SERVICE AGREEMENT
BY AND BETWEEN
SPECIALTY CARE NETWORK, INC.,
GREATER CHESAPEAKE ORTHOPAEDIC ASSOCIATES, L.L.C.,
Xxxxxx X. Xxxxxx, M.D.
Xxxxxx X. Xxxxxxxx, M.D.
Xxxx X. Xxxxxxxxx, M.D.
Xxxxx X. Xxxxx, M.D.
Xxxx X. Xxxxxxx, M.D.
Xxxx X. X'Xxxxxxx, M.D.
and
Xxx X. Xxxxx, M.D.
Dated as of November 12, 1996
TABLE OF CONTENTS
ARTICLE I.
RELATIONSHIP OF THE PARTIES
1.1. Independent Relationship.....................................- 1 -
1.2. Responsibilities of the Parties..............................- 1 -
1.3. GCOA Matters.................................................- 1 -
1.4. Patient Referrals............................................- 2 -
1.5. Professional Judgment........................................- 2 -
ARTICLE II.
DEFINITIONS
2.1. Definitions..................................................- 2 -
ARTICLE III.
PRACTICE OFFICES TO BE PROVIDED BY COMPANY
3.1. Practice Offices.............................................- 6 -
3.2. Use of Practice Offices......................................- 6 -
ARTICLE IV.
DUTIES OF THE POLICY BOARD
4.1. Formation and Operation of the Policy Board..................- 6 -
4.2. Duties and Responsibilities of the Policy Board..............- 7 -
ARTICLE V.
ADMINISTRATIVE SERVICES TO BE PROVIDED BY COMPANY
5.1. Performance of Management Functions..........................- 8 -
5.2. Financial Planning and Goals.................................- 8 -
5.3. Audits and Financial Statements..............................- 8 -
5.4. Inventory and Supplies.......................................- 8 -
5.5. Management Services and Administration.......................- 9 -
5.6. Personnel...................................................- 10 -
5.7. Events Excusing Performance.................................- 11 -
5.8. Compliance with Law and Business Standards..................- 11 -
5.9. Quality Assurance...........................................- 11 -
5.10. New Medical Services and Additional Practice Offices........- 11 -
5.11. Collection of Certain Patient Receipts and Payment
of Clinic Expenses........................................- 11 -
5.12. Other GCOA Accounts.........................................- 12 -
ARTICLE VI.
i
OBLIGATIONS OF GCOA AND PHYSICIAN OWNERS
6.1. Professional Services.......................................- 12 -
6.2. Medical Practice............................................- 12 -
6.3. Employment of Physician Employees...........................- 12 -
6.4. Professional Dues and Education Expenses....................- 13 -
6.5. Professional Insurance Eligibility..........................- 13 -
6.6. Events Excusing Performance.................................- 13 -
6.7. Fees for Professional Services..............................- 13 -
6.8. Peer Review.................................................- 13 -
6.9. GCOA Employee Benefit Plans.................................- 13 -
ARTICLE VII.
RESTRICTIVE COVENANTS AND ENFORCEMENT
7.1. Exclusive Arrangement.......................................- 15 -
7.2. Restrictive Covenants.......................................- 15 -
7.3. Restrictive Covenants By Future Physician Employees.........- 16 -
7.4. Rights of Company...........................................- 16 -
7.5. Enforcement.................................................- 16 -
7.6. Modification of Restrictive Covenants.......................- 16 -
ARTICLE VIII.
FINANCIAL ARRANGEMENTS
8.1. Service Fees................................................- 17 -
8.2. Payment of Service Fee......................................- 19 -
8.3. Purchase of Accounts Receivable.............................- 19 -
8.4. Payment of Clinic Expenses..................................- 20 -
ARTICLE IX.
RECORDS
9.1. Patient Records.............................................- 21 -
9.2. Records Owned by Company....................................- 21 -
9.3. Access to Records...........................................- 21 -
9.4. Government Access to Records................................- 21 -
ARTICLE X.
INSURANCE AND INDEMNITY
10.1. Insurance to be Maintained by GCOA..........................- 21 -
10.2. Insurance to be Maintained by Company.......................- 22 -
10.3. Additional Insureds.........................................- 22 -
10.4. Indemnification.............................................- 22 -
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ARTICLE XI.
TERM, TERMINATION AND RETIREMENT
11.1. Term of Agreement..........................................- 23 -
11.2. Extended Term..............................................- 23 -
11.3. Termination by GCOA for Cause..............................- 23 -
11.4. Termination by Company for Cause...........................- 23 -
11.5. Early Termination by GCOA or Company Without Cause Upon
Third (3rd) Anniversary of Agreement.....................- 24 -
11.6. Consequences of GCOA Termination...........................- 25 -
11.7. Closing of Purchase by GCOA and Effective Date of
Termination..............................................- 25 -
11.8. Tail Policy................................................- 25 -
11.9. Restrictions Applicable to Physician Owners................- 26 -
ARTICLE XII.
DAMAGE AND LOSS; CONDEMNATION
12.1. Use of Insurance Proceeds..................................- 28 -
12.2. Temporary Space............................................- 28 -
ARTICLE XIII.
REPRESENTATIONS AND WARRANTIES OF GCOA AND PHYSICIAN OWNERS
13.1. Validity...................................................- 28 -
13.2. Litigation.................................................- 28 -
13.3. Permits....................................................- 28 -
13.4. Authority..................................................- 28 -
13.5. Compliance with Applicable Law.............................- 29 -
13.6. Health Care Compliance.....................................- 29 -
13.7. Fraud and Abuse............................................- 29 -
13.8. GCOA Compliance............................................- 29 -
13.9. Rates and Reimbursement Policies...........................- 30 -
13.10. Accounts Receivable........................................- 30 -
13.11. Full Disclosure............................................- 32 -
13.12. Exhibits...................................................- 32 -
ARTICLE XIV.
REPRESENTATIONS AND WARRANTIES OF COMPANY
14.1. Organization...............................................- 32 -
14.2. Authority..................................................- 32 -
14.3. Absence of Litigation......................................- 32 -
14.4. Transactions with Affiliates...............................- 32 -
ARTICLE XV.
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COVENANTS OF GCOA AND PHYSICIAN OWNERS
15.1. Merger, Consolidation and Other Arrangements...............- 32 -
15.2. Necessary Authorizations/Assignment of Licenses and Permit.- 33 -
15.3. Transaction with Affiliates................................- 33 -
15.4. Compliance with All Laws...................................- 33 -
15.5. Third-Party Payor Programs.................................- 33 -
15.6. Change in Business or Credit and Collection Policy.........- 33 -
15.7. Treatment of Accounts Receivable...........................- 33 -
15.8. Security Interest..........................................- 34 -
ARTICLE XVI.
GENERAL PROVISIONS
16.1. Assignment.................................................- 34 -
16.2. Whole Agreement; Modification..............................- 35 -
16.3. Notices....................................................- 35 -
16.4. Binding on Successors......................................- 35 -
16.5. Waiver of Provisions.......................................- 36 -
16.6. Governing Law..............................................- 36 -
16.7. No Practice of Medicine....................................- 36 -
16.8. Severability...............................................- 36 -
16.9. Additional Documents.......................................- 36 -
16.10. Attorneys' Fees............................................- 36 -
16.11. Time is of the Essence.....................................- 36 -
16.12. Confidentiality............................................- 36 -
16.13. Contract Modifications for Prospective Legal Events........- 36 -
16.14. Remedies Cumulative........................................- 37 -
16.15. Language Construction......................................- 37 -
16.16. No Obligation to Third Parties.............................- 37 -
16.17. Communications.............................................- 37 -
16.18. Arbitration................................................- 37 -
EXHIBIT 4.1 POLICY BOARD GOVERNANCE RULES..........................4.1-1
EXHIBIT 6.9.1 GCOA PLAN............................................6.9.1-1
EXHIBIT 8.1.8(d) EXCLUDED EXPENSES................................8.1.8.(d)-1
EXHIBIT 8.3.6 ACCOUNTS RECEIVABLE COLLECTION.......................8.3.6-1
EXHIBIT 11 NON-COMPETITION.........................................11-1
iv
SERVICE AGREEMENT
THIS SERVICE AGREEMENT ("Agreement") dated as of November 12, 1996, and
effective as of November 1, 1996, by and between SPECIALTY CARE NETWORK, INC., a
Delaware corporation ("Company"), GREATER CHESAPEAKE ORTHOPAEDIC ASSOCIATES,
L.L.C., a Maryland limited liability company, ("GCOA") and XXXXXX X. XXXXXX,
XXXXXX X. XXXXXXXX, XXXX X. XXXXXXXXX, XXXXX X. XXXXX, XXXX X. XXXXXXX, XXXX X.
X'XXXXXXX, and XXX X. XXXXX ("Physician Owners"), citizens and residents of
Maryland.
W I T N E S S E T H:
WHEREAS, Company is in the business of managing medical clinics and
providing support services to and furnishing orthopedic care medical practices
with the necessary equipment, personnel, supplies and support staff; and
WHEREAS, GCOA and Physician Owners desire to obtain the services of
Company in performing such management functions so as to permit GCOA and
Physician Owners to devote GCOA's and Physician Owners' efforts on a
concentrated and continuous basis to the rendering of medical services to
patients.
NOW THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements herein set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, it
is agreed by the parties as follows:
ARTICLE I.
RELATIONSHIP OF THE PARTIES
1.1. Independent Relationship. GCOA, Physician Owners and Company 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
Company herein, Company, GCOA, and Physician Owners agree that GCOA and
Physician Owners shall retain all authority to direct the medical, professional,
and ethical aspects of GCOA's and Physician Owners' medical practice including
but not limited to the admission of new patients and providing care to indigent
patients. 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, Company shall provide GCOA with offices and facilities, equipment,
supplies, certain support personnel, management and financial advisory services.
As more specifically set forth herein, GCOA shall be responsible for the
recruitment and hiring of physicians and all issues related to the professional
practice of medicine, 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 Company under this Agreement.
1.3. GCOA Matters. Matters involving the internal agreements and finances
of GCOA, including the disposition of professional fee income, tax planning, and
investment planning (and expenses relating solely to these internal business
matters) shall remain the sole responsibility of GCOA.
1.4. Patient Referrals. The parties agree that the benefits to GCOA and
Physician Owners 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 Company to any of GCOA's patients in
any facility operated by Company.
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 GCOA, Physician Employees, GCOA Employees, and GCOA'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 GCOA, Physician
Owners, Physician Employees, and GCOA'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 II.
DEFINITIONS
2.1. Definitions. For the purpose of this Agreement, the following
definitions shall apply:
"Account Debtor" means an account debtor or any other Person obligated in
respect of an Account Receivable.
"Accounts Receivable" means, with respect to GCOA, 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 GCOA, including, but not limited to,
accounts receivable, proceeds of any letters of credit naming GCOA 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.
"Affiliate" means, with respect to any Person, any entity which directly
or indirectly controls, is controlled by, or is under common control with, such
Person or any Subsidiary of such Person or any Person who is a director, officer
or partner of such Person or any Subsidiary of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to (a) vote ten percent (10%) or more of the securities having ordinary voting
power for the election of directors of such Person, or (b) direct or cause the
direction of management and policies of a business, whether through the
ownership of voting securities, by contract or otherwise and either alone or in
conjunction with others or any group.
"Applicable Law" means 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.
"Asset Exchange" shall mean the acquisition of certain assets and
assumption of certain liabilities of GCOA pursuant to the Asset Exchange
Agreement.
"Asset Exchange Agreement" means that certain Asset Exchange Agreement,
dated of even date herewith, by and between Company, GCOA and Physician Owners.
"Assigned Lease" shall have the meaning as defined in Section 3.1.
"Base Service Fee" shall equal
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] per year, payable
in monthly payments of
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx].
"CHAMPUS" means the Civilian Health and Medical Program of the Uniformed
Services.
- 2 -
"Change in Control" shall mean any transaction pursuant to which Company
(a) consummates the sale of substantially all of the assets of Company to an
entity which is publicly traded in exchange for voting stock in such publicly
traded entity or (b) merges with a publicly traded corporation, entity or
corporation or entity controlled by a publicly traded corporation or entity in a
transaction where unrelated persons own at least fifty-one percent (51%) of the
issued and outstanding securities of the surviving entity or corporation
controlling the merged entity.
"Clinic Expenses" shall have the meaning as defined in Section 8.1.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Specialty Care Network, Inc., a Delaware corporation,
together with its successors and assigns.
"Company Expenses" shall have the meaning as defined in Section 8.1.7.
"Designated Leased Employees" shall have the meaning as defined in Section
6.9.1.
"Direct Lease" shall have the meaning as defined in Section 3.1.
"Disabled" or "Disability" shall mean that a Physician suffers from a
mental or physical condition resulting in such Physician Employee's inability to
perform the essential functions of his job as required by Section 6.1.1 (and as
may be described with greater specificity in written job descriptions prepared
and maintained by GCOA and approved by the Policy Board) without significant
risk to the health or safety of others, even with such reasonable accommodation
as may be available under the circumstances, and the Policy Board may reasonably
anticipate that such Physician Employee will remain disabled for at least two
years following the commencement of such disability.
"Exchange A/R" means the accounts receivable acquired from GCOA by Company
pursuant to the Asset Exchange Agreement.
"Excluded Expenses" shall have the meaning as defined in Section 8.1.8.
"Fair Market Value" with respect to Company common stock means (i) the
average closing price for the Company common stock as reported on a securities
exchange or quoted on a national quotation system, if any, upon which the
Company common stock is traded or quoted or (ii) in the event Company common
stock is not traded on any exchange or quoted on a national quotation system,
the fair market value of the Company common stock shall be determined by an
independent appraiser or investment banker selected by two (2) independent
appraisers or investment bankers (one (1) such firm selected by Company and one
(1) such firm selected by the Physician Owner or the Physician Owners as a group
(as the case may be)). Such valuation may include the consideration of discounts
for marketability, minority ownership and other discounts usual and customary in
the valuation process. Unless otherwise specified herein, the cost of any
appraisal shall be borne equally by Company and the Physician Owner or the
Physician Owners as a group (as the case may be).
"GAAP" shall mean generally accepted accounting principles as 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. For purposes of
this Agreement, GAAP shall be applied in a manner consistent with the historic
practices used by Company or GCOA as applicable.
- 3 -
"Governmental Authority" means 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.
"Governmental Receivables" means an Account Receivable of GCOA which (i)
arises in the ordinary course of business of GCOA, (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 GCOA as a healthcare 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.
"Governmental Rules and Regulations" shall have the meaning as defined in
Section 13.7.
"Health Care Law" means 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. ss.1395nn
and 42 U.S.C. ss. 1320a-7b.
"Lease" shall mean the Assigned Lease, Direct Leases, and the New Leases,
including all amendments thereto, described in Section 3.1 hereof.
"Leased Premises" shall mean the real property described in the Lease.
"Lender" shall have the meaning as defined in Section 7.2.
"Main Office" shall mean the Leased Premises and all equipment and
facilities owned or operated by Company and utilized by GCOA or any of its
employees within said Leased Premises.
"Medicaid" means 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.
"Medicare" means any medical program established under Title XVIII of the
Social Security Act and administered by the Health Care Financing
Administration.
"Necessary Authorizations" means with respect to GCOA, 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 GCOA's business.
"New Lease" shall have the meaning as defined in Section 3.1.
"Office Locations" shall have the meaning as defined in Section 3.1.
"Person" shall mean an individual, corporation, partnership, association,
trust or unincorporated organization, or a government or any agency or political
subdivision thereof including, without limitation, Third-Party Payors.
"Physician Employees" shall mean the term as defined in Section 8.1.6.
"Physician Extender Employees" shall mean the term as defined in Section
8.1.5.
- 4 -
"Physician Owners" shall mean those Physician Employees who own an
interest, directly or indirectly, in the equity of GCOA.
"Plans" shall have the meaning as defined in Section 6.9.1.
