1
EXHIBIT 10.26
SERVICE AGREEMENT
THIS SERVICE AGREEMENT is entered into this 30th day of November by and
between PHYCOR OF WESTERN TIDEWATER, INC., a Tennessee corporation also known as
SynerPhy of Suffolk, Inc. ("SynerPhy"), and LAKEVIEW MEDICAL CENTER, INC., a
Virginia corporation ("Lakeview"):
W I T N E S S E T H:
WHEREAS, Lakeview is a physician group located in Suffolk, Virginia;
WHEREAS, SynerPhy is in the business of providing support services to
physician groups;
WHEREAS, SynerPhy and Lakeview are parties to that certain Service
Agreement, dated January 1, 1998 (the "Service Agreement") and SynerPhy's sole
shareholder, PhyCor, Inc. ("PhyCor"), and Lakeview are parties to that certain
Asset Repurchase Agreement dated January 1, 1998, both of which are being
terminated simultaneously with the execution of this Agreement pursuant to that
certain Termination and Release Agreement of even date herewith;
WHEREAS, simultaneously with the execution of this Agreement, Lakeview and
SynerPhy are entering into an Asset Repurchase Agreement of even date herewith
for the purchase of all of the tangible assets and the assumption of certain
liabilities of SynerPhy as set forth therein (the "Asset Repurchase Agreement");
WHEREAS, SynerPhy desires to enter into this Agreement with Lakeview
pursuant to which Lakeview will purchase from SynerPhy and SynerPhy will deliver
to Lakeview services relating to the business operations of Lakeview.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, Lakeview hereby agrees to purchase the management and support
services herein described and SynerPhy agrees to provide such services on the
terms and conditions provided below.
I. RELATIONSHIP OF THE PARTIES
1.1 Independent Relationship; Relationship with Lakeview. Lakeview, on
2
the one hand, and SynerPhy, on the other hand, 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 such
parties. Notwithstanding the services to be performed by SynerPhy hereunder,
SynerPhy and Lakeview agree that Lakeview shall retain the authority to direct
the medical, professional, and ethical aspects of the medical practice of
Lakeview. SynerPhy shall neither exercise control over nor interfere with the
physician-patient relationship, which shall be maintained strictly between the
physicians of Lakeview and their patients.
1.2 Patient Referrals. The parties agree that the benefits to Lakeview
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 SynerPhy to any patients in any facility or
laboratory managed or operated by SynerPhy.
II. DUTIES OF SYNERPHY
2.1 Performance of Services. Lakeview hereby engages SynerPhy to provide or
arrange for the services set forth in this Article II for the benefit of
Lakeview. The services provided shall be performed in a manner consistent with
other professionals providing consulting and financial services to medical
practices. The parties acknowledge and agree that the ability of SynerPhy to
successfully perform the services described hereunder will depend, in part, upon
Lakeview's decisions regarding its operations, since Lakeview retains final
authority over all decisions regarding the operations of Lakeview, including a
right of approval with respect to the implementation and execution of any and
all policies and directives recommended by SynerPhy from time to time. Lakeview
expressly agrees that SynerPhy shall not be held accountable or responsible to
Lakeview in the event that Lakeview's failure to authorize the implementation
and/or execution of policies or directives recommended by SynerPhy results,
directly or indirectly, in negative financial and/or operational consequences to
Lakeview and further agrees that the occurrence of such negative financial
and/or operational consequences shall not be deemed, or cited as evidence of, a
breach of this Agreement by SynerPhy. Lakeview hereby acknowledges that SynerPhy
needs and shall be granted reasonable access to the data and systems of Lakeview
relating to the operations of Lakeview so that SynerPhy may perform its duties
pursuant to this Agreement. SynerPhy and Lakeview agree that Lakeview and only
Lakeview (or any permitted assignee hereunder) will perform the medical
functions of its practice. SynerPhy will have no authority, directly or
indirectly, to perform, and will not perform, any medical function.
2.2 Duties and Responsibilities of SynerPhy. Except as may be provided
herein, the parties acknowledge and agree that SynerPhy is being engaged by
Lakeview to provide only those specific services and to perform only those
specific duties and responsibilities set forth in this Agreement, and that
SynerPhy is not assuming responsibility for the general management of Lakeview's
operations. SynerPhy shall, upon the request of
2
3
Lakeview from time to time, have the following duties and responsibilities
pursuant to this Agreement. SynerPhy shall comply with all federal, state and
local laws and ordinances in performing under this Agreement.
(a) SynerPhy shall assist with the preparation of the annual capital
and operating budgets of Lakeview reflecting Lakeview's anticipated revenues and
expenses and sources and uses of capital. Such budgets shall be prepared in
accordance with guidelines established therefor from time to time by SynerPhy
(including the format thereof and the timing of the preparation and presentation
thereof). The proposed operating and capital budgets shall be presented to
Lakeview by SynerPhy for modification and approval. In addition, representatives
of SynerPhy or PhyCor shall meet at least annually with representatives of
Lakeview as part of the foregoing budget process to discuss the services
Lakeview anticipates it will need from SynerPhy during the next year.
(b) SynerPhy shall assist the Lakeview no less than annually in the
development of a Lakeview-approved strategic plan. Such plan shall set forth the
efforts, methods and resources SynerPhy believes are needed to implement the
proposed strategic plan and to which they are willing to commit their services.
In addition to the foregoing strategic plan, SynerPhy shall also develop, as
requested, written recommendations as to Lakeview's staff and shall recommend
for review and approval by Lakeview efficient practice work flows and a
determination of the optimal combination of physicians and support staff which
is needed based on the applicable patient population.
