Exhibit 10.42
Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment pursuant to Rule 406 under the Securities Act of 1933.
The omitted portions have been filed separately with the Securities and
Exchange Commission.
DRUG DISTRIBUTION BUSINESS
MANAGEMENT AND SERVICE AGREEMENT
This Management and Service Agreement (hereinafter referred to as the
"Agreement") is made and entered into this 1st day of July, 1994, by and between
SOUTHERN HEALTH SYSTEMS, INC., a Tennessee corporation (hereinafter referred to
as "SHS") and TEXAS HEALTH PHARMACEUTICAL RESOURCES, a Tennessee general
partnership (hereinafter referred to as "THPR");
W I T N E S S E T H:
WHEREAS, THPR has been formed to engage in the business of providing
distribution of certain drugs (the "Drug Distribution Business"); and
WHEREAS, THPR desires to obtain from SHS, and SHS is willing to provide to
THPR, certain services necessary or desirable in the conduct of THPR's Drug
Distribution Business, all upon the terms and subject to the conditions
hereinafter set forth;
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
1. Services to be Provided by SHS. During the term of this
Agreement, SHS agrees to provide or arrange for the provision of, the following
services to THPR:
A. Billing, Reimbursement, Collection and Financial Counseling
Services.
(i) Services. SHS shall provide such billing, reimbursement,
collection and financial counseling services as are required,
or reasonably requested, by THPR in conducting its Drug
Distribution Business, including the preparation, transmitting
and monitoring of all bills to patients of THPR's Drug
Distribution Business or third party payors, preparing
requests or otherwise assisting patients of THPR's Drug
Distribution Business in seeking reimbursement from all third
party payors for the services provided to such patients by
THPR, collecting amounts due THPR from patients or third
parties, and counseling patients regarding the options
available to them in paying for the Drugs and related services
provided to them by THPR. THPR shall establish all patient
charges for
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such Drugs and related services provided by THPR to the
patients.
(ii) Clearance of Patients. SHS agrees that it will not commit
to provide Drugs or related services to any patient until such
patient is approved by THPR. THPR shall promptly notify SHS as
to any potential patient and shall obtain such patient data as
shall be specified by SHS. SHS agrees to promptly investigate
a potential patient's insurance coverage and financial ability
to pay and to notify THPR as to the patient's financial
ability to pay for Drugs or related services from THPR. THPR
shall thereafter obtain all documentation necessary to file
claims with third party payors and forward same to SHS. SHS
shall have no liability for relying upon information provided
by third party payors concerning coverage in the event that
such information shall subsequently prove to be incorrect.
(iii) Collection and Disbursement. SHS shall monitor and
coordinate collection, for and on behalf of THPR, of all
monies due to THPR from patients and/or third party payors for
Drugs and related services. SHS shall deposit said funds into
a bank account designated by
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THPR. SHS shall not have authority to disburse funds from
said bank account. However, funds from said Account, in an
amount determined by THPR, shall be deposited in a separate
operating account, and SHS shall have authority to disburse
funds from this operating account as necessary to carry out
the management functions specified herein. Collections of all
accounts are performed by SHS on behalf of THPR and SHS shall
not be responsible for any failure to collect such accounts.
SHS hall use reasonable efforts to collect said accounts
(but not greater than those efforts used in the collection of
its own accounts), but SHS shall not be required to institute
suit for collection or incur any extraordinary expenses in
attempting to collect these receivables unless such action is
approved by the Steering Committee and the costs are paid by
THPR.
B. Accounting and Financial Reporting. SHS shall provide the following
accounting and financial reporting services required by THPR in the conduct of
its Drug Distribution Business: (i) monthly, quarterly and annual financial
statements consisting of income statements, balance sheets, a detailed General
Ledger and Status Report of Collections, (ii) all sales tax returns and reports,
(iii) schedules of accounts receivable,
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accounts payable and cash applications, (after applying cash received to
appropriate invoices, applying credits to patient accounts and applying
write-offs and adjustments approved by THPR) and (iv) reconciliation of the Drug
Distribution Business bank account statements of THPR. SHS shall not make
provision for any annual audit of THPR, and such audit if desired by THPR shall
be the responsibility of THPR and shall be conducted by such independent
accounting firm as THPR may select. SHS agrees to cooperate with the accounting
firm in the conduct of the audit of THPR or any other accounting procedure for
which the accounting firm may be engaged by THPR. THPR shall make available to
SHS such information and documentation as may be needed to enable SHS to prepare
the tax returns and financial reports specified herein.