"Policy Board" shall mean a board established pursuant to Section 4.1.
"Practice Net Revenue" shall mean the term as defined in Section 8.1.1.
"Practice Offices" shall mean (i) the Main Office and (ii) all of the
Satellite Offices.
"Professional Services Revenues" shall mean the term as defined in Section
8.1.2.
"Purchase Price" shall mean the term as defined in Section 8.4.2.
"Purchased A/R" means, with respect to GCOA, the Accounts Receivable
purchased pursuant to Section 8.3 of this Agreement.
"GCOA Operating Account" shall mean that certain operating account
established by GCOA at a bank selected by GCOA in GCOA's sole discretion as more
fully described in Section 5.11.
"GCOA Plan" shall mean the term as defined in Section 6.9.1.
"Satellite Offices" shall mean each location at which one or more of
GCOA's employees provide services as described on Exhibit 2.1 and all equipment
and facilities owned or operated by Company and utilized by any of said persons
at such location.
"Settlement Date" shall mean the term as defined in Section 8.3.3.
"Service Agreement" means this Agreement.
"Subsidiary" means a Person of which an aggregate of 51% or more of the
voting stock of any class or classes or 51% or more of other voting or equity
interests is owned of record or beneficially by another Person, or by one or
more Subsidiaries of such Person.
"Substitute Physician(s)" shall mean the term as defined in Section
11.9.1(b).
"Technical Employees" shall mean the term as defined in Section 8.1.4.
"Third-Party Payors" means each Person which makes payment under a
Third-Party Payor Program, and each Person which administers a Third-Party Payor
Program.
"Third-Party Payor Programs" means 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.
- 5 -
ARTICLE III.
PRACTICE OFFICES TO BE PROVIDED BY COMPANY
3.1. Practice Offices. (a) Company has received a leasehold interest in
certain offices and locations which comprise the Practice location ("Main
Office") and/or satellite offices ("Satellite Offices") as identified on Exhibit
3.1 (collectively the "Office Locations") through (i) an assignment of any
existing leases on said Office Locations (the "Assigned Leases") or (ii)
entering into a new lease with respect to one or more of the Office Locations
(the "Direct Leases") with a copy of the Assigned Leases and Direct Leases
attached hereto as Exhibit 3.1.
(b) Company agrees to provide offices and facilities at the Office
Locations (or at comparable facilities on the termination of the Assigned Leases
or Direct Leases) to GCOA. Such facilities shall include all personal property
necessary to operate the facility. If any Assigned Leases or Direct Leases are
terminated by their terms, Company shall enter into a lease of a new facility
comparable to the Office Location whose lease is terminated (the "New Lease")
with the consent of the Policy Board. Company shall not enter into a lease for a
new Main Office or Satellite Office for GCOA without the approval of the Policy
Board.
(c) GCOA agrees to comply with all terms and provisions of the Assigned
Leases, Direct Leases and New Leases.
3.2. Use of Practice Offices. GCOA shall not use or occupy the Main Office
or Satellite Offices for any purpose which is prohibited by the Assigned Leases,
Direct Leases or New Leases, by this Agreement or which is directly or
indirectly forbidden by law, ordinance, or governmental or municipal regulation
or order, or which may be dangerous to life, limb or property, or which would
increase the fire and extending coverage insurance rate in any Practice Office
or contents.
ARTICLE IV.
DUTIES OF THE POLICY BOARD
4.1. Formation and Operation of the Policy Board. The parties shall
establish a Policy Board which shall be responsible for developing management
and administrative policies for the overall operation of any Practice Office.
The Policy Board shall consist of six (6) members. Company shall designate, in
its sole discretion, three (3) members of the Policy Board. GCOA shall
designate, in GCOA's sole discretion, three (3) members of the Policy Board. Any
matter decided by a majority of the members of the Policy Board shall constitute
the decision of the Policy Board with respect to the matter. In the event a
majority of the Policy Board does not vote in favor of any proposal presented to
the Policy Board, such proposal shall fail and shall not become a policy or
procedure of GCOA.
4.2. Duties and Responsibilities of the Policy Board. The Policy Board
shall have the following duties and obligations:
4.2.1. Capital Improvements and Expansion. The Policy Board shall review
all requests by GCOA for any renovations, capital improvements, expansions and
new equipment purchases or leases. The Policy Board shall determine whether such
expenditures are appropriate based upon economic feasibility, physician support,
productivity, market conditions, and the annual budget formulated pursuant to
this Agreement. If the Policy Board determines that the acquisition of
additional equipment or facilities is appropriate, then Company shall use its
best efforts to arrange for the financing and acquisition of the property.
Governance issues affecting the Policy Board shall be addressed in accordance
with the rules set forth in Exhibit 4.1.
4.2.2. Annual Budgets. All annual capital and operating budgets prepared
by Company in accordance with Section 5.2 of this Agreement, shall be subject to
the review of the Policy Board.
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4.2.3. Marketing. All advertising and other marketing of the services
performed at any Practice Office shall be subject to the prior review and
approval of the Policy Board.
4.2.4. Patient Fees; Collection Policies. As a part of the annual
operating budget in consultation with GCOA and Company, to the extent allowed by
Applicable Law, the Policy Board shall review and advise GCOA as to an
appropriate fee schedule for all physician and ancillary services rendered by
GCOA, which fee schedule shall ultimately be determined by GCOA in GCOA's sole
discretion. In addition, the Policy Board shall approve the credit collection
policies of GCOA.
4.2.5. GCOA and Payor Relationships. Decisions regarding the establishment
or maintenance of relationships with institutional health care providers and
payors, or with parties under arrangements for setting up new Satellite Offices
of GCOA in the future, shall be made by the Policy Board in consultation with
GCOA.
4.2.6. Strategic Planning. The Policy Board shall develop long-term
strategic planning objectives.
4.2.7. Capital Expenditures. The Policy Board shall determine the priority
of major capital expenditures including the procurement of any new or additional
office space for Practice Offices.
4.2.8. Restrictive Covenants for Physician. The approval of the Policy
Board shall be required for any variations to the restrictive covenants
prescribed for any physician employment contract as set forth in Article VII or
Exhibit 11 of this Agreement.
4.2.9. Grievance Referrals. The Policy Board shall consider and make final
decisions regarding grievances pertaining to matters not specifically addressed
in this Agreement as referred to it by the Physician Employees.
ARTICLE V.
ADMINISTRATIVE SERVICES TO BE PROVIDED BY COMPANY
5.1. Performance of Management Functions. Company shall use its best
efforts to manage the day-to-day operations of the Main Practice Office and any
Satellite Offices in a business-like manner. Company shall provide or arrange
for the services set forth in this Article V, the cost of all of which shall be
included in Clinic Expenses. Company is hereby expressly authorized to perform
its services hereunder in whatever manner it deems reasonably appropriate to
meet the day-to-day requirements of Practice Office operations in accordance
with the general standards approved by the Policy Board and to maintain the
lease agreements for each of the Practice Offices, including, without
limitation, performance of some of the business office functions at locations
other than the Main Practice Office. GCOA will not act in a manner which would
prevent Company from efficiently managing the day-to-day operations of the Main
Practice Office and maintaining the operations of the Satellite Offices in a
business-like manner.
5.2. Financial Planning and Goals. Subject to Section 4.2.2. of this
Agreement, Company shall prepare annual capital and operating budgets reflecting
in reasonable detail anticipated revenues and expenses, and sources and uses of
capital for growth in GCOA's practice and medical services rendered at the
Practice Office. Said budgets shall reflect amounts, if any, allocated for
capital purchases, improvements, expansion and any new leasing arrangements.
Thereafter, but no later than thirty (30) days prior to the end of the fiscal
year, the Policy Board and Company shall agree upon a budget for the upcoming
fiscal year. The budget, as described in Section 4.2.2., shall be binding upon
Company and GCOA. Company shall consult with GCOA and the Policy Board in the
preparation of all budgets. Company and GCOA acknowledge and agree that once a
budget has been approved, neither Company nor GCOA shall make expenditures or
incur expenses in excess of budgeted amounts without the prior approval of the
Policy Board.
5.3. Audits and Financial Statements. Company shall prepare annual
financial statements for the operations of GCOA and, in its sole discretion, may
cause the financial statements to be audited by a certified public accountant
selected
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by Company. GCOA shall cooperate fully in such audit. The cost of such audit
shall be included in Clinic Expenses. If Company elects to have the financial
statements audited by a certified public accountant with a big six accounting
firm, the resulting audited financial statements shall be binding on GCOA and
Company. If Company elects not to have GCOA's financial statements so audited,
GCOA shall have the option to obtain such an audit, by a certified public
accountant with a mutually acceptable accounting firm. Company shall fully
cooperate in such audit. The cost of such audit shall be included in Clinic
Expenses. In such event, Company and GCOA shall be bound by the resulting
audited financial statements. All parties shall be entitled to copies of any
information provided to or by the auditors by or to any party. Additionally,
Company shall prepare monthly unaudited financial statements containing a
balance sheet and statements of income from Practice Office operations, which
shall be delivered to GCOA within thirty (30) business days after the close of
each calendar month.
5.4. Inventory and Supplies. Except as limited by Section 5.11, Company
shall order and purchase inventory and supplies and such other ordinary,
necessary or appropriate materials which Company shall deem to be necessary in
the operation of the Practice Offices and which are requested by GCOA and are
within the budget for the applicable fiscal period. Company shall not purchase
inventory, goods or supplies from any Affiliate of Company without approval of
the Policy Board and after full disclosure of all terms to the Policy Board.
5.5. Management Services and Administration.
5.5.1. GCOA hereby appoints Company as GCOA's sole and exclusive manager
and administrator of all day-to-day business functions. GCOA agrees that the
purpose and intent of this Agreement is to relieve GCOA and Physician Employees
to the maximum extent possible of the administrative, accounting, personnel and
business aspects of their practice, with Company assuming responsibility and
being given all necessary authority to perform these functions. Company agrees
that GCOA and only GCOA will perform the medical functions of GCOA's practice.
Company will have no authority, directly or indirectly, to perform, and will not
perform, any medical function. Company may, however, advise GCOA as to the
relationship between GCOA's performance of medical functions and the overall
administrative and business functioning of GCOA's practice. To the extent that a
Company employee assists Physician Employees in performing medical functions,
such employees shall be subject to the professional direction and supervision of
Physician Employees and in the performance of such medical functions shall not
be subject to any direction or control by, or liability to, Company, except as
may be specifically authorized by Company.
5.5.2. Company shall, on behalf of GCOA, xxxx patients and collect the
professional fees for medical services rendered by GCOA or any Physician
Employee, regardless of when or where such services are rendered. The parties
acknowledge and agree that the Physician Owners will charge and collect,
individually, fees for services such as medical legal services, depositions,
consulting, teaching, and royalties and that any amounts collected by the
Physician Owners as a result of the provision of the foregoing services shall
not be considered a portion of Practice Net Revenue. Nothing in this Service
Agreement shall be construed to prevent Physician Owners from extending
professional courtesies, performing pro xxxx service, or providing family
discounts in accordance with the past practice and procedure of GCOA. All
xxxxxxxx for Physician Employee's services shall be made in the name of and
under the provider number of GCOA. GCOA hereby appoints Company to be GCOA's
true and lawful attorney-in-fact, for the following purposes: (i) to xxxx
patients in GCOA's name and on GCOA's behalf; (ii) to collect Accounts
Receivable resulting from such billing in GCOA's name and on GCOA's behalf;
(iii) to receive payments from insurance companies, prepayments from health care
plans, and all other Third-Party Payors; (iv) to take possession of and endorse
in the name of GCOA (and/or in the name of an individual physician, such payment
intended for purpose of payment of a physician's xxxx) any notes, checks, money
orders, insurance payments and other instruments received in payment of Accounts
Receivable; and (v) to initiate legal proceedings in the name of GCOA to collect
any accounts and monies owed to GCOA or any Physician Employee, to enforce the
rights of GCOA as creditors 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.
Except for cash proceeds from the collection of Accounts Receivable purchased
from GCOA by Company, Company shall deposit any cash receipts collected on
behalf of GCOA into the GCOA Operating Account described in Section 5.11.
- 8 -
5.5.3. Company shall design, supervise and maintain possession of all
files and records relating to the operation of GCOA, including but not limited
to accounting, billing, patient medical records, and collection records. While
Company shall maintain custody, patient medical records shall at all times be
and remain the property of GCOA and shall be located at the Practice Offices so
that they are readily accessible for patient care. The Physician Employees shall
have the obligation to oversee the preparation and maintenance of patient
medical records, and to provide such medical information as shall be necessary
and appropriate to the records' clinical function and to sustain and 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. Company shall use its best efforts to preserve the
confidentiality of patient medical records and use information contained in such
records only as permitted by law, to the extent necessary to perform the
services set forth herein.
5.5.4. Company shall supply to GCOA necessary clerical, accounting,
bookkeeping and computer services, printing, postage and duplication services,
medical transcribing services and any other ordinary, necessary or appropriate
service for the operation of the Practice Offices.
5.5.5. Subject to the overall guidance of the Policy Board, Company shall
design and implement an adequate and appropriate public relations program on
behalf of GCOA, with appropriate emphasis on public awareness of the
availability of services at the Practice Offices. The public relations program
shall be conducted in compliance with Applicable Law and regulations governing
advertising by the medical profession and applicable canons of principles of
professional ethics of GCOA and Physician Employees of GCOA.
5.5.6. Company shall provide the data necessary for GCOA to prepare GCOA's
annual income tax returns. Company shall have no responsibility for the
preparation of GCOA's federal or state income tax returns or the payment of such
income taxes. Company shall prepare or cause to be prepared on GCOA's behalf,
necessary employment tax returns. GCOA shall be obligated to pay any taxes due
on such employment tax returns with respect to the Physician Owners.
5.5.7. Company shall assist GCOA in recruiting additional physicians,
carrying out such administrative functions as may be appropriate, such as
advertising for and identifying potential candidates, obtaining credentials, and
arranging interviews; provided, however, GCOA shall interview and make the
ultimate decision as to the suitability of any physician to become associated
with GCOA. All physicians recruited by Company and accepted by GCOA shall be the
sole employees of GCOA, to the extent such physicians are hired as employees.
5.5.8. Company shall negotiate managed care contracts on behalf of GCOA
and shall administer all managed care contracts in which GCOA participates.
5.5.9. Company shall arrange for legal and accounting services related to
operations of the Practice Offices and Physician Employee's practice at the
Practice Offices incurred traditionally in the ordinary course of business,
including the cost of enforcing any contract with a Physician Employee
containing restrictive covenants, provided such services shall be approved in
advance by the Policy Board. Notwithstanding the foregoing, GCOA shall have the
authority to arrange for legal and accounting services relating to matters other
than day-to-day management of GCOA; such other matters including but not limited
to issues relating to GCOA governance issues, compensation of Physician Owners,
and issues which arise between GCOA and Company; provided, however, such fees
shall be considered Excluded Expenses.
5.5.10. Company shall provide for the proper cleanliness of the premises,
and maintenance and cleanliness of the equipment, furniture and furnishings
located upon such premises.
5.5.11. Upon receipt of dues, statements or license notices from the
Physician Employees (other than Physician Owners), Company shall make payment
for the cost of professional licensure fees and board certification fees of
physicians associated with GCOA.
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5.5.12. Company shall negotiate for and cause premiums to be paid with
respect to the insurance provided for in Section 10.1.