(c) SynerPhy shall annually evaluate, review and submit in writing for
review to Lakeview recommended alterations, if any, to the physician income
distribution plan utilized by Lakeview and submit for review by the
Finance/Compensation Committee any recommended additional alterations. SynerPhy
shall also evaluate and recommend to Lakeview alterations to the form of
employment agreements entered into between Lakeview and its physician employees,
it being understood that Lakeview solely shall determine the content of such
employment agreements.
(d) SynerPhy shall regularly advise Lakeview as to the relationship
between the performance of medical functions and the overall administrative and
business functioning of Lakeview. Personnel of Lakeview who provide medical care
services shall in no event be subject to any direction or control by, or
liability to, SynerPhy.
(e) SynerPhy shall assist the Lakeview's administrative staff with
their review, from time to time, of the operations of the Lakeview's billing and
collections department. With the prior written approval of Lakeview, SynerPhy
may engage third parties at its own expense that shall assist SynerPhy in making
recommendations to Lakeview with respect to the foregoing. SynerPhy shall not be
obligated for any costs or expenses associated with the billing and collection
of Lakeview accounts and any legal proceedings instituted by Lakeview with
respect to collections thereof. The parties acknowledge and agree that coding
3
4
for procedures performed by Lakeview's providers shall be the sole
responsibility of Lakeview and that neither SynerPhy nor PhyCor shall have any
control over such coding or other day-to-day functions of the billing and
collections department.
(f) No later than February 1, 2001, SynerPhy shall review and assess
the information systems utilized by Lakeview including, but not limited to,
billing, accounting and medical records, and, no later than March 31, 2001,
shall make recommendations in writing to Lakeview as to alterations to the
existing information system or the necessity of obtaining new or additional
systems to meet the needs of Lakeview. As part of the approval of the third
party engagements, Lakeview must approve the terms of such engagement, including
the financial terms related thereto. If Lakeview determines to proceed with
alterations to the information systems as recommended by SynerPhy, Lakeview
shall select the vendor and systems to be acquired by Lakeview, as applicable,
or to be used in any upgrade, replacement or alteration to such systems. Any
costs and expenses associated with the implementation of any recommendations
approved by Lakeview and the purchase of any equipment, fixtures, inventory,
supplies, software or services in connection therewith shall be at the sole
expense of Lakeview. Pursuant to the Asset Repurchase Agreement, Lakeview is
purchasing from SynerPhy all of the computer hardware and equipment owned by
SynerPhy and the owned and licensed software currently contained on or
pertaining to such computer hardware, other than software proprietary to
SynerPhy or PhyCor (said software being described in Exhibit 2.2(f), attached
hereto). During the term of this Agreement, SynerPhy and PhyCor shall make its
proprietary software (including any upgrades, updates, revisions or successor
versions of such software) available to Lakeview for its use at no additional
cost to Lakeview as soon as such software is made available to any other medical
group receiving management services from PhyCor or any affiliate thereof.
(g) SynerPhy shall assess the central business office operations of
Lakeview no less than quarterly and shall recommend in writing to Lakeview
alterations to such operations. Such review shall include a review of central
business office procedures, staffing levels and the operations of the central
business office. Any costs and expenses associated with the implementation of
any recommendations approved by Lakeview shall be at the sole cost of Lakeview.
(h) SynerPhy shall assist Lakeview in recruiting additional physicians
solely by reviewing and making recommendations as to the administrative
functions related to the recruitment of physicians. Lakeview shall make the
ultimate decision as to the suitability of any physician to become associated
with Lakeview. All recruited physicians employed by Lakeview shall be solely
employees of Lakeview and not of SynerPhy to the extent such physicians are
hired as employees. Lakeview shall be solely responsible for any expenses
incurred in the recruitment of physicians, including, but not limited to,
employment agency fees, and relocation and interviewing expenses.
(i) SynerPhy shall provide Lakeview with a comprehensive written
4
5
review, including the provision of actuarial services at no charge, and assist
Lakeview in the negotiation and maintenance of all managed care contracts, and
shall consult with Lakeview and make recommendations to Lakeview on professional
or clinical matters relating thereto.
(j) SynerPhy shall, at the request of Lakeview, review and analyze
third party contracts, including vendor contracts and real estate leases, to
which Lakeview is a party or into which Lakeview is contemplating entering and
provide Lakeview with a written summary and analysis of such review. SynerPhy
shall also make recommendations as to facility consolidations and office
relocations. Following its initial review of the foregoing, SynerPhy shall,
during the term hereof, provide oversight and on-going review of such third
party contracts. The parties acknowledge and agree that neither SynerPhy nor
PhyCor, nor any representative or employee of them, shall have any obligation to
execute or otherwise enter into any contract on behalf of Lakeview or in
connection with services provided to Lakeview. All contracts related to the
operations of Lakeview will be executed and entered into by an authorized
employee or officer of Lakeview.
