owned by Response and used by the Provider
in its medical practice ("Practice Assets") for a price, payable in cash, equal
to the book value of the Practice Assets. Moreover, to the extent permissable
under the terms of any lease to which Response is a party, upon the request of
the Provider, Response shall sublease to the Provider any leased real or
personal property utilized in the Provider's practice for a subrent equal to
the rental charged Response pursuant to the underlying lease. The Provider
shall exercise such
24
option by giving written notice to Response within sixty (60) days after the
occurrence of the Response Event of Default.
11.6. Remedies upon Provider Event of Default. Upon the occurrence of
a Provider Event of Default, Response shall have the right to terminate this
Agreement by written notice to the Provider, and the Provider shall have no
further obligation to Response for the Service Fee after the date such notice
is received. In such event, the Provider 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 the Provider in cash within sixty (60) days after occurrence of the Provider
Event of Default. Each Stockholder hereby severally, and not jointly,
guarantees the foregoing obligation of the Provider and agrees to pay to
Response, in cash, one-half (1/2) of the Liquidated Damages Amount not
otherwise paid by the Provider, provided that and to the extent he is a
Remaining Physician Stockholder for purposes of this Agreement. At the election
of a Stockholder, such Stockholder's obligation to pay Liquidated Damages
hereunder may be satisfied by delivery of shares of common stock of Response,
valued at the average closing price of such common stock on the Nasdaq Stock
Market for the ten (10) trading days immediately preceding the date of delivery
of such shares and by cancellation of any promissory note payable by Response
to such Stockholder, with only the difference between the Liquidated Damages
payable by such Stockholder and the sum of the value of common stock and
principal cancellation of any note being payable in cash by such Stockholder.
Moreover, in such event the Provider shall have the obligation to purchase from
Response, and Response shall sell to the Provider, (i) all Practice Assets for
a price equal to the book value of the Practice Assets as of the date of the
Provider Event of Default, and (ii) any intangible asset then carried on
Response's books for a price equal to its then book value. Moreover, to the
extent permissable under the terms of any lease to which Response is a party,
upon the request of the Provider, Response shall sublease to the Provider any
leased real or personal property utilized in the Provider's practice for a
subrent equal to the rental charged Response pursuant to the underlying lease.
The Provider shall exercise such option by giving written notice to Response
within sixty (60) days after the occurrence of the Response Event of Default.
11.7. Closing of Repurchase by the Provider and Effective Date of
Termination. The Provider shall pay cash for Practice Assets and intangible
assets repurchased hereunder. The amount of the purchase price shall be reduced
by the amount of debt and liabilities of Response assumed by the Provider, by
the amount of Liquidated Damages received by Response from the Provider or any
Physician Stockholder pursuant to Section 11.6 above, and 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
the Provider in connection with the repurchase described herein. The closing
date for the repurchase shall be determined by the Provider, but shall in no
event occur later than 90 days from the date of the notice of termination. In
the event of such repurchase, 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 the Provider such assignments to leases and other contracts and such bills
of sale and other transfer or closing documents necessary to effect such
transaction. The Provider shall execute and deliver to Response such officers'
certificates, assumption agreements and other closing documents necessary to
close such transaction. Between the date of termination and the closing of the
repurchase the Provider shall be entitled to use all Practice Assets, and
Response hereby grants the Provider a license to use the Practice Assets in
such event. In consideration of the foregoing license, the Provider will pay to
Response an amount equal to any rental payments by Response to any third party
vendor in respect of all Practice Assets.
ARTICLE 12
DAMAGE AND LOSS; CONDEMNATION
25
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 the Provider, 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 THE PROVIDER
The Provider represents, warrants, covenants and agrees with Response
that:
13.1. Validity. The Provider is a professional association duly
organized, validly existing and in good standing under the laws of the State of
Florida. The Provider 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. Permits. The Provider and all physicians and other health care
professionals associated with or employed by the Provider 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 the Provider's business; and
are not in violation of any of said permitting or licensing requirements.
13.3. 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 the
Provider, enforceable in accordance with its terms. The Provider 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 the Provider 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 of the Corporation to be acquired
pursuant to the Purchase Agreement, the Provider'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 the Provider is a party, or by which
either the Provider 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 the Provider or any of the assets
to be conveyed hereunder.
26
13.4. Provider Compliance. The Provider has all licenses necessary to
operate each Clinic in accordance with the requirements of all Applicable Laws
and has all Necessary Authorizations for the use and operation of all assets
comprising each Clinic, all of which are in full force and effect. There are no
outstanding notices of deficiencies relating to the Provider 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, the Provider 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.
ARTICLE 14
REPRESENTATIONS AND WARRANTIES OF RESPONSE
Response represents, warrants, covenants and agrees with the Provider
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. 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
Response enforceable in accordance with its terms. 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. 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.
ARTICLE 15
COVENANTS OF THE PROVIDER
15.1. Merger, Consolidation and Other Arrangements. The Provider 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 the Provider'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
27
ordinary course of business) of any other person or entity without first
obtaining the prior written consent of Response; provided, however, that no
such consent shall be required in respect of any incorporation, merger,
consolidation, partnership, joint venture or acquisition transaction that (i)
results in the continued, unimpaired operation of the Clinics; and (ii) results
in the Physician Stockholders maintaining at least a fifty percent (50%) voting
and equity interest in the Clinics. The Provider acknowledges and agrees that
such consent may be withheld if Response and the Provider cannot mutually agree
upon the terms and conditions of a new Service Agreement with the Provider.
15.2. Necessary Authorizations/Assignment of Licenses and Permits. The
Provider 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 the Provider assign, transfer, or remove
or permit any other individual or entity to assign, transfer or remove any
records of the Provider, 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. The Provider 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 the Provider as would be
obtainable by the Provider at the time in a comparable arms-length transaction
with a person not an Affiliate of Response.