5.6. Personnel. Company shall provide Physician Extender Employees and
other non-physician professional support (administrative personnel, clerical,
secretarial, bookkeeping and collection personnel) reasonably necessary for the
conduct of the operations at the Practice Offices. Company shall determine and
cause to be paid the salaries and fringe benefits of all such personnel. Such
personnel shall be employees of Company, with those personnel performing patient
care services subject to the professional direction and supervision of Physician
Employees. If GCOA is dissatisfied with the services of any person, GCOA shall
consult with Company. Company 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 should be terminated. All of
Company's obligations regarding staff shall be governed by the overriding
principle and goal of providing quality medical care. Employee assignments shall
be made to assure consistent and continued rendering of quality medical support
services and to ensure prompt availability and accessibility of individual
medical support staff to physicians in order to develop constant, familiar and
routine working relationships between individual physicians and individual
members of the medical support staff. If GCOA disagrees with an assignment, GCOA
may appeal such assignment to the Policy Board. Company shall maintain
established working relationships wherever possible and Company shall make every
effort consistent with sound business practices to honor the specific requests
of GCOA with regard to the assignment of Company's employees.
5.7. Events Excusing Performance. Company shall not be liable to GCOA or
Physician Owners 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 Company has no control for so long as such
events continue, and for a reasonable period of time thereafter.
5.8. Compliance with Law and Business Standards. Company shall comply with
Applicable Law, including, without limitation, Health Care Law, and federal,
state, and local laws and regulations affecting billing and reimbursement,
referrals, patient privacy and confidentiality, and management of hazardous
materials and infectious waste. Company shall discharge its obligations under
this Agreement consistent with applicable business and industry standards and
practices.
5.9. Quality Assurance. Company shall assist GCOA in fulfilling GCOA's
obligations to patients to maintain professionally recognized quality of medical
and professional services.
5.10. New Medical Services and Additional Practice Offices. If GCOA
desires to have a new medical service provided at any of the Practice Offices or
desires to establish a new clinic, a proposal of such service or the
establishment of such new clinic shall be submitted to the Policy Board. Should
the Policy Board approve the expansion of service or the establishment of such
new clinic, Company, at its option, shall have the exclusive right to provide
services necessary to support GCOA in GCOA's delivery of such new medical
services at the Practice Office or new clinic, as applicable; provided, however,
if the type of service is an ancillary service that would be improper under any
rules, regulations or laws for Company to offer to GCOA patients, then Company
shall not have the option to provide such service. Should Company decline to
provide the necessary support service for the new service or new clinic, GCOA
shall be entitled to perform such service at GCOA's own expense and the revenues
therefrom shall not be included in the calculation of Company's service fees
under Article VIII of this Agreement; provided, however, that Company shall have
the option to assume performance of the necessary support services for providing
such new service or new clinic by buying out GCOA's investment in the service at
GCOA's Book Value at anytime within eighteen (18) months of the date such new
service is first provided, which Book Value shall be based on the price of the
assets purchased by GCOA less depreciation accrued to the date of acquisition of
such service by Company, as determined under GAAP.
5.11. Collection of Certain Patient Receipts and Payment of Clinic
Expenses. GCOA agrees to establish and maintain a bank account, which shall be
referred to as the GCOA Operating Account, for the purpose of (a) depositing
proceeds from the sale of GCOA's Accounts Receivable pursuant to Section 8.3 and
(b) paying (i) any Service
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Fees owed pursuant to Article VIII of this Agreement, (ii) expenses which are
solely the obligation of GCOA (Excluded Expenses), and (iii) compensation or
distributions to Physician Owners, and the distributions shall be made in that
order of payment. GCOA shall designate a Company employee as a signatory on the
GCOA Operating Account. After the payment of any Service Fees owed pursuant to
Article VIII of this Agreement, and expenses which are solely the obligation of
GCOA, GCOA may withdraw amounts for distributions to Physician Owners.
5.12. Other GCOA Accounts. GCOA shall have the right to open or create
bank accounts in addition to the GCOA Operating Account described in Section
5.11 of this Agreement.
ARTICLE VI.
OBLIGATIONS OF GCOA AND PHYSICIAN OWNERS
6.1. Professional Services.
6.1.1. GCOA, its Physician Owners and Physician Employees shall provide
professional services to patients.
6.1.2. GCOA, its Physician Owners and Physician Employees shall provide
the professional services to patients described in Section 6.1.1 above in
compliance at all times with ethical standards, laws and regulations applying to
GCOA's professional practice. GCOA shall also make all reports and inquiries to
the National Practitioners Data Bank and/or any state data bank required by
Applicable Law. GCOA shall use its best efforts to determine that each Physician
Employee and Technical Employee associated with GCOA who provides medical care
to patients of GCOA is licensed by the state or states in which he or she
renders professional services. If any disciplinary or medical malpractice action
is initiated against any such individual, GCOA shall immediately provide Company
with copies of any third-party documents (not otherwise privileged) served on
GCOA or letters delivered to GCOA. Such information shall be deemed confidential
information and shall, notwithstanding such disclosure, remain subject to all
privileges and immunities provided by Applicable Law. Company shall take all
steps reasonably necessary to assure that such privileges and immunities remain
intact. GCOA shall carry out a program to monitor the quality of medical care
practiced at the Practice Offices to promote a high quality of medical care.
6.2. Medical Practice. GCOA shall use and occupy the Practice Offices
exclusively for the practice of medicine and shall comply with all Applicable
Law and standards of medical care. It is expressly acknowledged by the parties
that the medical practice or practices conducted at the Main Office shall be
conducted solely by physicians or medical practitioner associated with GCOA, and
no other physician or medical practitioner shall be permitted to use or occupy
the Main Office without the prior written consent of Company.
6.3. Employment of Physician Employees. GCOA shall have complete control
of and responsibility for the hiring, compensation, supervision, evaluation and
termination of Physician Employees, although at the request of GCOA, Company
shall consult with GCOA respecting such matters. GCOA shall be responsible,
subject to Section 8.4, for the payment of such Physician Employees' salaries
and wages, payroll taxes, Physician Employee benefits and all other taxes and
charges now or hereafter applicable to them. With respect to physicians, GCOA
shall only employ and contract with licensed physicians meeting applicable
credentialing guidelines established by GCOA.
6.4. Professional Dues and Education Expenses. Except to the extent
provided in Section 8.1.3(k), Physician Owners shall be solely responsible for
the cost of membership in professional associations and the cost of continuing
professional education. GCOA shall ensure that each Physician Employee
participates in such continuing medical education as is necessary for such
physician to remain licensed.
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6.5. Professional Insurance Eligibility. GCOA shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that all
Physician Employees are insurable and participating in an on-going risk
management program.
6.6. Events Excusing Performance. GCOA and Physician Owners shall not be
liable to Company 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 GCOA has no control for so long as such
events continue, and for a reasonable period of time thereafter.
6.7. Fees for Professional Services. GCOA shall be solely responsible for
legal, accounting and other professional services fees (Excluded Expenses)
incurred by GCOA, except as otherwise determined by the Policy Board.
6.8. Peer Review. GCOA agrees to cooperate with Company in establishing a
system of peer review within and among the provider practices as necessary to
obtain provider contracts. In connection therewith, GCOA agrees to assist in the
formulation of 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. GCOA
acknowledges that the establishment of provider guidelines may be necessary to
obtain PPO, HMO, IPA and other similar provider contracts, both private and
government funded. To the extent that said provider guidelines must be filed or
registered with any Third-Party Payor, GCOA agrees to cooperate with Company 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 GCOA and other practices that are part of the peer
review process, and shall not be promulgated, established or enforced
independently by Company. 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. GCOA Employee Benefit Plans.
6.9.1. Effective as of the date of the closing under the Asset Exchange
Agreement, GCOA shall amend the tax-qualified retirement plan(s) described on
Exhibit 6.9.1 (the "GCOA Plan") to provide that employees of Company who are
classified as "leased employees" (as defined in Code Section 414(n)) of GCOA
shall be treated as GCOA employees for purposes described in Code Section
414(n)(3). Not less often than annually, GCOA and Company shall agree upon and
identify in writing those individuals to be classified as leased employees of
GCOA (the "Designated Leased Employees"). GCOA and Company shall establish
mutually agreeable procedures with respect to the participation of Designated
Leased Employees in the GCOA Plan. Such procedures shall be designed to avoid
the tax disqualification of the GCOA Plan, similar plans of practices similarly
situated, (collectively, the "Plans").
6.9.2. If the Policy Board determines that the relationship between
Company and GCOA (and other practices similarly situated) constitutes an
"affiliated service group" (as defined in Code Section 414(m)), Company and GCOA
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 GCOA Plan.
6.9.3. The Plans described on Exhibit 6.9.1 attached hereto are approved
by Company. GCOA 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 Company. In addition, GCOA
shall not offer any retirement benefits or make any material retirement payments
other than under the GCOA Plan to any stockholder of GCOA without the express
written consent of Company. Except as otherwise required by law, GCOA shall not
materially amend, freeze, terminate or merge the GCOA Plan without the express
written consent of Company. In the event of either of the foregoing, Company's
consent shall not be withheld if such action would not jeopardize the
qualification of any of the Plans. GCOA agrees to make such changes to the GCOA
Plan, including the amendment freeze, termination or merger of the GCOA Plan, as
may be
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approved by the Policy Board and Company but only if such changes are necessary
to prevent the disqualification of any of the Plans.
6.9.4. Expenses incurred in connection with the GCOA Plan or other GCOA
employee benefit plans, including, without limitation, the compensation of
counsel, accountants, corporate trustees, and other agents shall be included in
Clinic Expenses.
6.9.5. The contribution and administration expenses for the Designated
Leased Employees shall be included in GCOA's operating budget. GCOA and Company
shall not make employee benefit plan contributions or payments to GCOA for their
respective employees in excess of such budgeted amounts unless required by law
or the terms of the GCOA Plan. Company shall make contributions or payments with
respect to the GCOA Plan or other GCOA employee benefit plans, as a Clinic
Expense, on behalf of eligible Designated Leased Employees, and other eligible
GCOA employees. In the event a GCOA Plan or other GCOA employee benefit plan is
terminated, Company shall be responsible, as a Clinic Expense, for any funding
liabilities related to eligible Designated Leased Employees; provided, however,
Company shall only be responsible for the funding of any liability accruing
after the date of the Asset Exchange Agreement.
6.9.6. Company 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 GCOA Plan
to avoid disqualification of the GCOA Plan, in which case any such action would
be subject to the express prior written consent of the Policy Board. Company
shall have the sole and exclusive authority to appoint the trustee, custodian
and administrator of any such plan.
6.9.7. In the event that any "employee welfare benefit plan" (as defined
in ERISA Section 3(l)) maintained or sponsored by GCOA must be amended,
terminated, modified or changed as a result of GCOA or Company being deemed to
be a part of an affiliated service group, the Policy Board will replace such
plan or plans with a plan or plans that provides those benefits approved by the
Policy Board. It shall be the goal of the Policy Board 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 VII.
RESTRICTIVE COVENANTS AND ENFORCEMENT
The parties recognize that the services to be provided by Company shall be
feasible only if GCOA operates an active medical practice to which both GCOA and
the physicians associated with GCOA devote their full time and attention.
To that end:
7.1. Exclusive Arrangement. During the term of this Agreement, Company
shall be GCOA's and Physician Owners' sole provider of the management services
described in this Agreement and neither GCOA, Physician Owners nor any of GCOA's
or Physician Owners' employees shall provide such management services during the
term of this Agreement. GCOA and the Physician Owners agree that during the term
of this Agreement, neither GCOA nor Physician Owners will enter into any similar
agreements with any physician practice management company or entity. GCOA and
the Physician Owners further agree that during the term of this Agreement, they
will not engage, directly or indirectly, as a principal owner, shareholder
(other than a holder of fewer than 5% of the outstanding shares of a
publicly-traded company), partner, joint venturer, agent, equity owner, or in
any other capacity whatsoever, in any corporation, partnership, joint venture,
or other business association or entity that operates ambulatory surgery centers
or provides management services of the nature provided by Company pursuant to
this Agreement, within the City of Baltimore, Maryland or contiguous counties or
any location within seventy-five (75) miles of the Main Clinic or any future
facility that replaces the Main Clinic (wherever located) or any Satellite
Office utilized by GCOA at any time during the term of this Agreement.
7.2. Restrictive Covenants.
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7.2.1. By Current Physician Employees. GCOA shall obtain and enforce
formal agreements from current Physician Employees, other than Technical
Employees, pursuant to which the Physician Employees agree not to establish,
operate or provide physician services at any medical office, clinic or
outpatient and/or ambulatory treatment or diagnostic facility providing services
substantially similar to those provided by GCOA, except on GCOA's behalf, within
the City of Baltimore, Maryland or contiguous counties or any location within
seventy-five (75) miles during the first five (5) years of the term of this
Agreement or fifty (50) miles thereafter of the Main Office or any future
facility that replaces the Main Office (wherever located at such time) or any
Satellite Office at the time of termination of employment with GCOA and for a
period of twenty-four (24) months after any termination of employment with GCOA.
Such agreements shall be a condition to employment and shall be in a form
satisfactory to Company and shall provide that Company is a third-party
beneficiary to such agreements and that such third-party beneficiary rights may
be assigned to Company's lender ("Lender"). This Section 7.2 shall relate solely
to Physician Employees who are not also Physician Owners.
7.2.2. By Current and Future Physician Owners. On the earlier of one
hundred eighty (180) days from the effective date of this Agreement, or on
thirty (30) days after written request by Company, which written request
includes a reasonable explanation or basis for the request, GCOA shall obtain
and enforce formal restrictive covenants with current and future Physician
Owners, the terms of which shall be substantially similar to the provisions of
Exhibit 11. Such agreements shall provide that Company is a third-party
beneficiary to such agreements. GCOA agrees to enforce the restrictive
covenants. The cost and expense of such enforcement shall be a Clinic Expense,
and all damages and other amounts recovered thereby shall be included in
Professional Services Revenue. In the event that after a request by Company,
GCOA does not pursue any remedy that may be available to it by reason of a
breach or default of a restrictive covenant, upon the request of Company, GCOA
shall assign to Company such causes of action and/or other rights it has related
to such breach or default and shall cooperate with and provide reasonable
assistance to Company with respect thereto; in which case, all costs and
expenses incurred in connection therewith shall be borne by Company and shall be
included in Company Expenses, and Company shall be entitled to all damages and
other amounts recovered thereby. The above described restrictive covenants
between GCOA and Physician Owners shall be in addition to and not in place of
the restrictive covenants described in Exhibit 11 between Company and the
Physician Owners.
7.2.3. Limitations on Restrictive Covenants. The foregoing restrictive
covenants shall not limit or prevent a Physician Employee or Physician Owner
from serving in part-time academic positions, working as expert witnesses, or
providing pro xxxx services in a manner consistent with past practices.
7.3. Restrictive Covenants By Future Physician Employees. GCOA shall
obtain and enforce formal agreements from each future Physician Employee other
than Technical Employees, hired or contracted, pursuant to which such physicians
agree not to establish, operate or provide physician services at any medical
office, clinic or outpatient and/or ambulatory treatment or diagnostic facility
providing services substantially similar to those provided by GCOA except on
GCOA's behalf, within the City of Baltimore, Maryland or contiguous counties or
any location within seventy-five (75) miles during the first five (5) years of
the term of this Agreement or fifty (50) miles thereafter of the Main Office or
any future facility that replaces the Main Office (wherever located at such
time) or any Satellite Office at the time of termination of said Physician
Employee's contract with GCOA and for a period of twenty-four (24) months
thereafter. Such agreements shall be a condition to employment and shall be in a
form satisfactory to Company and shall provide that Company is a third-party
beneficiary to such agreements and that such third-party beneficiary rights may
be assigned to any Lender. This Section 7.3 shall relate solely to Physician
Employees who are not also Physician Owners. The terms and conditions of Exhibit
11 shall govern restrictive covenants relating to Physician Owners.
7.4. Rights of Company. Except as limited below, Company shall at all
times during the term of this Agreement and thereafter have the right to enter
into additional service agreements with other physicians and practices
regardless of where such physicians and/or practices are located providing for
management services and facilities to such physicians and/or practices.