(k) In addition to the duties and responsibilities of SynerPhy outlined
above and elsewhere in this Agreement, SynerPhy shall make available for the
benefit of Lakeview such other services which are offered from time to time by
PhyCor for the benefit of PhyCor's affiliated physician groups to the extent
requested by Lakeview. Lakeview acknowledges and agrees that such other services
will change during the term of this Agreement, with some programs being deleted
and new programs added, and that the commitment provided herein as to access to
such other services shall be only to the extent of the services provided from
time to time by PhyCor. If new services are offered by PhyCor or its affiliates
in addition to the services provided pursuant to this Agreement, Lakeview may
purchase such additional services for a mutually agreed upon price. SynerPhy
agrees that it will maintain adequate personnel and resources to provide such
additional services to Lakeview as set forth herein, and that it shall make such
personnel and resources available to Lakeview upon reasonable notice and at
reasonable times during the term of this Agreement. Notwithstanding the
foregoing, any services offered by CareWise, Inc., North American Medical
Management, Inc., each a subsidiary of PhyCor, or any other affiliate of PhyCor
engaged in a similarly distinct line of business, shall not be included in the
additional services to be provided by SynerPhy hereunder, and any costs
associated with Lakeview's use of those entities and the additional services
they provide, except to the extent that such entities provide the basic
contractual obligations of SynerPhy hereunder, shall be borne entirely by
Lakeview.
(l) Lakeview acknowledges that Lakeview has adopted a regulatory
compliance plan. Lakeview and SynerPhy shall review on a regular basis the
regulatory compliance plan and discuss revisions, additions and deletions to
such compliance plan, it being understood that the final determination as to
whether Lakeview will adopt and implement any changes to its compliance plan
will be made by Lakeview in its sole discretion.
(m) Lakeview understands and agrees that in performing the services
5
6
described in Sections 2.2(a) through (l), SynerPhy may, with Lakeview's prior
written approval, engage third parties to assist SynerPhy in satisfying its
management and service obligations. SynerPhy, in its sole discretion, shall be
responsible for selecting any such third parties once Lakeview has approved the
engagement thereof. Any engagement by SynerPhy of such third parties approved by
Lakeview shall be entered into in the name of Lakeview and all costs and
expenses associated with such third party engagement shall be at Lakeview's sole
expense. The prior written approval of Lakeview of any third party engagement
shall include approval of the terms, including the financial terms, of such
engagement. The foregoing provision shall not be construed to relieve SynerPhy
of its obligation to perform the services described in Sections 2.2(a) though
2.2(l) in the event that Lakeview declines to approve any third party engagement
related thereto.
2.3 SynerPhy Personnel. (a) SynerPhy shall provide to Lakeview the services
of designated employees of PhyCor. All costs associated with these individuals,
including, but not limited to, compensation, benefits and severance expenses,
payroll taxes, and travel and out-of-pocket expenses, will be the sole
obligation of SynerPhy.
(b) Lakeview agrees that it will not, either directly or indirectly,
solicit for employment any individuals employed by SynerPhy or PhyCor during the
term of this Agreement nor for a period of twelve (12) months following the
termination of this Agreement.
2.4 Certain Contracting. In the event that, during the term hereof,
Lakeview elects to pursue the formation of an IPA or similar physician
organization, prior to selecting a manager of the organization, Lakeview will
notify SynerPhy of its intent and will allow SynerPhy thirty (30) days within
which to develop and present to Lakeview a proposal whereby PhyCor's affiliate,
North American Medical Management, Inc, or one of its subsidiaries, would manage
the organization. Notwithstanding the foregoing, the decision regarding who will
be the manager of the IPA or physician organization will be made by Lakeview, in
its sole discretion.
2.5 Events Excusing Performance. SynerPhy shall not be liable to Lakeview
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, the
failure of hardware or software to function in the manner intended as a result
of the inability to process information relating to a date beyond December 31,
1999 (as more commonly referred to, the "Y2K Problem" or the "Millennium Bug")
whether such problems arises in hardware or software owned by Lakeview, any
vendor or customer of Lakeview or any other third party (including but not
limited to government agencies), or other events over which SynerPhy has no
control for so long as such events continue.
6
7
III. OBLIGATIONS OF LAKEVIEW
3.1 Professional Services. Lakeview shall provide professional services to
patients in compliance at all times with ethical standards, laws and regulations
applying to the medical profession. Lakeview shall ensure that each physician
associated with Lakeview to provide medical care to patients of Lakeview is
licensed by the Commonwealth of Virginia. Lakeview shall carry out a program to
monitor the quality of medical care practiced at Lakeview.
3.2 Medical Practice. Lakeview shall comply with all applicable federal,
state and local laws, rules and ordinances and all applicable standards of
medical care.
3.3 Employment of Physicians. Lakeview shall have complete control of and
responsibility for the hiring, compensation, supervision, evaluation and
termination of the physician employees of Lakeview, although SynerPhy shall
consult with Lakeview respecting such matters. Lakeview shall be responsible for
the payment of such physician employees' salaries and wages, benefits, payroll
taxes and all other taxes and charges now or hereafter applicable to them.
Lakeview shall also be responsible solely for the cost of physicians' membership
in professional associations, and their continuing professional education. With
respect to physicians, Lakeview shall only employ and contract with licensed
physicians meeting applicable credentialing guidelines established by Lakeview.
Lakeview shall consider guidelines suggested by SynerPhy from time to time in
establishing the duties and responsibilities of the officers of Lakeview.
Lakeview shall also consider guidelines suggested by SynerPhy for the
development and implementation of a succession plan that contemplates the
efficient transition of leadership for Lakeview upon the death, disability,
resignation, removal or other termination of the key leadership positions of
Lakeview.
3.4 Employment of Personnel. Lakeview shall employ all personnel necessary
to conduct the day-to-day operations of Lakeview, including the Executive
Director, Chief Financial Officer and Chief Operating Officer, if applicable. No
employee of Lakeview providing medical services shall be subject to the
supervision of any SynerPhy or PhyCor employee. Lakeview shall be responsible
solely for the payment of such employees' salaries and wages, benefits, payroll
taxes and all other taxes and charges now or hereafter applicable to them,
although at the request of Lakeview, SynerPhy shall consult with Lakeview
respecting such matters. The chief administrative staff of Lakeview shall be
reasonably available to work with SynerPhy and PhyCor personnel to implement the
directives, plans, strategies and services approved by Lakeview.
