<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): June 20, 1996
SEAFIELD CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
MISSOURI
(State or other jurisdiction of incorporation)
0-16946 43-1039532
(Commission File Number) (I.R.S. Employer Identification No.)
2600 GRAND BLVD., SUITE 500, P.O. BOX 410949
KANSAS CITY, MO 64141
(Address of principal executive offices, including Zip Code)
(816) 842-7000
(Registrant's telephone number, including Area Code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
Item 5. Other Events
On July 10, 1996, the Registrant filed a Current Report on Form 8-K reporting
the consummation of the acquisition by its 54% owned subsidiary, Response
Oncology, Inc., of Jeffrey L. Paonessa, M.D., P.A.
The Registrant hereby files this Amendment No. 1 to the previously filed Form
8-K in order to provide the following financial statements and pro forma
financial information.
1. Audited Balance Sheet, Statement of Income, Statement of
Shareholders' Equity, and Statement of Cash Flows, including
footnotes, as of and for the year ended December 31, 1995 for
Jeffrey L. Paonessa, M.D., P.A. (The "Acquired Business").
2. Pro forma Balance Sheet and Statement of Operations for Response
Oncology, Inc. and Acquired Business as of March 31, 1996 and
for the year ended December 31, 1995 and the three months ended
March 31, 1996.
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Jeffrey L. Paonessa, M.D., P.A.
(d/b/a Paonessa and Peterson):
We have audited the accompanying balance sheet of Jeffrey L. Paonessa,
M.D., P.A. (d/b/a Paonessa and Peterson) as of December 31, 1995, and the
related statements of income, stockholder's equity, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jeffrey L. Paonessa, M.D.,
P.A. (d/b/a Paonessa and Peterson) as of December 31, 1995, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
St. Petersburg, Florida
June 4, 1996
<PAGE> 4
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1996
DECEMBER 31, -----------
1995
------------ (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 965 $ 9,998
Accounts receivables, net of allowance for contractual adjustments
and uncollectible amounts of $707,382 at December 31, 1995 and
$964,348 at March 31, 1996 (unaudited).......................... 864,577 1,178,648
Supplies........................................................... 181,500 139,631
Due from related party (note 4).................................... 271,213 277,313
Prepaid expenses................................................... 6,689 3,875
------------ -----------
Total current assets....................................... 1,324,944 1,609,465
------------ -----------
Property and equipment:
Furniture and fixtures............................................. 184,660 211,708
Medical equipment.................................................. 127,413 127,852
Automobile......................................................... 40,000 40,000
------------ -----------
352,073 379,560
Less accumulated depreciation...................................... 118,279 132,068
------------ -----------
Net property and equipment................................. 233,794 247,492
------------ -----------
$1,558,738 $ 1,856,957
========== =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................. $ 337,711 $ 212,986
Accrued employee compensation...................................... 58,690 101,772
------------ -----------
Total current liabilities.................................. 396,401 314,758
------------ -----------
Stockholder's equity:
Common stock, $1 par value. Authorized 10,000 shares; issued and
outstanding 1,000 shares........................................ 1,000 1,000
Retained earnings.................................................. 1,161,337 1,541,199
------------ -----------
Total stockholder's equity................................. 1,162,337 1,542,199
------------ -----------
Commitments and contingencies (notes 3 and 5)........................