Notwithstanding the foregoing, and except as set forth in Section 11.9.3, in the
event that Company desires to enter into a Service Agreement with another
practice located within seventy-five (75) miles during the first five (5) years
of the term of this Agreement or fifty (50) miles thereafter of GCOA's Main
Office or any Satellite Office, then the Policy
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Board must first approve Company entering into such agreement. In the event that
the individuals representing Company on the Policy Board can reasonably
demonstrate that entering into such agreement will not have a material adverse
effect on GCOA's practice operations, earnings or cash flow, then the
individuals representing GCOA shall consent to Company entering into such
agreement.
7.5. Enforcement. GCOA acknowledges and agrees that since a remedy at law
for any breach or attempted breach of the provisions of this Article VII shall
be inadequate, Company 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 VII 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 VII. In addition, breach of the
provisions of this Article VII may trigger certain rights of Company to redeem a
Physician Owner's Company common stock pursuant to the terms of Article VIII of
that certain stockholders agreement between Company and its stockholders (the
"Stockholders Agreement").
7.6. Modification of Restrictive Covenants. Upon the termination of
employment of a Physician Owner or Physician Employee, the Policy Board shall
have the authority to release or reduce in whole or in part the terms of the
restrictive covenants, including but not limited to the mileage radius
limitations set forth above in Sections 7.2 and 7.3. In the event that the
individuals representing GCOA on the Policy Board can reasonably demonstrate
that a modification to the restrictive covenant will not have a material adverse
effect on Company's or GCOA's practice operations, earnings or cash flow, then
the individuals representing Company shall consent to the proposed
modifications.
ARTICLE VIII.
FINANCIAL ARRANGEMENTS
8.1. Service Fees. During the first thirty-six (36) months of the term of
this Agreement, Company shall receive a service fee equal to (a) the greater of
(i) [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] or (ii) the Base Service
Fee, plus (b) the amount of Clinic Expenses. Upon the expiration of the first
thirty-six (36) months of the term of this Agreement, Company shall receive a
service fee equal to [xxxxxxxxxxxxxxxxxxxxxxx]of Practice Net Revenue plus the
amount of Clinic Expenses. In the event that a Physician Owner ceases to
practice medicine during the first thirty-six (36) months of the term of this
Agreement, such Physician Owner shall be personally liable for any reduction in
GCOA's service fees payable as further described under Section 11.9.1 of this
Agreement. In the event that a Physician Owner either dies or becomes Disabled
during such thirty-six (36) month period, GCOA or the applicable Physician
Owner, as the case may be, shall be entitled to satisfy the amount owed by
transferring to Company an amount of Company common stock having a Fair Market
Value equal to the amount owed or paying to Company cash in the amount owed (or
a combination thereof).
8.1.1. "Practice Net Revenue" shall mean Professional Services Revenues,
less Clinic Expenses.
8.1.2. "Professional Services Revenue" shall mean all fees actually
recorded each month (net of any amounts reimbursed to any patients or
Third-Party Payors during the applicable month and net of any adjustments for
contractual allowances, Medicaid, worker's compensation, employee/dependent
health care benefit programs, professional courtesies and other activities that
do not generate a collectible fee) by or on behalf of GCOA as a result of
professional medical services personally furnished to patients and other fees or
income generated in their capacity as Physician Employees and Technical
Employees, and any revenue from the sale of any goods.
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8.1.3. "Clinic Expenses" shall mean all operating and non-operating
expenses of GCOA arising hereunder unless expressly provided otherwise,
including, without limitation:
(a) salaries, benefits and other direct costs of all Clinic
employees including Company's employees and Physician Extender Employees
as defined in Section 8.1.5 working at the Practice Offices and salaries,
payroll taxes and employee benefits paid to Physician Employees (other
than Physician Owners) under Section 6.3 and to Technical Employees as
defined in Section 8.1.4,
(b) obligations of Company under Leases provided for herein under
Article III,
(c) the expenses and charges incurred for the Practice Offices,
including without limitation utilities, telephone, etc.,
(d) personal property and intangible taxes assessed against
Company's assets utilized by GCOA in the Practice Offices from and after
the date of this Agreement,
(e) interest expense on indebtedness incurred by Company to (i)
satisfy the obligations of GCOA, if any, assumed under the Asset Exchange
Agreement, (ii) provide working capital for Company's performance of any
of its obligations to GCOA hereunder, or (iii) purchase equipment,
(f) malpractice insurance premiums and disability insurance premiums
to cover accommodations to the Practice Offices under the definition of
"Disabled" or "Disability," and fire, workers compensation and general
liability insurance premiums, and life insurance premiums, during the
first three (3) years of this Agreement, for life insurance on the lives
of Physician Owners, with GCOA as the death beneficiary,
(g) the cost of any goods purchased for resale,
(h) the depreciation, as determined under GAAP, for any equipment or
depreciable property owned by Company and used by GCOA to be billed to
GCOA on a monthly basis and paid to Company at the same time Company pays
for GCOA's Accounts Receivable pursuant to Section 8.3,
(i) direct costs of all employees or consultants of Company engaged
to provide services at or in connection with GCOA or who actually provide
services at or in connection with the Clinic for improved performance,
such as quality assurance, reasonable expenses required for physician
accommodations under the definition of "Disabled" or "Disability,"
materials management, purchasing program, change in coding analysis,
physician recruitment; provided, however, only the portion of expenses
related to such employee or consultant, without xxxx-up, that is allocable
in a fair and reasonable manner to work approved by the Policy Board which
is performed at or for the benefit of GCOA shall be included in Clinic
Expenses, and
(j) any and all other ordinary and necessary expenses incurred by
GCOA or approved by the Policy Board and reasonably incurred by Company
for the direct benefit of GCOA in carrying out their respective
obligations under this Agreement.
Clinic Expenses shall not include Excluded Expenses or Company Expenses.
Excluded Expenses shall be the sole obligation of GCOA. Company Expenses shall
be the sole obligation of Company.
8.1.4. "Technical Employees" shall mean individuals who provide billable
services on behalf of GCOA and are employees of GCOA.
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8.1.5. "Physician Extender Employees" shall mean Physician Assistants,
Nurse Practitioners, and other such persons who are employees of Company, but
excluding any Technical Employees.
8.1.6. "Physician Employees" shall mean only those individuals who are
doctors of medicine (including Physician Owners) and who are employed by GCOA or
are otherwise under contract with GCOA to provide professional services to
patients seen in the Main Office or Satellite Offices and are duly licensed to
provide
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professional medical services in the state or states in which he or she renders
professional services under this Agreement.
8.1.7. "Company Expenses" shall mean, pursuant to GAAP applied on a
consistent basis:
(a) Any corporate overhead charges of Company and other items
incurred by Company that are not incurred specifically for the purpose of
providing services to GCOA or are not directly attributable to GCOA, as
reasonably determined by Company, including, without limitation, salaries
and benefits of executive officers of Company, except as otherwise
provided for in the definition of Clinic Expenses;
(b) Any amortization of any intangible asset resulting from the
Asset Exchange;
(c) Any depreciation attributable to increases in the book value of
tangible depreciable assets resulting from the Asset Exchange;
(d) Any legal and accounting expenses incurred by Company in
connection with the Asset Exchange; and
(e) All taxes of Company, including, but not limited to, state and
federal income taxes and franchise taxes, but excluding state and federal
employee taxes related to employees who provide services for GCOA,
property taxes on assets used by GCOA and other taxes specifically
included in Clinic Expenses.
8.1.8. "Excluded Expenses" shall be the sole obligation of GCOA and shall
mean, pursuant to GAAP applied on a consistent basis:
(a) Any salaries or other distributions made to Physician Owners
whether for professional fee income or otherwise;
(b) Any federal, state or other taxes associated therewith;
(c) Except as provided in Section 8.1.3(k), expenses of Physician
Owner's to maintain licensure or meet continuing education requirements,
including related travel expense; and
(d) Any other items specifically designated as Excluded Expenses
elsewhere in this Agreement including but not limited to those items
listed on Exhibit 8.1.8(d).
8.2. Payment of Service Fee. The amounts to be paid to Company under this
Article VIII shall be payable monthly, at the time that Company pays GCOA for
the Accounts Receivable previously purchased by Company as described in Section
8.3 below. The amount payable shall be estimated based upon the previous month's
operating results of GCOA. Adjustments to the estimated payments shall be made
to reconcile actual cumulative amounts due under this Article VIII, by the end
of the following month during each calendar year. Upon preparation of annual
financial statements as provided in Section 5.3, final adjustments to the
service fee for the preceding year shall be made and any additional payments
owing to Company or GCOA shall then be made to the party owed the additional sum
of money. The adjustment and any amount owed shall be calculated and paid within
ninety (90) days following the close of Company's fiscal year.
8.3. Purchase of Accounts Receivable.
8.3.1. GCOA hereby agrees to sell and assign to Company and Company agrees
to buy, all of GCOA's Accounts Receivable each month during which this Agreement
is in existence which are owing to GCOA arising out of the delivery of medical,
surgical, diagnostic or other professional medical goods or services. Accounts
Receivable shall not include, and Company shall not purchase, any cash, checks
or receivables created by credit cards. Company shall bear the risk of
collection and any overage or underage resulting from any purchased Accounts
Receivable.
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8.3.2. The purchase price for each Accounts Receivable (the "Purchase
Price") will be equal to the face amount of the Accounts Receivable recorded
each month, less any non-allowed contractual adjustments and net of any reserve
for uncollectible Accounts Receivables based on the historical experience of the
practice as determined by Company. It is the intent of the parties that the
Purchase Price reflect the actual net realizable value of the Accounts
Receivable.
8.3.3. GCOA will sell all Accounts Receivable to Company, such purchase to
be deemed to be made on the fifteenth (15th) day of the month following the
month in which such Accounts Receivable are created. Company shall pay for the
Accounts Receivable not later than the fifteenth (15th) day of each month
following the month in which the Accounts Receivable is created (the "Settlement
Date"). Company shall pay to GCOA for all Accounts Receivable purchased by
check, wire transfer or intrabank transfer to the GCOA Operating Account
described in Section 5.11. The purchase of Accounts Receivable shall be
evidenced by sending Company (i) a copy of each invoice with respect to each
Third-Party Payor on the Accounts Receivable then being purchased; and (ii) any
other information or documentation (including all required Uniform Commercial
Code releases or financing statements) Company may reasonably need to identify
the Accounts Receivable and obtain payment from the Account Debtors; provided
that such failure to send such documents shall not affect the obligation of GCOA
to sell such Accounts Receivable or Company to buy such Accounts Receivable. As
consideration for the purchase of Accounts Receivable by Company pursuant to
this Section 8.3, Company promises to pay and shall be obligated to pay for such
Accounts Receivable at the time and in the manner provided below. To the extent
permissible by Applicable Law, GCOA will be deemed to have sold to Company all
of GCOA's right, title and interest in such Accounts Receivable and in any
proceeds thereof, and Company will be the sole and absolute owner thereof and
will own all of GCOA's rights and remedies represented by such Accounts
Receivable (including, without limitation, rights to payment from the respective
Account Debtors on such Accounts Receivable), and Company will have obtained all
of GCOA's rights under all guarantees, assignments and securities with respect
to each such Accounts Receivable.
8.3.4. Upon expiration or termination of this Agreement for any reason,
(i) all Accounts Receivable purchased by Company shall remain the property of
Company and (ii) all Accounts Receivable purchased and not paid for at such
expiration or termination shall be paid for by the 10th of the following month
but effective as of the effective date of such expiration or termination date,
less the amount of any service fee earned by Company pursuant to Section 8.1 of
this Agreement.
8.3.5. In connection with the initial purchase of Accounts Receivable by
Company, GCOA will execute such financing statements or amendments under the UCC
(naming Company as secured party and Lender as assignee) as Company may
reasonably request with respect to any Accounts Receivable that may be purchased
pursuant to this Agreement.
8.3.6. GCOA agrees to cooperate with Company in the collection of the
Accounts Receivable sold by GCOA, transferred pursuant to Section 8.3. At the
option of and upon the request of Company, GCOA shall execute any and all
documentation necessary for the transfer of amounts constituting Accounts
Receivables and/or the establishment of lockboxes in accordance with the
provisions of Exhibit 8.3.6 attached hereto.
8.3.7. All Accounts Receivable of GCOA purchased by Company ("Purchased
A/R") pursuant to this Section 8.3 hereof will, as such Purchased A/R are
purchased, be treated as Professional Service Revenues for accounting and
financial purposes.
8.4. Payment of Clinic Expenses. All Clinic Expenses shall be incurred in
the name of Company, unless GCOA is required by law to incur such expenses, in
which case Company shall indemnify GCOA against any such expenses. Company shall
pay all Clinic Expenses as they become due; provided, however, that Company may,
in the name and on behalf of GCOA, contest in good faith any claimed Clinic
Expense to which there is any dispute regarding the nature, existence or
validity of such claimed Clinic Expense. Upon receipt of GCOA's service fee,
Company shall be required to deposit into the GCOA Operating Account described
in Section 5.11 an amount of money necessary for GCOA to pay the compensation
and benefits associated with the Technical Employees and Physician Employees
(other than Physician Owners) employed by GCOA.
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ARTICLE IX.
RECORDS
9.1. Patient Records. Upon termination of this Agreement and unless
otherwise provided herein, GCOA shall retain all patient medical records
maintained by GCOA or Company in the name of GCOA. GCOA shall, at GCOA's option,
be entitled to retain copies of financial and accounting records relating to all
services performed by GCOA. 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 Company. All records relating in any way to the
operation of the Practice Offices which are not the property of GCOA under the
provisions of Section 9.1 above, shall at all times be the property of Company.
9.3. Access to Records. During the term of this Agreement, and thereafter,
GCOA or GCOA's designee shall have reasonable access during normal business
hours to GCOA's and Company's financial records, which relate to the operation
of GCOA including, but not limited to, records of collections, expenses and
disbursements as kept by Company in performing Company's obligations under this
Agreement, and GCOA may copy at GCOA's expense any 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 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 X.
INSURANCE AND INDEMNITY
10.1. Insurance to be Maintained by GCOA. Throughout the term of this
Agreement, GCOA shall maintain comprehensive professional liability and worker's
compensation insurance for GCOA and all employees of GCOA in amounts approved by
the Policy Board. Not in limitation of the foregoing, GCOA shall maintain excess
general liability umbrella coverage with a One Million Dollars ($1,000,000)
limit as currently maintained by GCOA (with deductible provisions not to exceed
$25,000 per occurrence), the cost of which shall be paid by Company as a Clinic
Expense. In lieu of the foregoing, Company may provide as a Clinic Expense group
insurance for malpractice and/or worker's compensation insurance.
Notwithstanding the foregoing, in the event that Company procures such group
insurance for malpractice and/or worker's compensation insurance, GCOA must
first approve the amount of coverage, the carrier and the terms of any such
coverage for GCOA.
10.2. Insurance to be Maintained by Company. Throughout the term of this
Agreement, Company shall provide and maintain, as a Clinic Expense,
comprehensive professional liability insurance and worker's compensation
insurance as required by Applicable Law for all professional employees of
Company who work at the Practice Offices with limits as determined reasonable by
Company, comprehensive general liability and property insurance covering the
Practice Offices' premises and operations. The deductible provisions on the
personal liability shall not exceed $25,000 per occurrence and
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the commercial general liability insurance shall be in amounts customarily
maintained by other businesses in the same or similar business as Company.
10.3. Additional Insureds. GCOA and Company agree to use their best
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at Company's expense.
Further, on any insurance where Company will be named as an additional insured,
GCOA will assist Company to obtain appropriate riders to insure payment of any
party indemnified by Company.