3.5 Access to Information and Data. Lakeview understands and agrees that
SynerPhy must have access to financial and other operating data and systems
maintained by Lakeview relating to the operations of Lakeview to be able to
provide the services contemplated in this Agreement, including, but not limited
to, the performance initiatives described in Section 3.8. SynerPhy shall, with
Lakeview's prior approval, be afforded access
7
8
to all such information and data of Lakeview concerning the operations of
Lakeview, including, but not limited to, financial data, physician data, patient
level data to track clinical and financial outcomes, accounts receivable data,
accounts payable data, employee payroll information, all systems and programs on
which such data and information are stored, all paper records and files where
such information is held, and all electronic records relating to the foregoing.
Subject, in all instances, to applicable federal and state laws and regulations,
SynerPhy shall have the right to aggregate and assimilate such data and
information with and into similar data and information from physician groups
managed by PhyCor and its affiliates as provided in Section 7.1 hereto. SynerPhy
shall also be permitted access to employees of Lakeview who are responsible for
maintaining and processing all such information and data. Lakeview also agrees
to produce such reports based on the foregoing data and information, as SynerPhy
shall reasonably request from time to time in connection with SynerPhy's
performance of its duties under this Agreement.
3.6 Insurance. (a) Lakeview shall provide to SynerPhy, upon SynerPhy's
request, evidence of Lakeview's comprehensive professional liability insurance
with coverage levels of at least one million dollars per occurrence and three
million dollars in the aggregate, as well as general liability and umbrella
insurance. In no event shall SynerPhy be liable in any respect for any amounts
not covered by the foregoing policies, whether such non-coverage relates to
satisfaction of deductibles, claims in excess of policy limits, or otherwise.
(b) SynerPhy and PhyCor shall be named as an additional insured under
the comprehensive professional liability policies provided for in Section 3.6(a)
above. SynerPhy shall be provided the endorsement evidencing SynerPhy and PhyCor
being named as an additional insured no later than the date hereof and upon the
annual renewal of such policies each policy year. Lakeview shall also provide
that SynerPhy receive written notice from the carrier of any substantive changes
to the policies and any cancellation or expiration of such policies no less than
thirty (30) days prior to the effective date of any such change, cancellation or
expiration.
3.7 Facilities. During the term of this Agreement, Lakeview agrees to
provide or make available the offices and facilities occupied by Lakeview as of
the date hereof to the extent reasonably necessary during normal business hours
for SynerPhy to provide the services contemplated by this Agreement.
3.8 Participation in PhyCor Performance Xxxxxxxxxxx.Xx part of the services
provided under this Agreement, from time to time SynerPhy will propose that
Lakeview participate in certain of PhyCor's performance initiatives, which
initiatives include care management, outcomes management, patient satisfaction,
staffing management system, excellence 2000 and provider effectiveness program.
Lakeview acknowledges that SynerPhy's ability to create improvements in
Lakeview's operations will be significantly hindered if Lakeview elects not to
participate in such performance initiatives as are reasonably proposed by
SynerPhy from time to time. Lakeview agrees that it will consider participating
in and
8
9
adopting all such performance initiatives, provided that the final determination
as to whether Lakeview will participate in any or all of those initiatives will
be made by Lakeview in its sole discretion. SynerPhy's services hereunder will
include, without limitation, the provision of all requisite training sessions,
training materials and other items or services typically used by SynerPhy and
PhyCor in the implementation of PhyCor's performance initiatives.
3.9 Events Excusing Performance. Lakeview shall not be liable to SynerPhy
for failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies, the
failure of hardware or software to function in the manner intended as a result
of the inability to process information relating to a date beyond December 31,
1999 (as more commonly referred to, the "Y2K Problem" or the "Millennium Bug")
whether such problem arises in hardware or software owned by Lakeview, any
vendor or customer of Lakeview or any other third party (including but not
limited to government agencies), or other events over which Lakeview has no
control for so long as such events continue.
3.10 Attendance at Lakeview Meetings. Lakeview agrees that SynerPhy shall
have the right to have at least one person selected by SynerPhy in attendance at
any meeting of the Board of Directors of Lakeview so that the SynerPhy
representative may present information and answer questions concerning the
operations of Lakeview and the provision of services by SynerPhy pursuant to
this Agreement. Such right shall be subject to restriction by Lakeview if the
subject matter of all or any part of the meeting so requires, in the reasonable
determination of Lakeview. Such SynerPhy representative shall be provided with
notice of each meeting of the Board of Directors at which a SynerPhy
representative is to make a presentation in the same manner and at the same time
as members of the Board of Directors. Lakeview acknowledges and agrees that
Lakeview's Board or other designated entities represent the only formal forum at
which SynerPhy can present proposals and recommendations for the improvement of
Lakeview's practice. Lakeview therefore agrees to hold Board meetings on a
regularly scheduled basis, and, if SynerPhy so requests from time to time,
Lakeview agrees to call a special Board meeting as may be reasonably requested
by SynerPhy to hear specific proposals and/or recommendations which SynerPhy
deems important or time sensitive.