------------ -----------
$1,558,738 $ 1,856,957
========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD
ENDED MARCH
YEAR ENDED 31,
DECEMBER 31, 1996
1995 -----------
------------ (UNAUDITED)
<S> <C> <C>
Revenue:
Net patient service revenue........................................ $7,896,188 $2,470,571
Other income....................................................... 55,158 29,404
------------ -----------
Total revenue.............................................. 7,951,346 2,499,975
------------ -----------
Expenses:
Operating.......................................................... 4,374,291 1,356,487
Depreciation....................................................... 40,359 13,789
Other.............................................................. 368,164 149,837
------------ -----------
4,782,814 1,520,113
------------ -----------
Net income................................................. $3,168,532 $ 979,862
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------ ---------- -------------
<S> <C> <C> <C>
Balance, December 31, 1994.................................... $1,000 $1,102,805 $ 1,103,805
Net income.................................................. -- 3,168,532 3,168,532
Stockholder distributions................................... -- (3,110,000) (3,110,000)
------ ---------- -------------
Balance, December 31, 1995.................................... 1,000 1,161,337 1,162,337
Net income (unaudited)...................................... -- 979,862 979,862
Stockholder distributions (unaudited)....................... -- (600,000) (600,000)
------ ---------- -------------
Balance, March 31, 1996 (unaudited)........................... $1,000 $1,541,199 $ 1,542,199
====== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income......................................................... $3,168,532 $ 979,862
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.................................................... 40,359 13,789
Changes in operating assets and liabilities:
Accounts receivables, net..................................... (101,908) (314,071)
Supplies...................................................... 5,530 41,869
Prepaid expenses.............................................. (52,997) 2,814
Accounts payable and accrued expenses......................... 226,832 (124,725)
Accrued employee compensation................................. 5,975 43,082
------------ -----------
Net cash provided by operating activities.................. 3,292,323 642,620
------------ -----------
Cash flows from investing activities:
Expenditures for property and equipment............................ (145,616) (27,487)
Due from related party............................................. (48,438) (6,100)
------------ -----------
Net cash used in investing activities...................... (194,054) (33,587)
------------ -----------
Cash flows from financing activity -- Stockholder distributions...... (3,110,000) (600,000)
------------ -----------
Net increase (decrease) in cash............................ (11,731) 9,033
Cash, beginning of year.............................................. 12,696 965
------------ -----------
Cash, end of year.................................................... $ 965 $ 9,998
========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 8
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 31, 1996 (UNAUDITED)
UNAUDITED INTERIM FINANCIAL INFORMATION
The balance sheet as of March 31, 1996 and the related statements of
income, shareholder's equity and cash flows for the three-month period ended
March 31, 1996 (1996 interim financial information) have been prepared by
Jeffrey L. Paonessa, M.D., P.A. (d/b/a Paonessa and Peterson) (the "Company")
and are unaudited. In the opinion of the Company, the 1996 interim financial
information includes all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of the results of the 1996 interim
period.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted from the 1996 interim financial information. The
1996 interim financial information should be read in conjunction with the
Company's December 31, 1995 audited financial statements appearing herein. The
results for the three months ended March 31, 1996 may not be indicative of
operating results for the full year.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Description of Business
The Company was incorporated on April 11, 1991 in the state of Florida. The
Company is a medical group practice whose physicians specialize in providing
services, including drug therapy, to patients with cancer.
(b) Net Revenue
Net revenue primarily consists of charges for patient services rendered by
the physicians based on established billing rates less allowance and discounts
for patients covered by contractual programs. Payments received under these
programs, which are generally based on predetermined rates, are generally less
than the established billing rates, and the differences are recorded as
contractual allowance or policy discounts. Net patient service revenue is net of
contractual adjustments and policy discounts of approximately $6,200,000 for the
year ended December 31, 1995 and $1,750,000 for the three-month period ended
March 31, 1996 (unaudited).
(c) Accounts Receivable
Accounts receivable consists primarily of receivables from patients and
third-party payors. In the normal course of providing healthcare services, the
Company grants credit to patients, substantially all of whom are resident in the
Tampa Bay area. The Company does not generally require collateral or other
security in extending credit to patients; however, it routinely obtains
assignments of (or is otherwise entitled to receive) patients' benefits payable
under their health insurance programs, plans or policies (for example, Medicare,
Medicaid, health maintenance organizations, preferred provider organizations and
commercial insurance policies).
The majority of the Company's net revenue and receivables is from
third-party payment programs. As of December 31, 1995 and March 31, 1996
(unaudited), approximately 98 percent of total revenue and receivables consists
of amounts from Medicare (38 percent) and various commercial plans (60 percent).
(d) Supplies
Inventories of supplies consists of pharmaceuticals and medications which
are stated at the lower of cost or market on a first-in, first-out basis.
<PAGE> 9
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation for equipment is
calculated using the straight-line method over the estimated useful lives of the
assets, as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C>
Office equipment.......................................................... 7 years
Medical equipment......................................................... 5-7 years
Automobile................................................................ 5 years
</TABLE>
(f) Stockholder Distribution
Stockholder distributions are paid and recorded on a monthly basis as
available cash flow permits.