15.4. Compliance with All Laws. The Provider shall comply with all
laws and regulations relating to the Provider's practice and the operation of
any cancer 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, the Provider shall not violate any Applicable Laws.
15.5. Third Party Payor Programs. The Provider shall maintain the
Provider's compliance with the requirements of all Third Party Payor Programs
in which the Provider is currently participating or authorized to participate.
15.6. Change in Business or Credit and Collection Policy. The Provider
shall not make any change in the character of the Provider'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. The Provider shall, effective as of the date
hereof, be deemed to have granted (and the Provider does hereby grant) to
Response a first priority security interest in and to any and all of the
Accounts Receivable (except Governmental Receivables) and the proceeds thereof
(including the proceeds, after deposit into the Provider Operating Account,
from the collection of Governmental Receivables) to secure the repayment of all
amounts advanced to the Provider under the Receivables Line and all accrued
interest thereon, and this Agreement shall be deemed to be a security
agreement. Upon a default by the Provider in the payment of amounts due under
the Receivables Line, Response may at its option exercise from time to time any
and all rights and remedies available to it under the UCC or otherwise. The
Provider represents and warrants that the location of the Provider's principal
place of business, and all locations where the Provider maintains records with
respect to its Accounts Receivables are set forth under its name in Section
16.5 hereof. The Provider agrees to notify Response in writing thirty (30) days
prior to any change in any such location. The exact name of the Provider is as
set forth at the beginning of this Agreement. The Provider is a new
professional association, and the medical practice conducted by the Provider
was formerly conducted under
28
the name "Rosenberg & Kalman, M.D., P.A.," a Florida professional association.
The Provider shall notify Response in writing thirty (30) days prior to any
change in any such name.
15.8. Representations and Warranties. The Provider agrees to notify
Response in the event that any representation or warranty contained in Article
13 of this Agreement becomes untrue in any material respect.
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 the Provider 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 Ft. Lauderdale, Broward County, Florida 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.
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: Joseph T. Clark, CEO
With copies to: John A. Good, Esq.
Executive Vice-President -- General Counsel
Response Oncology, Inc.
1775 Moriah Woods Blvd.
Memphis, Tennessee 38117
29
To Provider: Abraham Rosenberg, M.D.
Rosenberg & Kalman, M.D., P.A.
7421 N. University Drive
Tamarac, Florida 33321
With copies to: Steven B. Lapidus, Esq.
Greenberg Taurig
1221 Brickell Ave., 21st Floor
Miami, Florida 33131
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.
30
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, the Provider 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 the Provider 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; Nonrecourse Obligation. None of
the obligations and duties of Response or the Provider under this Agreement
shall in any way or in any manner be deemed to create any obligation of
Response or of the Provider to, or any rights, in, any person or entity not a
party to this Agreement. The Stockholders, their heirs, legatees, successors
and assigns shall have no individual obligation for the performance of the
provisions hereof (including any obligation of the Provider under Section 11.6)
except as expressly provided herein
16.17. Communications. The Provider 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 the Provider's practice
at a Clinic.
31
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
R&K, M.D., P.A.
By:
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Title:
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RESPONSE ONCOLOGY, INC.
By:
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Title:
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ROSENBERG & KALMAN, M.D., P.A.
By:
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Title:
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STOCKHOLDERS:
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Alfred M. Kalman, M.D.
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Abraham Rosenberg, M.D.
32
RESPONSE ONCOLOGY, INC.
SERVICE AGREEMENT
SCHEDULE A
BASE SERVICE FEE
The Base Service Fee shall be equal to the sum of (i) amounts recorded
as Clinic Expenses (the "Clinic Expense Portion") plus (ii) ***% of Practice
Revenue (the "Fixed Portion").
PERFORMANCE FEE
During the entire term of the Service Agreement, including any
extended term, a Performance Fee in an amount equal to 50% of any Annual
Surplus shall be paid to Response.
Performance Fees shall be computed on the basis of Annual Surplus
computed for each calendar year. For any period during the term of the Service
Agreement that does not encompass an entire calendar year, the Performance Fees
for such partial period shall be computed as follows:
a) For any partial period that commences with the execution and
delivery of the Service Agreement, Clinic Expenses, Practice
Retainage and the Fixed Portion of the Base Service Fee (the
latter two items being computed on Practice Revenue for such
period) from such commencement date until the end of the
calendar year of commencement shall be determined. The sum of
Clinic Expenses, Practice Retainage and the Fixed Portion of
the Base Service Fee will be subtracted from Practice Revenue,
with the difference then being divided by the number of days
in such period, and the quotient multiplied by 365. The
computation formula set forth above will be applied to the
annualized Annual Surplus to compute an annualized Performance
Fee, which shall then be divided by 365 and multiplied by the
number of days in the partial period to yield the Performance
Fee payable with respect to such short period.
b) For any partial period that commences on the first day of a
calendar year and ends prior to the last day thereof, Annual
Surplus for the full year will be computed based on the
definition thereof, which result shall then be divided by 365
and multiplied by the number of days during the partial period
to yield the Performance Fees payable with respect to such
short period.
LIQUIDATED DAMAGES AMOUNT
The amount of $***, decreased by ***% per year until August 31, 2001,
at which time such amount shall be $*** per Remaining Physician Stockholder for
the duration of this Agreement.
PRACTICE RETAINAGE
For purposes of this Agreement, the Practice Retainage shall equal
***% of Practice Revenue.
*** MATERIAL REDACTED PURSUANT TO CLAIM FOR CONFIDENTIAL TREATMENT.