3.11 Recommendations of SynerPhy. Lakeview agrees to give full
consideration to all recommendations made by SynerPhy related to the operations
of Lakeview, provided that the final decision as to whether to act upon any such
recommendations shall be made by Lakeview, in its sole discretion. Lakeview
acknowledges that SynerPhy's ability to successfully perform the services
described hereunder may be impaired in the event that Lakeview fails to act on
recommendations made by SynerPhy from time to time. Lakeview further
acknowledges and agrees that SynerPhy shall not be held accountable or
responsible to Lakeview in the event that Lakeview's failure to act on such
SynerPhy recommendations results, directly or indirectly, in negative financial
and/or operational consequences to Lakeview and further agrees that the
occurrence of such consequences shall not be deemed, or
9
10
cited as evidence of, a breach of this Agreement by SynerPhy.
3.12 Responsibility to Provide Capital. During the term hereof, Lakeview
shall have the sole responsibility of providing capital and funding necessary to
maintain Lakeview's operations, including, but not limited to, the
responsibility to (i) enter into any contracts, leases or agreements necessary
or appropriate for the operations of Lakeview, (ii) pay for the recruitment,
hiring and employment of any Lakeview personnel, or the costs of contracting
with the third parties, necessary for the provision of services on behalf of
Lakeview or at Lakeview facilities, except as otherwise provided herein, (iii)
pay any operating and other expenses related to the operations of Lakeview, (iv)
fund the purchase of any medical or other equipment, furniture, fixtures,
supplies and other assets necessary for the operations of Lakeview, (v) fund the
cost of any renovations, repairs or upgrades to Lakeview's facilities or of
moving from one facility to another, and (vi) incur any other liabilities or
fund any other capital requirements necessary or appropriate for the operations
of Lakeview. Neither SynerPhy nor PhyCor shall have any obligation to provide
capital to the Lakeview during the term hereof.
IV. FINANCIAL ARRANGEMENTS
4.1 Fee.
(a) Unless and until this Agreement expires or is earlier terminated as
provided herein, as consideration for the services being provided hereunder by
SynerPhy, Lakeview shall pay SynerPhy a flat fee (the "Fee") in an amount equal
to $60,000 per month.
(b) The Fee to be paid to SynerPhy under this Section 4.1 shall be
payable by the tenth (10th) day of the month following the month for which such
Fee is being paid.
(c) Subject to the right of setoff described in paragraph (d) below, if
PhyCor or SynerPhy fails to pay any amounts when due under the 7% Subordinated
Convertible Note due December 31, 2000, the 7% Subordinated Convertible Note due
December 31, 2001, and the 7% Subordinated Convertible Note due December 31,
2002 (each, a "Note" and collectively the "Notes"), Lakeview shall have, at its
option, the right to setoff any amounts due Lakeview under the Notes against the
Fee due SynerPhy hereunder, until such amounts due Lakeview under the Notes have
been completely recovered through setoff. Such setoff right is in addition to
the right of Lakeview to terminate this Agreement as a result of such failure to
pay under the Notes.
(d) Subject to the right of setoff described in paragraph (c) above, if
Lakeview fails to pay any amounts due under this Agreement by Lakeview, PhyCor
and SynerPhy shall have, at their option, the right to setoff any amounts due
SynerPhy hereunder against
10
11
amounts due Lakeview under the Notes, until such amounts due SynerPhy under this
Agreement have been completely recovered through setoff. Such setoff right is in
addition to the right of SynerPhy to terminate this Agreement as a result of
such failure to pay by Lakeview.
4.2 Reimbursement of Expenses.Each month during the term hereof, Lakeview
will, in addition to the Fee, pay SynerPhy an amount sufficient to reimburse
SynerPhy for any costs incurred by SynerPhy that: (1) have the prior written
approval of Lakeview; (2) are solely attributable to Lakeview's operations; and
(3) are reasonably documented. Such amounts will be delivered to SynerPhy within
thirty (30) days of Lakeview's receipt of an invoice from SynerPhy setting forth
in detail the amount and nature of such expenses accompanied by supporting
documentation.
4.3 Compensation Reasonable. Lakeview and SynerPhy agree that the
compensation payable to SynerPhy under Sections 4.1 and 4.2 is being paid to
SynerPhy in consideration of the services performed by SynerPhy hereunder. The
parties further agree that such fees are fair and reasonable and have been
bargained for at arms' length.
V. TERM AND TERMINATION
5.1 Term of Agreement. This Agreement shall commence on the date first
written above and shall expire on the fifth (5th) anniversary hereof, unless
earlier terminated pursuant hereto.
5.2 Termination without Cause. Either party may terminate this Agreement at
any time without cause by (i) providing the other party with ninety (90) days
advance written notice of such termination, and (ii) on or before the effective
date of the termination, paying to the other party a cash payment in the amount
of the termination fee calculated in accordance with Exhibit 5.2 attached hereto
(the "Termination Fee").
5.3 Termination by Lakeview. Lakeview may terminate this Agreement "for
cause" and without payment of any Termination Fee as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or
an assignment for the benefit of creditors by SynerPhy, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by SynerPhy, except for the filing of a petition in
involuntary bankruptcy against SynerPhy which is dismissed within thirty (30)
days thereafter, Lakeview may terminate this Agreement immediately by giving
written notice thereof to SynerPhy, subject to the provisions of Section 5.3(d)
below.
(b) If SynerPhy or PhyCor fail to pay any amounts due under the Notes
as such amounts become due and payable, and such failure to pay continues
following
11
12
proper notice thereof and the expiration of any applicable cure period, Lakeview
may terminate this Agreement upon the expiration of such cure period by
delivering written notice of such termination to SynerPhy.