10.4. Indemnification. GCOA shall indemnify, hold harmless and defend
Company, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or negligent omissions (other than for any claims for (or in
connection with) malpractice arising from the performance or nonperformance of
medical services) by GCOA and/or GCOA's Physician Owners, agents, employees
and/or subcontractors (other than Company) during the term hereof. Company shall
indemnify, hold harmless and defend GCOA, the Physician Owners, GCOA's officers,
directors and employees, from and against any and all liability, loss, damage,
claim, causes of action, and expenses (including reasonable attorneys' fees),
caused or asserted to have been caused, directly or indirectly, by or as a
result of the performance of any intentional acts, negligent acts or negligent
omissions by Company and/or its shareholders, agents, employees and/or
subcontractors (other than GCOA and the Physician Owners) during the term of
this Agreement. Neither Company nor GCOA shall have any obligation to indemnify
the other party unless the claim for indemnification is based upon a liability,
loss or damage resulting in the indemnified party making payments to a third
party. Pursuant to the terms of the Stockholders Agreement, Company may have the
right to redeem a Physician Owner's Company common stock to satisfy a Physician
Owner's indemnification obligations.
In the event that either party makes a claim for indemnification under
either the Asset Exchange Agreement or this Service Agreement, then the claiming
party shall have the right, to the extent it is owed indemnifications, to pay
amounts owed to the other party under this Agreement into an escrow account
(established pursuant to an escrow agreement to be agreed upon by the parties)
to be held by the escrow agent in an interest bearing account until a
determination by either (i) the parties, (ii) a court of proper jurisdiction or
(iii) agreed upon panel of arbitrators, has been made regarding the claiming
party's right to indemnification. In the event that the claiming party is
entitled to indemnification, then such escrowed funds shall be paid to the
claiming party in partial or complete satisfaction of such indemnification
obligation. Any excess funds remaining in the escrow account after the payment
of the indemnification obligation or any funds held in the escrow account if it
is determined that no indemnification obligation is owed shall be paid to the
other party.
ARTICLE XI.
TERM, TERMINATION AND RETIREMENT
11.1. Term of Agreement. This Service Agreement shall be effective upon
the closing of the Asset Exchange Agreement and shall expire on October 31, 2036
unless earlier terminated pursuant to the terms hereof. Notwithstanding the
foregoing, for purposes of computing the Service Fee for the month of November
1996 only, the Service Agreement shall be effective upon November 1, 1996.
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. Termination by GCOA for Cause. GCOA may terminate this Agreement
without breach as follows:
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11.3.1. In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by Company, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by Company, except for the filing of a petition in
involuntary bankruptcy against Company which is dismissed within thirty (30)
days thereafter, GCOA may give notice of the immediate termination of this
Agreement.
11.3.2. In the event Company shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to Company by GCOA; or Company shall fail to remit the payments due
as provided in Article VIII hereof and such failure to remit shall continue for
a period of thirty (30) days after written notice thereof, GCOA may terminate
this Agreement.
11.3.3. In the event Company shall, intentionally or in bad faith,
misapply funds or assets of GCOA or commit a similar act which cause material
harm to GCOA, GCOA may terminate this Agreement.
11.3.4. In the event that Company shall intentionally or in bad faith
violate Applicable Law resulting in a direct, continuing material adverse effect
on the operations, earnings and cash flow of GCOA, GCOA may terminate this
Agreement.
11.4. Termination by Company for Cause. Company may terminate this
Agreement without breach as follows:
11.4.1. In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by GCOA, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by GCOA, except for the filing of a petition in
involuntary bankruptcy against GCOA which is dismissed within thirty (30) days
thereafter, Company may give notice of the immediate termination of this
Agreement.
11.4.2. In the event GCOA shall materially default in the performance of
any duty or obligation imposed upon it by this Agreement, and such default shall
continue for a period of ninety (90) days after written notice thereof has been
given to GCOA by Company, Company may terminate this Agreement.
11.4.3. In the event GCOA's Medicare or Medicaid Number shall be
terminated or suspended as a result of the action or inaction of GCOA or a
Physician Employee, and such termination or suspension shall continue for thirty
(30) days, Company may give notice of the immediate termination of this
Agreement, unless GCOA shall at that time be acting in good faith (and shall
provide reasonable evidence of the action being taken) to reverse such
termination or suspension. Notwithstanding any good faith effort on the part of
GCOA to reverse such termination or suspension, if such termination or
suspension shall not be reversed within ninety (90) days after occurrence,
Company shall have the right to terminate this Agreement immediately.
11.4.4. In the event this Agreement is terminated by Company pursuant to
Section 11.4.1, Section 11.4.2, or Section 11.4.3, Company, at its option,
may require GCOA to purchase from Company all assets, both tangible and
intangible, owned by Company and used or made available for GCOA's use for the
fair market value of such assets on a going concern basis, without regard to
this Agreement. In addition thereto, GCOA shall assume all debt (including any
balance of any remaining debt incurred by Company to acquire the assets under
the Asset Exchange Agreement) and all contracts, payables and leases which are
obligations of Company which relate to Company's obligations which are performed
at the Office Locations under this Agreement. The fair market value of the
assets shall be determined by an independent appraiser selected by two (2)
independent accountants practicing with "big six" accounting firms, one (1)
selected by GCOA and one (1) selected by Company and neither of which is
providing or has for a period of two (2) years provided services to Company or
GCOA. In addition to the payment for the practice assets, in the event Company
terminates this Agreement pursuant to Section 11.4.1, Section 11.4.2 or Section
11.4.3 within the first five (5) years of the term of this Agreement, then
GCOA's Physician Owners shall (i) pay to Company an amount of money equal to the
Fair Market Value, as of the date of termination, of one-third (1/3) of the
shares of stock and any cash consideration issued by Company to GCOA pursuant to
the Asset Exchange Agreement or (ii) surrender to Company for cancellation
- 22 -
one-third (1/3) of the shares of stock and cash consideration issued by
Company to GCOA pursuant to the Asset Exchange Agreement. All expenses of any
appraisal shall be paid by GCOA. In the event that Company terminates this
Agreement pursuant to Sections 11.4.1 through 11.4.3, inclusive, and Company
requires GCOA to purchase the practice assets, then upon the closing of the
purchase of the assets, GCOA and its Physician Employees shall be released from
the restrictive covenants provided for under Exhibit 11 of this Agreement. In
addition, termination of the Agreement may trigger certain rights of Company to
redeem a Physician Owner's Company common stock pursuant to the terms of Article
VIII of the Stockholders Agreement.
11.5. Early Termination by GCOA or Company Without Cause Upon Third (3rd)
Anniversary of Agreement. Either party may terminate this Agreement without
cause upon written notice delivered to the other party not less than nine (9)
months or more than ten (10) months or more prior to the end of the third (3rd)
anniversary of the date of this Agreement if Company has not filed a
registration statement with the United States Securities and Exchange
Commission; provided, however, if Company files a registration statement, for an
underwritten public offering, with the United States Securities and Exchange
Commission before the end of the date of the third (3rd) anniversary of this
Agreement, then such termination shall be ineffective, and this Agreement shall
continue in force unless otherwise terminated pursuant to the other provisions
of Article XI of this Agreement. In the event that such registration statement
is not effective within one hundred twenty (120) days from filing, then the
early termination rights described in the first sentence of this Section 11.5
shall be again exercisable; provided, further, that if such registration
statement was filed during the above described notice period for early
termination, then such period shall be extended for thirty (30) days from and
after the date such early termination rights again become exercisable.
Notwithstanding any other provision of this Agreement to the contrary, the
termination rights set forth in this Section 11.5 shall immediately terminate
and no longer be effective upon a Change in Control of Company. Upon a
termination pursuant to this Section 11.5, GCOA shall tender to Company all of
the stock issued to GCOA by Company pursuant to the Asset Exchange Agreement,
and Company shall return to GCOA the facilities and all assets, both tangible
and intangible, used or made available for GCOA's use in the Practice Office.
GCOA shall assume all debt (including any balance of any remaining debt incurred
by Company to acquire the assets under the Asset Exchange Agreement) and all
contracts, payables and leases which are obligations of Company and which relate
to Company's obligations which are performed at the Office Locations under this
Agreement. Company and GCOA shall cooperate to structure any exchange
consummated pursuant to this Section 11.5 in a manner designed to minimize the
aggregate tax consequences to the parties arising from the exchange. Closing of
the exchange pursuant to this Section 11.5 shall occur effective as of the third
(3rd) anniversary of this Agreement.
11.6. Consequences of GCOA Termination. In the event that this Agreement
is terminated by GCOA under the terms of Section 11.3 or is terminated on any
other basis (other than (i) because of the normal expiration of its term set
forth in Section 11.1, (ii) by Company for cause as set forth in Section 11.4 or
(iii) by early termination as set forth in Section 11.5), then upon such
termination, GCOA shall purchase from Company all assets, both tangible and
intangible, owned by Company and used or made available for GCOA's use for the
fair market value of such assets on a going concern basis, without regard to
this Agreement. In addition thereto, GCOA shall assume all debt (including any
balance of any remaining debt incurred by Company to acquire the assets under
the Asset Exchange Agreement) and all contracts, payables and leases which are
obligations of Company which relate to Company's obligations which are performed
at the Office Locations under this Agreement. The fair market value of the
assets shall be determined by an independent appraiser selected by two (2)
independent accountants practicing with "big six" accounting firms, one (1)
selected by GCOA and one (1) selected by Company and neither of which is
providing or has for a period of two (2) years provided services to Company or
GCOA. Termination of this Agreement by GCOA or a Physician Owner may trigger
Company's right to redeem all of Company common stock owned by the Physician
Owner as provided for in Section 8.1 (a) of the Stockholders Agreement.
11.7. Closing of Purchase by GCOA and Effective Date of Termination. GCOA
shall, except as provided below in this Section 11.7, pay cash for the practice
assets purchased pursuant to the provisions of this Section 11. The amount of
the purchase price shall be reduced, but not below zero (0), by the amount of
debt and liabilities of Company assumed by GCOA and shall also be reduced by any
payment Company has failed to make under this Agreement, provided that such
payments or obligations are not otherwise accounted for in the liabilities
assumed by GCOA in connection with the purchase
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described herein. The closing date for the purchase shall be determined by GCOA,
but shall in no event occur later than one hundred eighty (180) days from the
date of the notice of termination. The termination of this Agreement shall
become effective upon the closing of the sale of the assets and GCOA and Company
shall be released from the restrictive covenants provided for in Article VII on
the closing date. Company shall give GCOA credit towards the purchase price of
the assets for the Fair Market Value of any Company common stock tendered to
Company in exchange for such assets. In the event that GCOA terminates this
Agreement pursuant to Sections 11.3.1 through 11.3.4, inclusive, or Sections
11.5, 11.6 or 11.7, then upon the closing of the purchase of the assets, GCOA
and its Physician Employees shall, except as GCOA may so elect to limit through
separate agreements with Physician Owners and Physician Employees, be released
from the restrictive covenants provided for under Article VII or Exhibit 11 of
this Agreement.
11.8. Tail Policy. GCOA shall obtain continuing liability insurance
coverage under either a "tail policy" or a "prior acts policy" with the same
limits and deductibles as set forth in Section 10.1 upon the termination of this
Agreement, or upon a physician's termination of his or her affiliation with
GCOA.
11.9. Restrictions Applicable to Physician Owners. The Physician Owners
hereby acknowledge that the Asset Exchange and the terms and conditions of this
Agreement were determined based upon numerous factors, including the Physician
Owners continuing to practice medicine in the future. In connection therewith,
each Physician Owner agrees as follows:
11.9.1. Early Retirement. If at any time prior to the fifth (5th)
anniversary of this Agreement, a Physician Owner desires to retire from the
practice of medicine, such Physician Owner shall be obligated as follows:
(a) to give Company at least twelve (12) months prior written notice
of the intent to retire; provided, however, that once such retiring
physician has located a replacement physician satisfying the requirements
of Section 11.9.1(b), Company shall waive the remaining months of said
twelve (12) month notice period, and such retirement shall be effective
upon the earlier of twelve (12) months from the date of notice or
commencement of the replacement physician's employment;
(b) to locate a physician or physicians (which may be Physician
Employees), reasonably acceptable to the Policy Board, to replace such
Physician Owner under this Agreement (all costs of locating such
replacement physicians shall be paid by such Physician Owner (the
"Substitute Physician(s)");
(c) to pay to Company any loss of service fees payable under this
Agreement for the remainder of the first five (5) years of this Agreement.
Any loss for any periods of less than twelve (12) months shall be
calculated on an annualized and prorated basis. For purposes of this
Section 11.9.1(c), the amount of the loss shall be calculated as follows:
(i) The Policy Board shall calculate the retiring Physician
Owner's contribution to the payment of GCOA's service fees
during the twelve (12) month period preceding the retiring
Physician Owner's notice of intent to retire.
(ii) In the event the Substitute Physician(s) were Physician
Employees prior to the date upon which notice of intent to
retire was given pursuant to Section 11.9.1(a), the Policy
Board shall calculate such Physician Employee(s) contribution
to the payment of GCOA's service fees during the twelve month
period preceding the notice of intent to retire.
(iii) On each successive anniversary date of this Agreement (through
the fifth anniversary date) following the effective date of
such retirement, the Policy Board shall determine the amount
of service fees generated by the Substitute Physicians between
either (x) the effective date of
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retirement or (y) the immediately preceding anniversary date,
as applicable, and such successive anniversary date.
(iv) If the Substitute Physician(s) were Physician Employees prior
to date upon which the notice of intent to retire was given,
the amount of loss shall equal the difference between (i) the
amount calculated pursuant to Section 11.9.1(c)(i) plus the
amount calculated pursuant to Section 11.9.1(c)(ii) and (ii)
the amount calculated pursuant to Section 11.9.1(c)(iii).
(v) If the Substitute Physician(s) were not Physician Employees
prior to the date upon which the notice of intent to retire
was given, the amount of loss shall equal the difference
between (i) the amount calculated pursuant to Section
11.9.1(c)(i) and (ii) the amount calculated pursuant to
Section 11.9.1(c)(iii).
The Policy Board will provide the amount of the loss to the retiring Physician
Owner within thirty (30) days of the applicable anniversary date of this
Agreement and such amount shall be paid by such retiring Physician Owner to
Company within fifteen (15) days of the date of the delivery of the notice of
the amount of loss;
(d) to (i) pay to Company an amount of money equal to the Fair
Market Value, as of the date of retirement, of one-third (1/3) of the
shares of stock issued by Company to the retiring Physician Owner pursuant
to the Asset Exchange Agreement or (ii) surrender to Company for
cancellation one-third (1/3) of the stock issued by Company to the
retiring Physician Owner pursuant to the Asset Exchange Agreement. (All
expenses of any appraisal shall be paid by such Physician Owner.); and
(e) to honor and comply with the restrictive covenants provided for
under Exhibit 11.
11.9.2. Retirement. If at any time after the fifth (5th) anniversary of
this Agreement, a Physician Owner desires to retire, or assume full-time
teaching responsibilities, such Physician Owner shall notify Company in writing
at least twelve (12) months prior to the effective date of such retirement or
start of teaching position; provided, however, that no more than twenty percent
(20%) of the Physician Owners can retire or assume full time teaching
responsibilities within any twelve (12) month period; provided, further, that if
such retiring physician elects to, and has located a replacement physician,
Company shall waive the remaining months of said twelve (12) month notice
period, and such retirement shall be effective upon the earlier of twelve (12)
months from the date of notice or commencement of the replacement physician's
employment. Upon such retirement or start of teaching position, such Physician
Owner shall have no further obligations under this Agreement; provided, however,
the restrictive covenants provided for under Exhibit II shall remain in force.
In fulfilling any such full-time teaching responsibilities, such Physician Owner
would be permitted to attend patients in a manner normal and customary for such
faculty position, provided, however, such services must be incident to the
academic/teaching aspects of the institution, and not incident to the regular
examination of patients for a fee whether billed in the name of the institution
or the name of the attending physician. It is not the intent of the Parties to
permit a retired physician to conduct a medical practice through an academic
institution.