C. Management Services and Marketing.
(i) Responsibilities. THPR hereby appoints SHS to manage and
supervise the operation of THPR's day-to-day operations of its
Drug Distribution Business and for this purpose, THPR
delegates to SHS the authority to make, subject to the terms
hereof, such management decisions as are necessary for the
day-to-day operations of THPR's Drug Distribution Business.
SHS accepts this engagement and agrees to faithfully
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perform the duties and responsibilities set out herein.
In carrying out its management responsibilities, and in
accordance with the provisions of this Agreement, SHS shall
be subject to the direction, input and general guidance of
the Steering Committee. The Steering Committee shall
communicate to SHS all decisions of that Committee which
affect the duties and responsibilities of SHS under this
Agreement.
(ii) Marketing. SHS shall also provide such procedure manuals,
and marketing materials as SHS may from time to time determine
to be helpful in the operation of THPR's Drug Distribution
Business and upon the direction of the Steering Committee, SHS
personnel shall perform sales calls and other related
marketing activities. Such marketing materials and procedure
manuals are deemed confidential by SHS and shall be available
for review by THPR at SHS's offices.
(iii) Personnel. SHS shall designate certain SHS personnel to
perform the management functions set out hereunder and such
SHS personnel shall supervise the operation of THPR's Drug
Distribution Business. Subject to the reimbursement provisions
set out in
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Section 2 hereinbelow, SHS shall solely be responsible for
all costs associated with such employment, including without
limitation, its employees' salaries, federal and state income
tax withholding, Social Security tax withholding, workmen's
compensation benefits and fringe benefits.
(iv) Steering Committee. The overall management and control of
the business and affairs of THPR's Drug Distribution Business
shall be vested in a Steering Committee as described in the
THPR Partnership Agreement.
2. Compensation. THPR shall pay a monthly fee to SHS for the reimbursement,
accounting, management and computer services specified herein as set out on
Exhibit A attached hereto and made a part hereof, plus an amount equal to *
percent (*%) of net patient revenues of THPR during that month. Net patient
revenue shall be determined in accordance with generally accepted accounting
principles. SHS will bill THPR for all charges for services and employment costs
on a monthly basis. All charges shall be due and payable by THPR * (*)
days from the end of the month in which the changes reflected on SHS's invoice
to THPR were earned by SHS.
* Omitted information is the subject of a request for confidential treatment
pursuant to Rule 406 under the Securities Act of 1933 and has been filed
separately with the Securities Exchange Commission.
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Notwithstanding any provision herein to the contrary, the * percent
of net patient revenues when added to similar fees (excluding reimbursement,
accounting, management and computer service fees as described on Exhibit A) paid
to SHS by all other partnerships between an SHS affiliate and Alternative Care
Systems, Inc. shall not exceed for fiscal year July 1, 1994 through June 30,
1995 the sum of $*. If the total should exceed this amount, SHS shall
determine which of the fees paid by these partnerships to SHS shall be reduced.
The management fees are based on the assumption that the homecare reimbursement
market remains relatively stable. If significant changes in the Texas Medicaid
levels of reimbursement or other unforeseen material changes occur, then the
parties to this Agreement will mutually review other options for compensation.
The management fees set out in this section will be effective from July 1, 1994
to June 30, 1995 unless one of the unforeseen events referenced hereinabove
should occur. Both parties will review the previous years fees and their
reasonableness on an annual basis and resolve outstanding issues and agree to
the fees and cap on fees for the following year. In the event that the parties
cannot agree, the management fees shall remain the same as for the prior fiscal
year ending June 30.
3. THPR Costs. It is agreed and understood that during the term of this
Agreement, THPR shall also be responsible for
* Omitted information is the subject of a request for confidential treatment
pursuant to Rule 406 under the Securities Act of 1933 and has been filed
separately with the Securities Exchange Commission.
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the costs incurred by SHS in providing the services which it is obligated to
provide under Sections 1A, 1B and 1C hereunder (including without limitation,
telephone, travel, office supplies and postage). In addition to the preceding
provision, THPR shall be responsible for the costs of salaries and fringe
benefits for THPR's employees, if any; outside auditor fees; acquisition of
Drugs; facility lease costs; capital expenditures; principal and interest on
loans; payroll taxes for its employees, if any; and the cost of preparing
Federal and state Income Tax returns, and all sales taxes on sales to patients.