(c) In the event that (i) Lakeview, in good faith, alleges gross
mismanagement by SynerPhy in the performance of any duty or obligation imposed
upon it by this Agreement or an intentional failure by SynerPhy to perform any
such duty or obligation, and (ii) the arbitrator in binding arbitration
conducted in accordance with Section 8.4 hereof finds (A) that such gross
mismanagement or intentional failure to perform has occurred and (B) that such
gross mismanagement or intentional failure to perform has had a material adverse
impact on Lakeview's business, then Lakeview may terminate this Agreement
immediately following the determination of such arbitrator, subject to the
provisions of Section 5.3(d) below.
(d) Prior to any termination under Sections 5.3(a) or (c) above and as
a condition precedent to its right to terminate under those Sections, Lakeview
agrees that it will forgive any amounts outstanding under the Notes, xxxx the
Notes "Cancelled" and "Paid in Full" and return the notes to PhyCor.
5.4 Termination by SynerPhy. SynerPhy may terminate this Agreement "for
cause" and without payment of any Termination Fee as follows:
(a) In the event of the filing of a petition in voluntary bankruptcy or
an assignment for the benefit of creditors by Lakeview, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by Lakeview, except for the filing of a petition in
involuntary bankruptcy against Lakeview which is dismissed within thirty (30)
days thereafter, SynerPhy may give notice of the immediate termination of this
Agreement.
(b) In the event Lakeview shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement, including the
failure to pay any amounts payable hereunder, and such default shall continue
for a period of thirty (30) days (or fifteen (15) days if the default by
Lakeview is a failure to pay any amounts payable by Lakeview to SynerPhy
hereunder) after written notice thereof has been given to Lakeview by SynerPhy,
SynerPhy may terminate this Agreement immediately.
5.5 Repayment of Indebtedness after Termination or Expiration. In the event
of a termination of this Agreement for any reason whatsoever, the parties agree
to the following: within thirty (30) days after such termination, each party
shall repay to the other party any indebtedness owned to the other party
existing at the time of such termination, including, but not limited to, any
unpaid Fee for services previously rendered prior to the termination date or any
expenses incurred by SynerPhy which would otherwise have been reimbursed as
provided in Article IV.
12
13
VI. RESTRICTIVE COVENANTS
6.1 The parties recognize that the services to be provided by SynerPhy
shall be feasible only if Lakeview operates an active medical practice to which
the physicians associated with Lakeview devote their full time and attention. To
that end, during the term of this Agreement, Lakeview hereby covenants and
agrees to obtain and enforce written agreements from its physician members or
shareholders and physician employees in substantially the form of the existing
agreements in place with respect to such physicians. Lakeview acknowledges that
it is in the best interests of Lakeview and SynerPhy to obtain and enforce such
agreements (including specifically the restrictive covenant and liquidated
damage provisions contained therein as they exist as of the date hereof) to
maintain a stable, productive physician group.
VII. RECORDS; OWNERSHIP OF INFORMATION; CONFIDENTIALITY
7.1 Patient Records. During the term of this Agreement and upon and after
the termination of this Agreement, Lakeview shall retain all patient medical
records maintained by Lakeview or SynerPhy in the name of Lakeview. Lakeview
shall, at its option, be entitled to retain copies of financial and accounting
records relating to all services performed by SynerPhy. Notwithstanding the
foregoing, but subject in all instances to applicable federal and state laws and
regulations, SynerPhy may from time to time, with Lakeview's prior written
approval, collect patient data and other information from Lakeview which will be
aggregated and assimilated with similar information from physician groups
managed by PhyCor and its affiliates. Such aggregated data and all reports
containing such information shall be the exclusive property of PhyCor and its
affiliates and any commercialization of such data or information shall be for
the sole and exclusive benefit of PhyCor and its affiliates. Nothing contained
herein shall authorize SynerPhy or such entities affiliated with PhyCor to own
or use any patient information in violation of federal or state laws or
regulations or the patient's legal rights. SynerPhy shall ensure that any
patient identifying information pertaining to patients of Lakeview (including,
but not limited to, patient names, identification numbers, employer names,
addresses, telephone numbers and e-mail addresses) is not included in such
aggregation of patient data or otherwise used in a way that is violative of such
patients' right of confidentiality or applicable federal or state laws or
regulations. SynerPhy and PhyCor shall bear the sole and exclusive
responsibility for determining the lawfulness of this practice with respect to
patient information. Lakeview shall have access at no expense to all such data
and reports obtained or prepared by SynerPhy and PhyCor in accordance with this
Paragraph including, reports on performance initiatives set forth in Section
3.8, and including, without limitation, all reports and other documents
containing all or part of such data or based upon such data.
13
14
7.2 Records Owned by SynerPhy.SynerPhy retains all ownership and other
rights in all systems, manuals, computer software, materials, and other
information, in whatever form, provided by or developed by SynerPhy or entities
affiliated with SynerPhy in the performance of its obligations under this
Agreement (the "SynerPhy Materials"). Nothing contained herein shall be
construed as a license or transfer of any such SynerPhy Materials or any portion
thereof to Lakeview. Upon the expiration or termination for any reason of this
Agreement, SynerPhy shall have the right to retain all such SynerPhy Materials,
and Lakeview shall, upon request of SynerPhy, deliver to SynerPhy all such
SynerPhy Materials. Lakeview shall be allowed to retain only those materials
developed by Lakeview and SynerPhy during the terms of this Agreement and which
are used by Lakeview in its operations.
7.3 Access to Records. (a) During the term of this Agreement and subject to
all federal or state laws and regulations, Lakeview shall provide to SynerPhy
access to the records and facilities of Lakeview during normal business hours to
the extent reasonably necessary to enable SynerPhy to provide services
hereunder. SynerPhy shall also provide to Lakeview reasonable access to the
records and facilities of SynerPhy which pertain to the services provided by
SynerPhy on behalf of Lakeview pursuant to this Agreement.