(g) Income Taxes
The Company has elected to be treated as an S-Corporation under the
regulations of the Internal Revenue Code. Under the S-selection, items of
revenue and expense are passed directly to the stockholder. Accordingly, income
tax expense is not reflected in the financial statements.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
(2) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of patients' accounts receivable, due from related
party, accounts payable, and accrued expenses, and accrued employee compensation
approximate fair value because of the short maturity of those instruments.
(3) EMPLOYEE BENEFIT PLANS
Effective July 15, 1995 the Company adopted a 401(k) Profit Sharing Plan
(the "Plan"), which covers substantially all employees. Employees who complete
one year of service and attain age 21 may participate in the Plan. The Company's
contributions to the Plan are discretionary and include separate components for
annual profit sharing and matching of employee salary deferrals. For the year
ended December 31, 1995 and the three-month period ended March 31, 1996
(unaudited), the Company's expense under the Plan was $26,808 and $7,805,
respectively.
(4) DUE FROM RELATED PARTY
The Company has amounts due from an entity owned by a relative of the
stockholder. The amounts due are evidenced through a secured promissory note
bearing interest at 9% which is payable monthly through April 1, 2003. It is the
intention of the Company and the debtor that the note will be collected in
connection with the reorganization prior to the sale (note 6), accordingly, the
note and accrued interest are reflected as current assets. Interest income
recognized amounted to $21,000 for the year ended December 31, 1995 and $6,100
for the three-month period ended March 31, 1996 (unaudited).
<PAGE> 10
JEFFREY L. PAONESSA, M.D., P.A.
(D/B/A PAONESSA AND PETERSON)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company purchased an automobile from the stockholder with
a cost of $40,000. The Company believes the purchase price was consistent with
that which would be available from an unrelated third party.
(5) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company is obligated under noncancelable operating leases for office
space and an automobile. Future minimum lease payments under the noncancelable
operating leases (with initial or remaining lease terms in excess of one year)
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
-------------------------------------------------------------------------- --------
<S> <C>
1996...................................................................... $ 95,660
1997...................................................................... 98,010
1998...................................................................... 96,250
1999...................................................................... 83,020
--------
Total minimum lease payments.............................................. $372,940
========
</TABLE>
Total rental expense for operating leases was $104,620 for the year ended
December 31, 1995 and $28,134 for the three-month period ended March 31, 1996
(unaudited).
(b) Medical Malpractice and Professional Liability Insurance
The Company maintains professional liability insurance on a claims-made
basis at $1,000,000 per claim and $3,000,000 in the aggregate. Incidents and
claims reported during the policy period are anticipated to be covered by the
malpractice carrier.
At December 31, 1995 and March 31, 1996 (unaudited), there are no asserted
claims against the Company, nor has the Company identified any incident which
may have occurred but has yet to be identified under its incident reporting
systems. Accordingly, the Company has made no accruals at December 31, 1995 and
March 31, 1996 (unaudited) for incurred, but not reported, claims.
(c) Employment Contract
The Company is obligated under an employment contract with a physician that
extends through September 30, 1999. Minimum compensation to the physician in
1996 under the employment contract is $180,000. Compensation levels under the
employment contract subsequent to 1996 is based on a percentage of accounts
receivable collections.
(6) SUBSEQUENT EVENTS
On May 7, 1996, the Company entered into a letter of intent for the sale of
all issued and outstanding common stock to Response Oncology, Inc. ("Response").
Under the terms of the letter of intent, prior to such sale, a reorganization
will be executed whereby certain assets will be excluded from the purchase.
<PAGE> 11
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION
The accompanying pro forma consolidated balance sheet as of March 31, 1996 and
the related pro forma consolidated statements of operations for the year ended
December 31, 1995 and the three months ended March 31, 1996 give effect to the
acquisitions of Jeffrey L. Paonessa, M.D., P.A. ("Paonessa"), Knoxville
Hematology Oncology Associates ("KHOA") and Oncology Hematology Group of South
Florida, P.A. ("OHG"), (collectively referred to as the "Groups") as if the
acquisitions of the Groups had occurred on January 1, 1995. The pro forma
information is based on the historical audited financial statements of Response
Oncology, Inc. and subsidiaries (the "Company") and the Groups, giving effect
to the acquisitions under the purchase method of accounting, and the
assumptions and adjustments in the accompanying notes to the pro forma
consolidated financial information.