11.9.3. Physician Owner Change in Practice/Group Affiliation. In the event
that a Physician Owner leaves the employment of or terminates his or her
affiliation with GCOA, then the terminating Physician Owner may join or
establish another group/practice which has or will enter into a Service
Agreement with Company upon such terminating Physician Owner's affiliation with
such new group/practice. Upon entering into such new Service Agreement, the
terminating Physician Owner shall, except as limited by separate employment
agreements between GCOA and Physician Owners, be released from any obligation
under this Service Agreement. Company shall have the right to enter into such
new Service Agreement without satisfying the requirements of paragraph G of
Exhibit 11. In the event that (i) GCOA consents to Company entering into the new
Service Agreement, (ii) entering into the new Service Agreement will not
adversely affect the operations and earnings of Company, and (iii) the new
group/practice can satisfy the representations and warranties set forth in
Article XIII of this Agreement, then Company will not unreasonably withhold or
refrain from entering into a new
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Service Agreement with the terminating Physician Owner's new group/practice.
Except as set forth herein, in the event that the Physician Owner affiliates
with a new group/practice that is not a party to a Service Agreement with
Company, then Company, at its option, may terminate this Agreement solely with
respect to the terminating Physician Owner, and the provisions of Exhibit 11
shall apply. In the event that Company does not enter into a new Service
Agreement, then Company shall terminate this Agreement with respect to such
Physician Owner, and the terminating Physician Owner shall be obligated as
described in Sections 11.9.1 (a) and 11.9.1(e) of this Agreement; provided,
however, if such termination is within the first five (5) years of the term of
this Agreement, the terminating Physician Owner shall also be obligated as
described in Sections 11.9.1.(a), 11.9.1(b), 11.9.1(c), 11.9.1(d) and 11.9.1(e).
11.9.4. Death or Disability. In the event that a Physician Owner dies or
becomes disabled, then the Physician Owner shall have no continuing obligations
under this Agreement; provided, however, in the event of disability, the
restrictive covenants described in Exhibit 11 shall remain in force.
ARTICLE XII.
DAMAGE AND LOSS; CONDEMNATION
12.1. Use of Insurance Proceeds. All insurance or condemnation proceeds
payable by reason of any physical loss of any of the improvements comprising the
facilities or the furniture, fixtures and equipment used by the Practice
Offices, shall be available for the reconstruction, repair or replacement, as
the case may be, of any damage, destruction or loss. The Policy Board, in
consultation with GCOA, 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, Company shall use its
best efforts to provide temporary facilities until such time as the facilities
can be restored or replaced.
ARTICLE XIII.
REPRESENTATIONS AND WARRANTIES OF GCOA AND PHYSICIAN OWNERS
GCOA and Physician Owners represent, warrant, covenant and agree with
Company that:
13.1. Validity. GCOA is a Maryland limited liability company. GCOA has the
full power and authority to own GCOA's property, to carry on GCOA's business as
presently being conducted, to enter into this Agreement, and to consummate the
transactions contemplated hereby. Each Physician Owner is an adult citizen and
resident of the State of Maryland. Each Physician Owner has the full power and
authority to own his or her property, carry on his or her business as presently
being conducted, to enter into this Agreement, and to consummate the
transactions contemplated hereby.
13.2. Litigation. Except as disclosed pursuant to the Asset Exchange
Agreement, there is no suit, action, proceeding at law or in equity,
arbitration, administrative proceeding or other proceeding pending, or
threatened against, or affecting GCOA or any Physician Employee, or to the best
of GCOA's and each Physician Owner's knowledge, any provider or other health
care professional associated with or employed by GCOA as pertains to any claim
involving the providing of health care related services, and to the best of
GCOA's and each Physician Owner's knowledge there is no basis for any of the
foregoing.
13.3. Permits. GCOA and all health care professionals associated with or
employed by GCOA have all permits and licenses and other Necessary
Authorizations required by all Applicable Law, 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 GCOA's business; and are not in violation of any of said permitting
or licensing requirements.
13.4. Authority. The execution of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action, and this Agreement is a valid and binding Agreement of GCOA and each
Physician Owner, enforceable in accordance with its terms. GCOA and each
Physician Owner have obtained all third-party
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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 GCOA or
any Physician Owner with any of the provisions hereof, will:
13.4.1. 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 any license, agreement or other
instrument or obligation to which either GCOA or any Physician Owner is a party;
13.4.2. violate any order, writ, injunction, decree, statute, rule or
regulation applicable to either GCOA or any Physician Owner.
13.5. Compliance with Applicable Law. To the best of GCOA's and each
Physician Owner's knowledge and belief, GCOA and each Physician Owner has
operated in compliance with all federal, state, county and municipal laws,
ordinances and regulations applicable thereto and neither GCOA nor any provider
associated with or employed by GCOA has received payment or any remuneration
whatsoever to induce or encourage the referral of patients or the purchase of
goods and/or services as prohibited under 42 U.S.C. ss. 1320a-7b(b), or
otherwise perpetrated any Medicare or Medicaid fraud or abuse, nor has any fraud
or abuse been alleged within the last five (5) years by any Governmental
Authority, a carrier or a Third-Party Payor.
13.6. Health Care Compliance. GCOA is presently participating in or
otherwise authorized to receive reimbursement from or is a party to Medicare,
Medicaid, and other Third-Party Payor Programs. All necessary certifications and
contracts required for participation in such programs are in full force and
effect and have not been amended or otherwise modified, rescinded, revoked or
assigned as of the date hereof, and no condition exists or to the knowledge of
GCOA no event has occurred which in itself or with the giving of notice or the
lapse of time or both would result in the suspension, revocation, impairment,
forfeiture or non-renewal of any such Third-Party Payor Program. GCOA is in full
compliance with the material requirements of all such Third-Party Payor Programs
applicable thereto.
13.7. Fraud and Abuse. GCOA and persons and entities providing
professional services for GCOA, have not, to the knowledge of GCOA and each
Physician Owner, after due inquiry, engaged in any activities which are
prohibited by or are in violation of the rules, regulations, policies, contracts
or laws pertaining to any Third-Party Payor Program, or which are prohibited by
rules of professional conduct ("Governmental Rules and Regulations"), including
but not limited to the following: (a) knowingly and willfully making or causing
to be made a false statement or representation of a material fact in any
application for any benefit or payment; (b) knowingly and willfully making or
causing to be made any false statement or representation of a material fact for
use in determining rights to any benefit or payment; (c) failing to disclose
knowledge by a claimant of the occurrence of any event affecting the initial or
continued right to any benefit or payment on GCOA's own behalf or on behalf of
another, with intent to fraudulently secure such benefit or payment; or (d)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay or receive such remuneration (i) in return
for referring an individual to a person for the furnishing or arranging for the
furnishing or any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (ii) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
13.8. GCOA Compliance. GCOA has all licenses necessary to operate the
Practice Offices in accordance with the requirements of all Applicable Law and
has all Necessary Authorizations for the use and operation, all of which are in
full force and effect. There are no outstanding notices of deficiencies relating
to GCOA 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, GCOA 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.
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13.9. Rates and Reimbursement Policies. The jurisdiction in which GCOA is
located does not currently impose any restrictions or limitations on rates which
may be charged to private pay patients receiving services provided by GCOA. GCOA
does not have any rate appeal currently pending before any Governmental
Authority or any administrator of any Third-Party Payor Program. GCOA has no
knowledge of any Applicable Law which has been enacted, promulgated or issued
within the eighteen (18) months preceding the date of this Agreement or any such
legal requirement proposed or currently pending in the jurisdiction in which
GCOA is located which could have a material adverse effect on GCOA or may result
in the imposition of additional Medicaid, Medicare, charity, free care, welfare,
or other discounted or government assisted patients at GCOA or require GCOA to
obtain any necessary authorization which GCOA does not currently possess.
13.10. Accounts Receivable. With respect to the Purchased A/R, as of the
date of purchase:
13.10.1. All documents and agreements relating to the Purchased A/R that
have been delivered to Company with respect to such Accounts Receivable are true
and correct; GCOA has billed the applicable Account Debtor and GCOA has
delivered or caused to be delivered to such Account Debtor all requested
supporting claim documents with respect to such Accounts Receivable; all
information set forth in the xxxx and supporting claim documents is true and
correct, and, if any error has been made, GCOA will promptly correct the same
and, if necessary, rebill or, if requested by Company, cooperate with Company to
rebill such Accounts Receivable.
13.10.2. The Purchased A/R are exclusively owned by GCOA and there is no
security interest or lien in favor of any third party, or the recording or
filing against GCOA, as debtor, covering or purporting to cover any interest of
any kind in any Accounts Receivable, except as has been released by each party
holding such adverse interest in the Accounts Receivable. Upon payment of the
Purchase Price with respect to the Purchased A/R and with respect to
Governmental Receivables, to the extent permissible by law, all right, title and
interest of GCOA with respect thereto shall be vested in Company, free and clear
of any lien, security interest, claim or encumbrance of any kind, and GCOA
agrees to defend the same against the claims of all Persons.
13.10.3. The Purchased A/R (i) are payable, in an amount not less than
their face amount, as adjusted pursuant to the provisions of Section 8.3.2, by
the Account Debtor identified by GCOA as being obligated to do so, (ii) are
based on an actual and bona fide rendition of services or sale of goods to the
patient by GCOA in the ordinary course of business, (iii) are denominated and
payable only in lawful currency of the United States, and (iv) are accounts or
general intangibles within the meaning of the UCC of the state in which GCOA has
its principal place of business, or are rights to payment under a policy of
insurance or proceeds thereof, and are not evidenced by any instrument or
chattel paper. There are no payors other than the Account Debtor identified by
GCOA as the payor primarily liable on any Purchased A/R.
13.10.4. The Purchased A/R are not (i) subject to any action, suit,
proceeding or dispute (pending or threatened), set-off, counterclaim, defense,
abatement, suspension, deferment, deductible, reduction or termination by the
Account Debtors other than routine adjustments and disallowances made in the
ordinary course of business, to the extent of such adjustments and
disallowances, (ii) past or within sixty (60) days of, the statutory limit for
collection applicable to the Account Debtor, (iii) subject to an invoice which
provides for payment more than forty-five (45) days from the date of such
invoice, (iv) an account which arises out of a sale or other transaction by or
between GCOA to an Affiliate of GCOA, (v) from an Account Debtor who is also a
creditor of GCOA, (vi) an account in which the Account Debtor has commenced a
voluntary case, or an involuntary proceeding has been instituted, under the
federal bankruptcy laws, as now constituted or hereafter amended, or made an
assignment for the benefit or creditors, or if a decree or order for relief has
been entered by a court having jurisdiction in the premises in respect to the
Account Debtor, (vii) an account of which the goods giving rise to such Accounts
Receivable have not been shipped and delivered to and accepted by the Account
Debtor or the services giving rise to such Accounts Receivable have not been
performed by GCOA and accepted by the Account Debtor or the Accounts Receivable
otherwise does not represent a final sale, (viii) is evidenced by an instrument
or chattel paper unless such instrument or chattel paper is delivered to Company
with all appropriate endorsements in favor of Company, or (ix) other than a
complete bona fide transaction which requires no further act under any
circumstances on the part of GCOA to make the Accounts Receivable payable by the
Account Debtor.
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13.10.5. GCOA does not have any guaranty of, letter of credit providing
credit support for, or collateral security for, the Purchased A/R, other than
any such guaranty, letter of credit or collateral security as has been assigned
to Company, and any such guaranty, letter of credit or collateral security is
not subject to any lien in favor of any other person.
13.10.6. The goods or services provided and reflected by the Purchased A/R
were medically necessary for the patient in the opinion of GCOA and the patient
received such goods or services.
13.10.7. The face amount of the Accounts Receivable for the services
constituting the basis for the Purchased A/R are consistent with the usual,
customary and reasonable fees charged by other similar medical service providers
in GCOA's community for the same or similar service.
13.10.8. Each Account Debtor with respect to the Purchased A/R (i) is not
currently the subject of any bankruptcy, insolvency or receivership proceeding,
nor is it generally unable to make payments on its obligations when due, (ii) is
located in the United States, and (iii) is one of the following: (x) a party
which in the ordinary course of its business or activities agrees to pay for
healthcare services received by individuals, including, without limitation,
Medicare, Medicaid, governmental bodies, commercial insurance companies and
non-profit insurance companies (such as Blue Cross and Blue Shield entities)
issuing health, personal injury, workers compensation or other types of
insurance; (y) employers or unions which self-insure for employee or member
health insurance, prepaid healthcare organizations, preferred provider
organizations, health maintenance organizations or any other similar person, or
(z) a Third-Party Payor of the type described in the definition of Governmental
Receivables.
13.10.9. The proceeds of the sale of the Purchased A/R will be used for
the business and commercial purposes of GCOA. The sale of the Purchased A/R
hereunder is made in good faith and without actual intent to hinder, delay or
defraud present or future creditors of GCOA.
13.10.10. Except with respect to Governmental Receivables, the insurance
policy, contract or other instrument obligating an Account Debtor to make
payment with respect to the Purchased A/R (i) does not contain any provision
prohibiting the transfer of such payment obligation from the patient to GCOA, or
from GCOA to Company, (ii) has been duly authorized by GCOA and to the knowledge
of GCOA has been duly authorized by the Account Debtor and, together, with the
Purchased A/R, constitutes the legal, valid and binding obligation of the
Account Debtor in accordance with its terms, (iii) together with the applicable
Purchased A/R, does not contravene in any material respect any requirement of
law applicable thereto, and (iv) was in full force and effect and applicable to
the patient at the time the services constituting the basis for the Purchased
A/R were performed.
None of the foregoing representations and warranties shall be deemed to
constitute a guaranty by GCOA that the Purchased A/R will be collected by
Company. GCOA shall not be responsible for any damages for any breach of a
representation or warranty under this Section 13.10 until Company has suffered a
loss on the purchase of GCOA's Accounts Receivable. Damages for such breach
shall be limited to the amount of Company's loss on the purchase of such
Accounts Receivable.
13.11. Full Disclosure. When considered in the context of all information
contained herein, to the knowledge of GCOA no representation or warranty made by
GCOA in this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
13.12. Exhibits. All the facts recited in Exhibits annexed hereto shall be
deemed to be representations of fact by GCOA as though recited in this Article
XIII.
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ARTICLE XIV.
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents, warrants, covenants and agrees with GCOA as follows:
14.1. Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Company
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. Company 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 Company
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 Company is a party or by
which it is bound.
14.3. Absence of Litigation. No action or proceeding by or before any
court or other Governmental Authority has been instituted or is, to the best of
Company's knowledge, threatened with respect to the transactions contemplated by
this Agreement.
14.4. Transactions with Affiliates. Company 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 GCOA or Company, other than on terms
and conditions substantially as favorable to Company as would be obtainable by
Company at the time in a comparable arm's-length transaction with a person not
an Affiliate.
ARTICLE XV.
COVENANTS OF GCOA AND PHYSICIAN OWNERS
15.1. Merger, Consolidation and Other Arrangements. GCOA shall not
incorporate, merge or consolidate with any other entity or individual or
liquidate or dissolve or wind-up GCOA's affairs or enter into any partnerships,
joint ventures or sale-leaseback transactions or purchase or otherwise acquire
(in one or a series of related transactions) any part of the property or assets
(other than purchases or other acquisitions of inventory, materials and
equipment in the ordinary course of business) of any other person or entity.
15.2. Necessary Authorizations/Assignment of Licenses and Permits. GCOA
and each Physician Owner 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 GCOA or any Physician Owner assign,
transfer, or remove or permit any other individual or entity to assign, transfer
or remove any records of GCOA or any Physician Owner, including without
limitation, patient records, medical and clinical records (except for removal of
such patient records as required under any Applicable Law).
15.3. Transaction with Affiliates. Neither GCOA nor any Physician Owner
shall enter into any transaction or series of transactions, whether or not
related or in the ordinary course of business, with any Affiliate of GCOA or
Company, other than on terms and conditions substantially as favorable to GCOA
or the Physician Owner, as would be obtainable by GCOA or the Physician Owner at
the time in a comparable arms-length transaction with a person not an Affiliate.