(b) Upon the written request of the Secretary of Health and Human
Services, the Comptroller General, or any of their authorized representatives,
SynerPhy shall make available those contracts, books, documents and records
necessary to certify the nature and extent of the costs of providing services
under this Agreement. Such inspection shall be available for up to four (4)
years after the rendering of such services. If SynerPhy carries out any of the
duties under this Agreement through a subcontract with a value of $10,000 or
more over a 12-month period with a related individual or organization, SynerPhy
agrees to include this requirement in any subcontract. This Section 7.3(b) is
included pursuant to and is governed by the requirements of Public Law 96-499,
Sec. 952 and the regulations promulgated thereunder.
7.4 Confidentiality. Except as set forth herein and except for disclosure
to its bankers, underwriters, consultants or lenders, or as necessary or
desirable for conduct of business, no party hereto shall disseminate or release
to any third party any information regarding any provision of this Agreement, or
any financial or other information regarding the other party (past, present or
future) that was obtained by the party in the course of the negotiation of this
Agreement or in the course of the performance of this Agreement, without the
other party's prior 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 the confidentiality provisions hereof; (ii) becomes
available on a non-confidential basis from a source other than the party or its
affiliates or agents, which source was not itself bound by a confidentiality
agreement, or (iii) which is required to be disclosed by law, including
securities laws or pursuant to court order. In addition, except as may be
provided by applicable federal and state laws or regulations, the foregoing
restrictions shall not prohibit SynerPhy from using data and information
obtained by SynerPhy in performing its services under this Agreement in
14
15
the context of presenting to other potential purchasers of services the results
of SynerPhy's performance under this Agreement; provided that, prior to any such
disclosure, SynerPhy has disclosed to Lakeview the information SynerPhy intends
to disclose and the parties to whom SynerPhy intends to disclose such
information. With Lakeview's prior written approval, this information may
include the data evidencing economic improvements made for the benefit of
Lakeview as a result of SynerPhy's services provided in this Agreement. Lakeview
also acknowledges that SynerPhy may use the information obtained pursuant to
this Agreement to implement similar arrangements with other clinics and medical
groups, except as otherwise prohibited by federal or state laws or regulations,
and that the use of the information and data obtained during the terms of this
Agreement in such context shall in no event be a breach of the terms hereof.
VIII. INDEMNIFICATION; ARBITRATION
8.1 Indemnification by Lakeview. Lakeview shall indemnify, hold harmless
and defend SynerPhy, its officers, directors, shareholders and employees, from
and against any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of the performance of medical services or the performance of any
intentional acts, negligent acts or omissions by Lakeview and/or its agents, and
employees during the term hereof. Lakeview's indemnification obligation
hereunder shall be secondary to, and reduced by, the amount of any applicable
insurance coverage of SynerPhy covering the matters for which SynerPhy is
seeking indemnification from Lakeview.
8.2 Indemnification by SynerPhy. SynerPhy shall indemnify, hold harmless
and defend Lakeview, its officers, shareholders, directors and employees, from
and against any and all liability, loss, damage, claim, causes of action, and
expenses (including reasonable attorneys' fees), whether or not covered by
insurance, caused by or as a result of the performance of any intentional acts,
negligent acts or omissions by SynerPhy and/or its shareholders, agents, and
employees during the term of this Agreement. SynerPhy's indemnification
obligation hereunder shall be secondary to, and reduced by, the amount of any
applicable insurance coverage of Lakeview covering the matters for which
Lakeview is seeking indemnification from SynerPhy.
8.3 Rules Regarding Indemnification; Cumulative Remedies. The obligations
and liabilities of each indemnifying party hereunder with respect to claims
resulting from the assertion of liability by the other party or third parties
shall be subject to the following terms and conditions:
(a) The indemnified party shall give prompt written notice to the
indemnifying party of any claim which might give rise to a claim by the
indemnified party
15
16
against the indemnifying party based on the indemnity agreement contained in
Sections 8.1 and 8.2 hereof, stating the nature and basis of said claims and the
amounts thereof, to the extent known.
(b) The indemnified party shall not make any settlement of any claims
without the written consent of the indemnifying party, which consent shall not
be unreasonably withheld or delayed. The indemnifying party shall select counsel
in the applicable matter and shall provide, at its expense, a defense to the
litigation.
(c) Except as herein expressly provided, the remedies provided in this
Article VIII shall be cumulative and shall not preclude assertions by any party
of any other rights or the seeking of any other rights or remedies against any
other party hereto.
8.4 Binding Arbitration.
(a) Any dispute or action arising out of or relating to the right of
either party to terminate this Agreement "for cause", as defined in Sections 5.3
and 5.4 hereof, shall be determined solely and exclusively by arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA") or any successor thereof ("Arbitration"). Any other dispute
or action arising out of or relating to this Agreement which the parties are
unable to resolve, including any and all federal and state statutory claims,
federal and state public and private law issues and issues as to what matters
are subject to Arbitration, may be determined by Arbitration upon the mutual
agreement of the parties hereto. Prior to submitting any matter to mandatory
Arbitration pursuant hereto, the parties agree to make themselves available to
meet and use their best efforts to resolve the applicable matter by following
good faith negotiations, which may include non-binding mediation upon the mutual
agreement of the parties hereto.