THPR shall contract for all such expenses for and in the name of THPR, without
basing the same upon SHS's credit, and SHS shall not be liable to third party
providers for the costs of such goods and services. SHS shall file for and on
behalf of THPR all sales and use tax returns necessary in the operation of
THPR's Drug Distribution Business.
4. Subcontracting. The parties to this Agreement recognize that SHS may
provide to THPR certain of the services which it is obligated to provide under
this Agreement by means of subcontracts with third parties. However, no such
subcontract shall release SHS from its duties and responsibilities under this
Agreement with respect to the services so subcontracted.
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5. Term. This Agreement shall be for a term beginning on July 1, 1994 and
ending on March 31, 1999, unless otherwise terminated in accordance with this
section. This Agreement shall automatically terminate upon (i) SHS or THPR
ceasing to exist, (ii)either party ceasing to be licensed to sell Drugs, (iii)
either party permanently ceasing to engage in the Drug Distribution Business,
(iv) the mutual agreement of the parties, (v) the insolvency or bankruptcy of
either party, the making by either party of an assignment for the benefit of
creditors, the consent by either party to the appointment of a trustee or
receiver, or the appointment without its consent, of a trustee or receiver for
it or for a substantial part of its property, or (vi) the institution by or
against either party of bankruptcy, reorganization, arrangement or insolvency
proceedings. In addition, if either party hereto shall breach the terms of this
Agreement, the nonbreaching party may give written notice of the breach to the
breaching party, and if said breach is not cured within 21 calendar days
following the giving of said notice, this Agreement shall at the option of the
nonbreaching party be terminated. Furthermore, notwithstanding any other
provision of this Agreement, either party may terminate this Agreement upon
giving 90 days prior written notice to the other party.
6. Force Majeure. The obligations of SHS hereunder shall be excused during
any period of delay caused by matters such as
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strikes, acts of God, shortages of raw materials or power, inability to obtain
product, governmental action or compliance with governmental requirements,
whether voluntary or pursuant to order, or any other matter which is beyond the
reasonable efforts of SHS to control.
7. Severability. If any one or more of the provisions of this Agreement
shall for any reason be held illegal or invalid, such illegality or invalidity
shall not affect any other provision of this Agreement and this Agreement shall
be enforced as if such illegal or invalid provision had not been contained
herein.
8. Confidentiality. Each party has developed or may during the term hereof
develop certain formulae, products, methods of doing business, customer lists
and other proprietary information which that party deems to be confidential and
a trade secret. In the course of fulfilling their respective obligations
hereunder, some of these formulae, products, methods and other proprietary
information will become known to the other party hereto. It is contemplated that
each employee or agent of the parties who will be exposed to such confidential
information will be required to execute a confidentiality agreement with each
party hereto. Each party also agrees that it will not duplicate, make use of, or
disclose, in any manner whatsoever, any
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information which is deemed to be confidential by the other party, either during
or after the term of this Agreement, without the express prior written consent
of the other party hereto.
In the event that any information deemed to be confidential by a party is
provided to the other party or its employees or agents in writing, the party
providing same shall mark the writing as "confidential." In the event that such
information is provided in non-written form such as orally, by audiotape,
videotape or computer software or disc, the party claiming such information to
be confidential shall furnish to the other party a written list containing a
brief description of such item and designating such item as confidential. Upon
termination of this Agreement, all copies of any information hereunder deemed,
or designated by a party as, confidential shall be returned to the party who
supplied the information, or who designated same as confidential.
Notwithstanding the preceding provision, the following types of information
provided by a party shall always be deemed confidential, whether or not so
designated: patient records; prescription files; costs of goods and supplies;
and financial records of the party.
Notwithstanding the preceding sections, this restriction shall not apply
(i) to any information which is not deemed confidential hereunder, or which has
not been designated as
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confidential in the manner specified herein, (ii) to any information which was
known to a party prior to its disclosure by the other party, (iii) to any
information which is or becomes public knowledge through no failure of a party
bound by this Agreement, (iv) to any information which is independently
developed by a party hereto, or (v) to the extent that such restrictions
conflict with the terms of the THPR Partnership Agreement.
It is recognized and acknowledged that damages caused by a party's breach
of this Section would be difficult to ascertain and would not adequately
compensate the other party for its losses. Therefore, both parties agree that
the party claiming a breach of this Section shall be entitled to injunctive
relief to restrain the commission or continued commission of said breach by
seeking such relief from a court of competent jurisdiction.
9. Service to Other Businesses. THPR acknowledges that
SHS offers its services to other business, and THPR agrees that no provision
contained herein shall restrict or prohibit SHS from providing services to
others in addition to THPR as long as the performance of said services does not
interfere with the performance of SHS's obligations hereunder.