15.4. Compliance with All Laws. GCOA and each Physician Owner shall use
their best efforts to comply with all laws and regulations relating to GCOA's
practice and the operation of any facility, including, but not limited to, all
state,
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federal and local laws relating to the acquisition or operation of a health care
practice. Furthermore, neither GCOA nor any Physician Owner shall intentionally
violate any Governmental Rules and Regulations.
15.5. Third-Party Payor Programs. GCOA shall maintain GCOA's compliance
with the requirements of all Third- Party Payor Programs in which GCOA is
currently participating or authorized to participate.
15.6. Change in Business or Credit and Collection Policy. GCOA shall not
make any change in the character of GCOA's business or in the credit and
collection policy, which change would, in either case, impair the collectibility
of any Purchased A/R or any Exchange A/R or otherwise modify, amend or extend
the terms of any such account other than in the ordinary course of business.
15.7. Treatment of Accounts Receivable. GCOA will (i) treat transfers to
Company of Accounts Receivable hereunder as a sale for all purposes, including
tax and accounting (and shall accurately reflect such sale in its financial
statements), and will advise all persons who inquire about the ownership of such
Accounts Receivable that they have been sold to Company; (ii) not treat any such
Accounts Receivable as an asset on GCOA's books and records; (iii) record in
GCOA's books, records and computer files pertaining thereto that such Accounts
Receivable have been sold to Company; (iv) pay all taxes, if any, relating to
the transfer of such Accounts Receivable after the same have been purchased by
Company; (v) not impede or interfere with Company's collection of such Accounts
Receivable; (vii) not amend, waive or otherwise permit or agree to any deviation
from the terms or conditions of such Accounts Receivable; (viii) use all
reasonable efforts to obtain all consents from patients which are required by
law in order for Company, or any servicing entity retained by Company, to secure
information needed to obtain or to expedite payment from the respective Account
Debtors; and (ix) have billed such Accounts Receivable on the same bases and
using the same policies and practices that it has used in the past unless
Company has been advised in writing of a change prior to the purchase of such
Accounts Receivable. Company or its designated representatives from time to time
may verify the Accounts Receivable, inspect, check, take copies or extracts from
GCOA's books, records and files, and GCOA will make the same available to
Company or such representatives at any reasonable time for such purposes.
15.8. Security Interest. If, contrary to the mutual intent of GCOA and
Company, any purchase of Purchased A/R is not characterized as a sale, GCOA
shall, effective as of the date hereof, be deemed to have granted (and GCOA does
hereby grant) to Company a first priority security interest in and to any and
all of the Purchased A/R and the proceeds thereof to secure the repayment of all
amounts advanced to GCOA hereunder with accrued interest thereon, and this
Agreement shall be deemed to be a security agreement. With respect to such grant
of a security interest, Company may at its option exercise from time to time any
and all rights and remedies available to it under the UCC or otherwise. GCOA
agrees that five (5) days shall be reasonable prior notice of the date of any
public or private sale or other disposition of all or part of the Purchased A/R.
GCOA represents and warrants that the location of GCOA's principal place of
business, and all locations where GCOA maintains records with respect to its
accounts are set forth under its name in Section 16.3 hereof. GCOA agrees to
notify Company in writing thirty (30) days prior to any change in any such
location. The exact name of GCOA is as set forth at the beginning of this
Agreement, and except as set forth on the signature page hereof, GCOA has not
changed its name in the last five (5) years, and during such period GCOA did not
use, nor does GCOA now use, any fictitious or trade name. GCOA shall notify
Company in writing thirty (30) days prior to any change in any such name.
ARTICLE XVI.
GENERAL PROVISIONS
16.1. Assignment. Company shall have the right to assign its rights
hereunder to any person, firm or corporation under common control with Company
and to any lending institution from which Company obtains financing, including
but not limiting the restrictive covenants included in Article VII (covenant not
to compete), for security purposes or as collateral. GCOA agrees to, and
acknowledges, Company's right to assign Company's rights under this Agreement to
any Lender and further agrees that upon receipt of written notice from such
Lender, GCOA shall pay to Lender or cause to be
- 31 -
paid to Lender all amounts which are otherwise payable to Company pursuant to
the terms of this Agreement, including, without limitation, all service fees,
and other Clinic Expenses and, until such amounts are delivered to Lender, hold
payments in trust for Lender. Except as set forth above, neither Company nor
GCOA shall have the right to assign their respective rights and obligations
hereunder without the written consent of the other party. Without limiting the
foregoing, GCOA acknowledges that, as collateral for certain obligations,
Company has assigned all of its rights hereunder to NationsBank of Tennessee,
N.A. as Agent (the "Agent") for itself and other banks and institutional lenders
from time to time (collectively the "Banks") and has granted the Agent for the
benefit of the Banks a lien and security interest upon all real and personal
property used in the operation of the Office Locations (the "Pledged Assets").
As an inducement for the Banks to extend or continue the extension of credit to
Company, GCOA (i) acknowledges that the collateral assignment to the Agent
covers all rights of Company hereunder, including, but not limited to, rights
arising from warranties and representations made by GCOA, rights to enforce
covenants made by GCOA, and rights to receive all payments due Company; (ii)
agrees to regard the Agent as the owner of any or all of the assigned rights
upon written notice to GCOA of this election from the Agent; (iii) agrees that
neither the Agent nor any of the Banks has obligation for the performance of the
duties of Company hereunder, and shall not assume any such duty by the exercise
of rights as a secured lender; (iv) agrees to give the Agent written notice of
any material default hereunder on Company's part at the address of 0 XxxxxxxXxxx
Xxxxx, Xxxxxxxxx, Xxxxxxxxx 00000, Attn: Xxxxx Xxxxx, and to allow at least
thirty (30) days thereafter for the cure of such default before GCOA terminates
this Agreement; (v) agrees that the rights of GCOA under this Agreement,
including, but not limited to, the right to the use of the Pledged Assets, are
and shall be junior to any security interest that the Agent and the Banks, their
successors or assigns may have in the Pledged Assets at any time; (vi) agrees
that the benefits of the above undertakings in favor of the Agent and Banks
shall further extend to all successors and assigns of the Agent and Banks,
provided that any notices given by GCOA under this Section shall be given to the
Agent at the foregoing address unless GCOA has received written notice of a
change thereof; and (vii) agrees that this Section may not be modified, and no
provision of this Section may be waived, absent the written approval of the
Agent.
16.2. 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.
16.3. Notices. All notices required or permitted by this Agreement shall
be in writing and shall be deemed to have been given (i) when received if given
in person, (ii) on the date of acknowledgment of receipt if sent by telex,
facsimile or other wire transmission, (iii) one business day after being sent by
overnight delivery service, or (iv) three days after being deposited in the
United States mail, certified or registered mail, postage prepaid, addressed as
follows:
To Company: Specialty Care Network, Inc.
00 Xxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxx
With a copy to: Baker, Donelson, Bearman & Xxxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
To GCOA: Greater Chesapeake Orthopaedic
Associates, L.L.C.
0000 Xxxxx Xxxxxxx Xxxxxx
- 32 -
Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxxxxxx, M.D.
With a copy to: Michener, Larimore, Swindle,
Whitaker, Flowers, Sawyer,
Xxxxxxxx & Chalk, L.L.P.
000 Xxxxxxxx Xxxxxx
0000 Xxxx Xxxxx XX
Xxxx Xxxxx, Xxxxx 00000-0000
Attention: Xxxx X. Xxxxxxxx, Xx.
or to such other address as either party shall notify the other.
16.4. Binding on Successors. Subject to Section 16.1, this Agreement shall
be binding upon the parties hereto, and their successors, assigns, heirs and
beneficiaries.
16.5. 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.
16.6. 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 Maryland.
16.7. No Practice of Medicine. The parties acknowledge that Company 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 Company 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 Company shall be deemed waived and
unenforceable to the minimum extent required to comply with Applicable Law.
16.8. 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.
16.9. Additional Documents. Each of the parties hereto agrees to execute
any document or documents that may be requested from time to time by any other
party to implement or complete such party's obligations pursuant to this
Agreement.
16.10. Attorneys' Fees. If legal action is commenced by any party to
enforce or defend its rights under this Agreement, the prevailing party in such
action shall be entitled to recover its costs and reasonable attorneys' fees in
addition to any other relief granted.
16.11. Time is of the Essence. Time is hereby expressly declared to be of
the essence in this Agreement.
16.12. Confidentiality. No party hereto shall disseminate or release to
any third party any information regarding any provision 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, including, but not limited to,
any information relating to the internal operations of GCOA, GCOA fees or the
terms of any of the managed care contracts, 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;
- 33 -
(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; (iii) which is required to be disclosed by law or
pursuant to court order; (Company shall provide GCOA with copies of any
information regarding GCOA provided by Company to any third party); or (iv)
except for disclosure to its banks, underwriters or lenders, or its advisors to
the extent required by Section 9.4, or as required in connection with reports on
filings with the SEC or State Departments of Securities.
16.13. Contract Modifications for Prospective Legal Events. If any state
or federal laws or regulations, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, 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,
GCOA and Company shall amend this Agreement as necessary. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between and among GCOA and Company.
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 GCOA's 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. Except as provided in Section 16.1,
none of the obligations and duties of Company or GCOA under this Agreement shall
in any way or in any manner be deemed to create any obligation of Company or of
GCOA to, or any rights in, any person or entity not a party to this Agreement.
16.17. Communications. GCOA and Company 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
matters relating to the successful operation of GCOA's practice at the Practice
Offices.
16.18. Arbitration. Each of the parties agrees to submit any dispute
arising out of or relating to the execution, delivery or performance of this
Agreement to binding arbitration before a panel of three (3) arbitrators
selected from a pool of arbitrators made available by the American Arbitration
Association. Such arbitrators shall be selected by the parties and such
arbitration shall be conducted pursuant to the rules of the American Arbitration
Association and in a manner consistent with the Uniform Arbitration Act as
adopted by the State of Delaware. Each Party agrees that a final award in any
arbitration so brought shall be conclusive and judgment thereon may be entered
and enforced by any court of competent jurisdiction.
- 34 -
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
SPECIALTY CARE NETWORK, INC.
By:________________________________________
Title:_____________________________________
GCOA:
GREATER CHESAPEAKE ORTHOPAEDIC
ASSOCIATES, L.L.C.
By:________________________________________
Title:_____________________________________
PHYSICIAN OWNERS:
____________________________________________
Xxxxxx X. Xxxxxx, M.D.
____________________________________________
Xxxxxx X. Xxxxxxxx, M.D.
____________________________________________
Xxxx X. Xxxxxxxxx, M.D.
____________________________________________
Xxxxx X. Xxxxx, M.D.
____________________________________________
Xxxx X. Xxxxxxx, M.D.
____________________________________________
Xxxx X. X'Xxxxxxx, M.D.
____________________________________________
Xxx X. Xxxxx, M.D.
- 35 -
EXHIBIT 3.1
LEASE AGREEMENT
Real Property Lease - Xxxx Xxxxxx Xxxxxxxx - Xxxxx 000, Xxxxxxxx Professional
Building, 0000 Xxxxx Xxxxxxx, Xxxxxxxxx, Xxxxxxxx.
3.1-1
EXHIBIT 4.1
POLICY BOARD GOVERNANCE RULES
A. Number, Tenure and Qualifications. The Policy Board shall consist of
six (6) members. Company shall designate, in its sole discretion, three (3)
members of the Policy Board. GCOA shall designate, in GCOA's sole discretion,
three (3) members of the Policy Board. The initial Policy board shall be chosen
at the time of the closing of the Exchange. Thereafter, the respective Policy
Board Members shall be chosen at such time and in such manner as shall be
determined by the respective party making the appointment.
B. Duties and Responsibilities of the Policy Board. The Policy Board shall
have the duties and responsibilities more particularly described in Section 4.2
of this Agreement.
C. Regular Meetings of the Policy Board. Regular meetings of the Policy
Board shall be held on the first Monday of each calendar quarter at such times
and places as the Policy Board by resolution may determine and specify, and if
so determined no notice thereof need be given.
D. Special Meetings. Special meetings of the Policy Board may be held at
any time or place whenever called by written request of at least two (2) Policy
Board Members, notice thereof being given to each Policy Board Member by the
Policy Board Members calling the meeting, or they may be held at any time
without formal notice provided all of the Policy Board Members are present or
those not present shall at any time waive or have waived notice thereof.
E. Notice. Notice of any special meeting shall be given at least ten (10)
days previously thereto by written notice delivered personally, by telegram, or
facsimile. If mailed, such notice shall be mailed to each Policy Board Member at
his business address no less than ten (10) days previously thereto, and shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice shall
be deemed to be delivered when the telegram is delivered to the telegraph
company. If notice be given by facsimile, such notice shall be deemed to be
delivered when information of the transmission is received.
F. Meetings by any Form of Communication. The Policy Board shall have the
power to permit any and all Policy Board Members to participate in a regular or
special meeting by, or conduct the meeting through the use of any means of
communication by which all Policy Board Members participating may simultaneously
hear each other during the meeting. A Policy Board Member participating in a
meeting by this means is deemed to be present in person at the meeting.
G. Quorum. All of the members of the Policy Board as constituted from time
to time shall constitute a quorum for the transaction of business, but a lesser
number may adjourn any meeting and the meeting may be held as adjourned without
further notice. When a quorum is present at any meeting, a majority of the
members present thereat shall decide any question brought before such meeting,
except as otherwise provided by this Agreement or by these Governance Rules. The
fact that a Policy Board Member has an interest in a matter to be voted on at
the meeting shall not prevent his being counted for purposes of a quorum.
H. Vacancies. Any vacancy occurring in the Policy Board shall be filled by
the Party which chose such vacated Policy Board Member(s).
I. Removal. Any Policy Board Member may be removed without cause by the
Party which chose such Policy Board Member.
4.1-1
J. Committees. The majority of the Policy Board may appoint an executive
committee or such other committees as it may deem advisable, composed of one (1)
or more Policy Board Members, and may delegate authority to such committees as
is not inconsistent with this Agreement. The members of such committee shall
serve at the pleasure of the Policy Board.
K. Presumption of Assent. A Policy Board Member who is present at a
meeting of the Policy Board at which action on any matter is taken shall be
presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the secretaries of Company and GCOA immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Policy Board Member who
voted in favor of such action.
L. Informal Action by Board Members. Any action required to be taken at a
meeting of the Policy Board, or any other action which may be taken at a meeting
of the Policy Board, may be taken without a meeting if all Policy Board Members
consent to taking such action without a meeting. If all Policy Board Members
consent to taking such action without a meeting, the affirmative vote of a
majority of the Policy Board Members is the act of the Policy Board. The action
must be evidenced by one or more written consents describing the action taken,
signed by each Policy Board Member, indicating each signing Policy Board
Member's vote or abstention on the action, and shall be included in the minutes
or filed with the Policy Board records reflecting the action taken.
4.1-2
EXHIBIT 6.9.1
GCOA PLAN
6.9.1-1
EXHIBIT 8.1.8(d)
EXCLUDED EXPENSES
Excluded Expenses include, but are not limited to the following items:
a. Accounting, legal and other professional fees attributed to GCOA or
to Physician Employees.
b. Contribution expenses, cash or non-cash, which include, but are not
limited to costs of sponsoring sports teams, political
contributions, unapproved marketing expenses, and contributions to
hospitals and staff.
c. Automobile expenses including payments, repairs and maintenance,
mileage, depreciation, etc.
d. Entertainment expenses of any kind.
e. Physician benefits including insurance (health, life (except to the
extent allowed under Section 8.1.3(f)), dental, disability (except
to the extent allowed under Section 8.1.3(f)), etc., but not
including malpractice insurance), vacation time, sick time, paid
leave of absence, contributions to and administration of physician
retirement plans (pension, 401(k), XXX, others), etc.
f. Employment tax expenses including Federal and State Unemployment
taxes, FICA taxes, Medicare taxes, etc.
g. Home office expenses including the acquisition costs, depreciation,
repairs and maintenance, and ongoing operating expenses of:
computers, software, copying machines, fax machines, telephones and
telephone lines, cellular telephones, etc.; and the costs of having
an office in one's home including allocated rent, utility and
depreciation expenses.
h. Meal expenses.
i. Medical supplies and drugs either used or distributed by a Physician
Employee without billing for such supplies and drugs at standard
rates.
j. Presentation expenses of any kind including professional services,
slide production, travel, meals, entertainment, etc.
k. Personal postage expenses.
l. Personal laundry expenses.
m. Personal assistant expenses (including the time staff spends on
personal errands for Physician Employees).