(b) In the event any party determines to submit an applicable action to
Arbitration following compliance with the last sentence of 8.4 (a) above, such
party shall give written notice thereof to the other party. If the parties are
otherwise unable to agree on a mutually acceptable arbitrator within ten (10)
days following the date of such written notice, the arbitrator shall be an
arbitrator then affiliated with the American Arbitration Association ("AAA") in
Suffolk, Virginia (a "qualified arbitrator"). The rules of arbitration then in
effect for AAA shall be applied in such Arbitration. No qualified arbitrator
shall have any financial interest in either of the parties to the Arbitration or
the outcome of the Arbitration.
(c) Judgment upon any award of the arbitrator shall be binding and
shall be entered in a court of competent jurisdiction, if necessary. The award
of the arbitrator may grant any relief which might be granted by a court of
general jurisdiction, including, without limitation, by reason of enumeration,
award of damages and/or injunctive relief.
(d) The venue for any Arbitration pursuant hereto shall be Suffolk,
16
17
Virginia. The qualified arbitrator may award to the substantially prevailing
party reasonable attorney's fees and expenses and the costs of the Arbitration.
IX. REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Each of the parties hereto hereby represents and warrants to the other as
follows:
9.1 Organization, Power and Qualification. Each party is duly organized,
validly existing and in good standing under the laws of the state in which it is
organized and has full power to own, lease and operate its properties and assets
and to carry on its business as now being conducted, and is duly qualified and
in good standing to do business in each jurisdiction in which the nature of such
party's business or the ownership or leasing of its properties make such
qualification necessary. Each party has full corporate power to enter into this
Agreement and to consummate the transactions contemplated hereby.
9.2 Authority; Binding Effect. Each party has full power and authority to
enter into this Agreement and to carry out the transactions contemplated hereby.
The directors, shareholders, members or partners and officers of each party have
taken all action required, whether by law, such party's organizational documents
or otherwise, to authorize the execution and delivery of this Agreement and the
performance of transactions contemplated hereby. The execution, delivery, and
performance of this Agreement constitutes the valid and binding agreement of
each party enforceable in accordance with its term.
X. MISCELLANEOUS
10.1 Assignment. This Agreement may not be assigned by either party without
the express written consent of the other party to this Agreement; provided,
however, SynerPhy may assign this Agreement to another entity which is
controlled by or under the common control of PhyCor without the prior written
consent of Lakeview.
10.2 Whole Agreement; Modification. This Agreement constitutes the entire
agreement between the parties and it expressly terminates and supersedes the
Service Agreement. There are no agreements or understandings, written or oral,
between the parties regarding this Agreement and the Exhibits, other than as set
forth herein. This Agreement shall not be modified or amended except by a
written document executed by both parties to this Agreement, and such written
modification(s) shall be attached hereto.
10.3 Notices. All notices required or permitted by this Agreement shall be
in writing and shall be addressed as follows:
17
18
To Lakeview: Lakeview Medical Center, Inc.
0000 Xxxxx Xxxxxxx
Xxxxxxx, XX 00000
Attention: President
With a copy to:
Xxxxxxx Xxxxxxx, Esq.
Hunton & Xxxxxxxx
Riverfront Plaza, East Tower
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000-0000
To SynerPhy: PhyCor of Western Tidewater, Inc.
00 Xxxxxx Xxxxx Xxxx., Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: General Counsel
or to such other address as either party shall notify the other.
10.4 Binding on Successors. This Agreement shall be binding upon the
parties hereto, and their successors, assigns, heirs and beneficiaries.
10.5 Wavier 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.
10.6 Governing Law. The validity, interpretation and performance of this
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Virginia. The parties acknowledge that SynerPhy is not
authorized or qualified to engage in any activity that may be construed or
deemed to constitute the practice of medicine. To the extent any act or service
required of SynerPhy in this Agreement should be construed or deemed, by any
governmental authority, agency or court to constitute the practice of medicine,
the performance of said act or service by SynerPhy shall be deemed waived and
forever unenforceable and the provisions of Section 10.7 shall be applicable.
10.7 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.
10.8 Additional Documents. Each of the parties hereto agrees to execute any
document or documents that may be requested from time to time by the other party
to implement or complete such party's obligations pursuant to this Agreement.
10.9 Attorney's Fees. If legal action is commenced by either party to
enforce
18
19
to defend its rights under this Agreement (including any Arbitration), the
substantially prevailing party in such action shall be entitled to recover its
costs and reasonable attorneys' fees in addition to any other relief granted.
10.10 Time is of the Essence. Time is hereby expressly declared to be of
the essence in this Agreement.
10.11 Contract Modifications for Prospective Legal Events. In the event any
state or federal laws or regulations, now existing or enacted or promulgated
after the 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,
SynerPhy and Lakeview shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between SynerPhy and Lakeview.
10.12 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 to time as often as occasion
may arise or as may be deemed expedient, except as otherwise provided in Section
8.4.
10.13 Language Construction. The language in all parts of this Agreement
shall be construed, in all cases, according to its fair meaning, and not for or
against either party hereto. The parties acknowledge that each party and its
counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
10.14 No Obligation to Third Parties. None of the obligations and duties of
SynerPhy or Lakeview under this Agreement shall in any way or in any manner be
deemed to create any obligation of SynerPhy or Lakeview to any person or entity
not a party to this Agreement or to create any rights on behalf of any such
person or entity.
[SIGNATURE APPEAR ON THE FOLLOWING PAGE]
19
20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
LAKEVIEW:
LAKEVIEW MEDICAL CENTER, INC.
By: /s/
--------------------------------------
Title: ___________________________________
SYNERPHY:
PHYCOR OF WESTERN TIDEWATER, INC.
By: /s/
--------------------------------------
Title: ___________________________________
20