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10. Records. To the extent required by Section 1861(b)(1)(I) of the
Social Security Act, SHS 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 the services provided by SHS 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.
11. Nonassignability. The rights, duties and responsibilities of the
parties hereto are personal in nature and shall not be assigned without the
express written consent of the other party except that SHS may subcontract with
other parties to perform some or all of its duties hereunder.
12. Applicable Law. This Agreement shall be construed in accordance with
the laws of the State of Tennessee and the laws of the State of Tennessee shall
govern the rights, duties, liabilities and responsibilities created hereunder.
13. Headings. All headings used herein are for ease of reference only and
shall in no way be construed as interpreting, decreasing or enlarging the
provisions of this Agreement.
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14. Effect. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, their successors, administrators, trustees and
assigns.
15. Modification. This Agreement constitutes the entire understanding
between the parties hereto and may be changed or modified only with the written
consent of both parties.
16. Notices. Any notice required to be given hereunder shall be in writing
and shall be hand delivered or sent by certified United States mail, postage
prepaid, return receipt requested, to the chief executive officer of the party
at its respective primary business address set out below or at such other
address as shall be indicated in writing to the other party. Notice shall be
effective when hand delivered or on the third day after deposit in the United
States mail as required by this Section.
17. Waivers. A waiver of the breach of any provision of this Agreement
shall not be effective unless in writing signed by the waiving party, and such
waiver shall not be deemed a waiver of any other breach of the same or any other
provision hereof.
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18. Fairness. The parties hereto recognize that Nova Factor, Inc. is a
general partner of THPR. Each party acknowledges that the terms of this
Agreement are fair and reasonable to both parties and that it is in the best
interest of each party to enter into this Agreement. Each party further
acknowledges that the terms of this Agreement were negotiated and that the
decision to enter into this Agreement was made solely by the unrelated general
partner of THPR, without participation by Nova Factor, Inc.
IN WITNESS WHEREOF, the undersigned parties hereto have caused this
Agreement to be executed as of the day and year first above written.
TEXAS HEALTH DRUG
DISTRIBUTION RESOURCES,
a partnership
By: Nova Factor, Inc.
By: /s/ George Farr
Title: President
Address:
SOUTHERN HEALTH SYSTEMS, INC.
By: /s/ David Stevens
Title: President
Address:
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EXHIBIT A
FEES TO NFI
In exchange for the goods and services provided by NFI under this Agreement,
the Partnership agrees to pay to NFI the following amounts:
A. * of the Partnership in exchange for computer services.
B. * of the Partnership for reimbursement services.
C. * per month for accounting and reporting services.
D. Reimbursement on a monthly basis for all employment costs incurred
by NFI in providing NFI personnel to perform the services set out
herein. Employment costs shall mean the salary, payroll and FICA
taxes, and the cost of all fringe benefits paid to or for the
employee by NFI, plus all incremental costs incurred by NFI for and
on behalf of the Partnership, such as workers' compensation
insurance, automobile insurance, and incremental costs of property
and casualty insurance coverage. In the event that any NFI employee
devotes only a portion of his or her time to the performance of
services for the Partnership, the employment costs for that
employee, which is charged to the Partnership, shall be a prorated
portion of the total employment costs determined by multiplying the
total costs by a fraction, the numerator of which is the time spent
by the employee for the Partnership and the denominator of which is
the total hours worked by the employee during that month.
E. In exchange for pharmaceutical solutions supplied by NFI, the
Partnership will pay on a monthly basis to NFI an amount equal to
NFI's * said medical equipment, services and supplies. NFI's *
shall mean the * by NFI to its supplier for the medical equipment,
services and supplies, plus taxes and freight.
For purposes of this Agreement, the Partnership's * shall mean all charges
made by the Partnership in a given month, determined on an accrual basis,
regardless of whether such accounts are actually collected, and * shall not
be reduced for *; taxes, depreciation, principal payment on loans,
distributions to Partners, other reserves, fees paid to NFI hereunder, or any
other expenses.
The fees due to NFI shall be determined on a monthly basis by NFI and NFI
shall submit monthly invoices to the Partnership setting out the amounts due
NFI for said month. The invoices for NFI's services shall be due thirty (30)
days from the receipt of same by the Partnership.
* Omitted information is the subject of a request for confidential treatment
pursuant to Rule 406 under the Securities Act of 1933 and has been filed
separately with the Securities Exchange Commission.
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