8.1.8.(d)-1
EXHIBIT 8.3.6
ACCOUNTS RECEIVABLE COLLECTION
1.1 Collection of Accounts Receivable. GCOA agrees to cooperate with
Company in the collection of the Accounts Receivables sold by GCOA, transferred
pursuant to Section 8.3.
1.2 Definitions. In addition to the definitions contained in Article II of
the Agreement, for purposes of this Exhibit 8.3.6., the following terms shall be
applicable:
"Accounts" means, with respect to GCOA, all Accounts Receivable including
any and all rights to payment of money or other forms of consideration of
any kind (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 GCOA, including, but not limited to,
accounts receivable, proceeds of any letters of credit naming GCOA 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.
"Collecting Bank" means the main office of ______________________________
located at ___________________________________, or such other financial
institution agreed to by Company.
"Finance Charge Rate" means a rate of interest equal to the lesser of (i)
eighteen percent (18%) per annum or (ii) the maximum rate of interest
allowed by applicable law from time to time in effect.
"Governmental Lockbox Account" means an account established at the
Collecting Bank by GCOA into which all proceeds of GCOA's Governmental
Receivables are remitted.
"Lender" shall mean any lender to Company that has a security interest in
the Accounts from time to time.
"Lockbox Agreements" means that certain Lockbox Operating Procedural
Agreements -- Governmental Receivables to be entered into between the
Collecting Bank as to Governmental Receivables and that certain Lockbox
Operating Procedural Agreement -- Non-Governmental Receivables to be
entered between the Collecting Bank, Lender and GCOA as to Accounts which
are not Governmental Receivables, in a form acceptable to counsel for
Company.
"Main Account" means Company's operating account established and
maintained at the Collecting Bank.
"Non-Governmental Lockbox Account" means the account established by
Company with the Collecting Bank into which all proceeds from GCOA's
Accounts under which a Third-Party Payor is the Account Debtor (other than
Governmental Receivables) are remitted.
"Non-Governmental Receivables" means the Accounts which are not
Governmental Receivables.
"Notification Letter" means a written notification from GCOA to
Third-Party Payors informing such Third-Party Payors that all proceeds due
under GCOA's Accounts are to be remitted to the Non-Governmental Lockbox
Account or the Governmental Lockbox Account, as the case may be,
substantially in a form acceptable to counsel for Company.
1.3 Collection of Governmental Receivables. With respect to payments on
Governmental Receivables, at the request and option of Company, GCOA agrees that
the following procedures shall apply:
(a) GCOA shall enter into a Lockbox Agreement applicable to Governmental
Receivables in a form acceptable to counsel for Company and reasonably
acceptable to GCOA and establish a Governmental Lockbox Account. Governmental
Lockbox Account shall be an account in the name of GCOA. All payments in respect
of GCOA's Governmental Receivables are to be made directly to such account. In
the event Company exercises this option, GCOA shall instruct each Account Debtor
in respect of GCOA's Governmental Receivables to remit all such payments
directly to such Governmental Lockbox Account pursuant to a Notification Letter.
In addition, GCOA shall attach written instructions to
8.3.6-1
each invoice representing such Governmental Receivable generated subsequent to
the date of this Agreement instructing such Third-Party Payor or Account Debtor
that payment under such invoice is to be paid to the Governmental Lockbox
Account. GCOA agrees that it shall not deposit any funds other than payments on
Governmental Receivables into, nor make any withdrawals from, the Governmental
Lockbox Account without the prior written consent of Company. GCOA further
agrees that it shall not during the term of this Agreement terminate, modify or
amend in any manner the Lockbox Agreement applicable to the Governmental Lockbox
Account.
(b) In accordance with the Lockbox Agreement pertaining to Governmental
Receivables, GCOA shall instruct the Collecting Bank to transfer automatically
all amounts deposited in Governmental Lockbox Account constituting good funds to
Company's Main Account. GCOA shall have no right or interest in the Main
Account. GCOA shall not, so long as any purchased Account remains unpaid, change
or cancel such automatic transfer order at any time, or, without the prior
written consent of Company, change either the identity of Governmental Lockbox
Account or the instructions to each Account Debtor on the related Governmental
Receivable to make its payments to such account. Any such action shall be
considered a breach of this Agreement for which Company shall be entitled to all
remedies at law and in equity, including obtaining an injunction.
(c) GCOA will cooperate with Company and its agents in the identification
of sums deposited into Governmental Lockbox Account, which cooperation shall
continue until all purchased Accounts sold hereunder have been collected.
(d) GCOA agrees to pay, on demand, a finance charge equal to the Finance
Charge Rate, on any payment on a Governmental Receivable received by GCOA that
is not deposited in Governmental Lockbox Account within forty-eight (48) hours
after receipt by GCOA.
1.4 Collection of Non-Governmental Receivables. With respect to payments
on Non-Governmental Receivables, if requested by Company and at Company's
option, GCOA agrees that the following procedures shall apply:
(a) Prior to the sale of any Non-Governmental Receivable hereunder,
Company, the Collecting Bank and Lender (if requested by Lender) shall enter
into a Lockbox Agreement applicable to Non-Governmental Receivables in a form
acceptable to counsel for Company and Company shall establish Non-Governmental
Lockbox Account. The NonGovernmental Lockbox Account shall be an account in the
name of Company. All payments in respect of GCOA's Non-Governmental Receivables
are to be made directly to such account. If Company exercises its option herein,
at request of Company, GCOA shall instruct each Account Debtor in respect of
GCOA's Non-Governmental Receivables to remit all such payments directly to such
Non-Governmental Lockbox Account pursuant to a Notification Letter. In addition,
GCOA shall attach written instructions to each invoice representing such
Non-Governmental Receivable generated subsequent to the date of this Agreement
instructing such Third-Party Payor or Account Debtor that payment under such
invoice is to be paid to the Non-Governmental Lockbox Account. GCOA agrees that
it shall not deposit any funds other than Non-Governmental Receivables into, nor
make any withdrawals from, the Non-Governmental Lockbox Account without the
prior written consent of Company. GCOA further agrees that it shall not during
the term of this Agreement terminate, modify or amend in any manner the Lockbox
Agreement applicable to the Non-Governmental Lockbox Account.
(b) In accordance with the Lockbox Agreement pertaining to
Non-Governmental Receivables, Company shall instruct the Collecting Bank to
transfer automatically all amounts deposited in the Non-Governmental Lockbox
Account constituting good funds to Company's Main Account. GCOA shall have no
right or interest in the Non-Governmental Lockbox Account nor to the Main
Account and such accounts shall be in the name of and under the control of
Company. GCOA shall not, so long as any purchased Account remains unpaid, and in
any event, during the term of this Agreement, at any time, or, without the prior
written consent of Company, change the instructions to each Account Debtor on
the related Non-Governmental Receivable to make its payments to such account.
Any such action shall be considered a breach of this Agreement for which Company
shall be entitled to all remedies at law and in equity, including obtaining an
injunction.
(c) GCOA will cooperate with Company and its agents in the identification
of sums deposited into NonGovernmental Lockbox Account, which cooperation shall
continue until all purchased Accounts sold hereunder have been collected.
(d) GCOA agrees to pay, on demand, a finance charge equal to the Finance
Charge Rate, on any Non-Governmental Receivable received by GCOA that is not
deposited in Non-Governmental Lockbox Account within forty-eight (48) hours
after receipt by GCOA.
8.3.6-2
1.5 Procedures Without Lockbox. In the event that Company elects to forego
the procedures established in Sections 1.3 and 1.4, GCOA shall instruct the
Collecting Bank to transfer automatically all amounts constituting good funds in
the account or accounts of GCOA established for the collection of Governmental
Receivables and Non-Governmental Receivables to Company's Main Account at
_____________ __________, ____________________________, Account ______________
(the "Main Account") pursuant to a standing order in a form acceptable to
Company's legal counsel. GCOA shall have no right or interest in Company's Main
Account and such account shall be in the name of and under the control of
Company. GCOA shall not, so long as any purchased account remains unpaid, change
or cancel such standing order at any time, or, without the prior written consent
of Company, change the instructions to each Account Debtor on each Governmental
Receivable and Non-Governmental Receivable to make its payments to such account.
Any such action shall be considered a breach of this Agreement for which Company
shall be entitled to all remedies at law and in equity, including obtaining an
injunction.
1.6 Misdirected Payments. (a) If after the date of this Agreement, an
Account Debtor shall make payment of a purchased Account to a location other
than is provided in the Notification Letter or GCOA otherwise receives payments
on Accounts that are purchased by Company under the terms of this Agreement
("Misdirected Payments"), GCOA (at its own cost and expense) shall promptly take
all necessary steps to effect collection of such Misdirected Payment from any
other party claiming an interest therein or having possession thereof and (i)
hold such payment in trust for Company, (ii) segregate such payment, (iii) use
its best efforts not to commingle such payment with GCOA's own funds or other
assets, and (iv) deliver such payment no later than forty-eight (48) hours from
the day of receipt to the Governmental Lockbox Account or the Non-Governmental
Lockbox Account, as applicable.
(b) GCOA agrees to pay, on demand, the Finance Charge Rate on any
Misdirected Payment received by GCOA that is not deposited in Company Main
Account within forty-eight (48) hours after receipt by GCOA.
8.3.6-3
EXHIBIT 11
NON-COMPETITION
A. GCOA and each of the Physician Owners agree and covenant that, during
the term of this Agreement and for a period of thirty-six (36) months after
termination of this Agreement (other than a termination pursuant to Section
11.3.1 through 11.3.4, inclusive, or Section 11.5, of the Service Agreement),
GCOA and/or the Physician Owner(s), as applicable, shall not, either directly as
a partner, employer, agent, independent contractor, employee or indirectly
through a corporation, partnership, affiliate, subsidiary or otherwise:
(i) Subject to the provisions of paragraph G below, establish,
operate or provide professional medical services at any medical office,
clinic or other health care facility at any location within seventy-five
(75) miles of (i) the Main Office location; (ii) any of the Satellite
Offices; or (iii) any location at which Company provides services to any
practice at the time of such termination;
(ii) Subject to the provisions of paragraph G below, publicly
announce or offer (by any method) to provide professional medical services
at any medical office, clinic or other health care facility at any
location within seventy-five (75) miles during the first five (5) years of
the term of this Agreement or fifty (50) miles thereafter of (i) the Main
Office; (ii) any of the Satellite Offices; or (iii) any location at which
Company provides services to any practice at the time of such termination;
(iii) Solicit, induce or attempt to induce, in connection with any
business competitive with that being serviced by Company, patients of any
physician (including GCOA and/or the Physician Owner(s)) associated or
affiliated with Company to leave the care of physicians associated or
affiliated with Company; or
(iv) Solicit, induce or attempt to induce any employee, consultant
or other persons associated or affiliated with Company or any Affiliate of
Company to leave the employment of, or to discontinue their association
with, Company or such Affiliate of Company.
B. If GCOA and/or the Physician Owner(s) violate the covenants set forth
in paragraph A of this Exhibit 11, then the duration of the restrictions
contained in paragraph A shall be extended an additional month for each month
during which such violation occurred but was not discovered by Company,
beginning upon the date that Company learns of the violation and so notifies
GCOA and/or the Physician Owners in writing. In addition, breach of the
covenants set forth in paragraph A above may trigger certain rights of Company
to redeem a Physician Owner's Company common stock pursuant to the terms of
Article VIII of the Stockholders Agreement.
C. GCOA and/or the Physician Owner(s) acknowledge and agree that the
covenants contained in this Exhibit 11 are necessary to protect the business and
goodwill of Company and that a breach of these covenants will result in
irreparable harm and continuing damage to Company. As a result, GCOA and/or the
Physician Owner(s) agree that if GCOA and/or the Physician Owner(s) breach or
threaten to breach these covenants, Company shall be entitled to specific
performance and/or injunctive or other equitable relief in order to prevent the
continuation of such harm, as well as money damages. GCOA and/or the Physician
Owner(s) waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such equitable relief.
D. GCOA and the Physician Owner(s) acknowledge and agree that if GCOA
and/or the Physician Owner(s) breach the covenants contained in this Exhibit 11
and Company is unable for any reason to obtain a restraining order from a court
of competent jurisdiction within thirty (30) days after application to enjoin
the breach by GCOA and/or the Physician Owner(s), it will be difficult to
calculate the precise amount of Company's damages. As a result, the parties have
determined that, in the event of such a breach, Company's damages shall be equal
to 300% of the total amount of Professional Service Revenues attributable to
GCOA and/or the applicable Physician Owner(s) during the twelve (12) months
prior to the termination of the Agreement.
E. The parties have attempted to limit the provisions of this Exhibit 11
only to the extent necessary to protect each party's interests. However, the
parties hereby agree that, in the event that any provision, section or
subsection of this Exhibit
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11 is adjudged by any court of competent jurisdiction to be void or
unenforceable, in whole or part, such court shall modify and enforce any such
provision, section or subsection to the extent that it believes to be reasonable
under the circumstances.
F. In the event that the Service Agreement has been in effect for at least
five (5) years, a Physician Owner may buy-out the noncompetition restriction
applicable to him or her by paying to Company an amount equal to (A)(i) the
after tax amount (based upon the actual tax rate applied for any shares
previously sold and the long-term capital gains rate then in effect for any
shares held at the time of termination) of appreciation in value (from the date
of Asset Exchange to earlier of the date of sale of any common stock sold or the
date of termination of affiliation with Company for any common stock then held)
of Company common stock (as of the date of termination) received by the
applicable Physician Owner at the time of the Asset Exchange, less (ii) the
after tax amount (based upon the terminating Physician Owner's effective federal
income tax rate during the years in which this Agreement was in effect) of the
terminating Physician Owner's pro rata share (based on the terminating Physician
Owner's proportionate share of all Professional Services Revenues collected by
GCOA during the term of the Agreement) of service fees paid to Company during
the period of the Service Agreement (but not less than zero), plus (B) one-third
of the Fair Market Value of Company common stock and any cash consideration
received by the terminating Physician Owner at the time of the Asset Exchange
(valued at the time of the Asset Exchange); provided, however, in the event that
at the time of termination, if the Fair Market Value per share of Company common
stock is less than one-third (1/3) of the value per share of Company common
stock at the time of the Asset Exchange, then the maximum amount payable to
Company to buy out the noncompetition restriction shall equal the total Fair
Market Value of Company common stock then held by the terminating Physician
Owner plus one-third (1/3) of the cash consideration (acquired in the Asset
Exchange) plus the amount of any gains realized by the terminating Physician
Owner from the prior sale of Company common stock. The terminating Physician
Owner may pay the amount owed by transferring to Company an amount of Company
common stock having a Fair Market Value equal to the amount owed or pay to
Company cash in the amount owed (or a combination of cash and common stock). The
above references to Company common stock (except for the immediately preceding
sentence) shall not include any Company common stock purchased for cash or
acquired pursuant to the conversion of Company's convertible debentures.
G. Upon the termination of this Agreement, the Policy Board shall have the
authority to modify the terms of the restrictive covenants, including but not
limited to the mileage radius limitations set forth above in paragraph A. In the
event that the individuals representing GCOA or Company, as the case may be, on
the Policy Board can reasonably demonstrate that a modification to the
restrictive covenant will not have a material adverse effect on Company's or
GCOA's practice operations, earnings or cash flow, then the individuals
representing Company or GCOA, as the case may be, shall consent to the proposed
modification.
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