The pro forma statements have been prepared by the Company's management based
on the audited financial statements of the acquired entities. These pro forma
statements may not be indicative of the results that would have occurred if the
acquisitions had been in effect on the dates indicated or which may be obtained
in the future. The pro forma statements do not reflect the effect of expense
reductions and other operational changes, which, in the opinion of the Company,
is likely to result in profitable operations for the Groups. The pro forma
financial statements should be read in conjunction with the consolidated
financial statements and notes of Response Oncology, Inc. and subsidiaries.
<PAGE> 12
Response Oncology, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheet
March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Previous
Acquisition
Historical Subsequent to Pro Forma Pro Forma
Company March 31, 1996 Adjustments Results
------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash $ 483,191 $ 166,362 $1,546,933 $ 2,196,486
Short-term investments 361,718 361,718
Accounts receivable, net 15,100,543 998,657 (198,657) 15,900,543
Supplies 1,090,643 109,350 1,199,993
Prepaids 525,882 525,882
Advances to affiliated physician groups 3,112,552 3,112,552
Other current assets 2,089,590 2,089,590
------------------------------------------------------------
Total current assets 22,764,119 1,274,369 1,348,276 25,386,764
Property and equipment, net 3,695,637 1,698,479 (148,479) 5,245,637
Deferred charges, net 325,733 325,733
Intangible assets 11,656,558 11,656,558
Management Service Agreement 7,091,050 7,091,050
Other assets 176,805 176,805
------------------------------------------------------------
Total assets $38,618,852 $2,972,848 $8,290,847 $49,882,547
Accounts payable $5,696,496 $ 245,001 $ 318,294 $ 6,259,791
Accrued expenses 1,891,482 1,891,482
Notes payable 3,607,711 3,607,711
Capital lease obligations 57,622 46,947 (46,947) 57,622
Current portion of long term note 396,997 1,713,757 (1,713,757) 396,997
------------------------------------------------------------
Total current liabilities 11,650,308 2,005,705 (1,442,410) 12,213,603
Capital lease obligations 0 48,865 (48,865)
Notes Payable 6,265,369 23,131 10,126,869 16,415,369
Minority Interest 261,425 261,425
Stockholders' equity
Preferred stock 27,833 27,833
Common stock 73,782 73,782
Paid-in capital 60,137,024 550,400 60,687,424
Retained earnings (accumulated deficit) (39,796,889) 895,147 (895,147) (39,796,889)
------------------------------------------------------------
Total liabities and stockholders equity $38,618,852 $2,972,848 $8,290,847 $49,882,547
============================================================
<CAPTION>
Pro Forma Total
Paonessa Adjustments Pro Forma Proforma
----------------------------------------- ------------
<S> <C> <C> <C> <C>
Cash $ 9,998 $(9,447,498) $(9,437,500) $(7,241,014)
Short-term investments 0 361,718
Accounts receivable, net 1,178,648 1,178,648 17,079,191
Supplies 139,631 139,631 1,339,624
Prepaids 3,875 3,875 529,757
Advances to affiliated physician groups 0 3,112,552
Other current assets 277,313 (29,821) 247,492 2,337,082
---------------------------------------- -----------
Total current assets 1,609,465 (9,477,319) (7,867,854) 17,518,910
Property and equipment, net 247,492 (247,492) 5,245,637
Deferred charges, net 325,733
Intangible assets 11,656,558
Management Service Agreement 15,322,612 15,322,612 22,413,662
Other assets 176,805
---------------------------------------- -----------
Total assets $1,856,957 $ 5,597,801 $ 7,454,758 $57,337,305
Accounts payable $ 314,758 $ 314,758 $ 6,574,549
Accrued expenses 1,891,482
Notes payable 5,100,000 5,100,000 8,707,711
Capital lease obligations 57,622
Current portion of long term note 396,997
---------------------------------------- -----------
Total current liabilities 314,758 5,100,000 5,414,758 17,628,361
Capital lease obligations
Notes Payable 16,415,369
Minority Interest 261,425
Stockholders' equity
Preferred stock 27,833
Common stock 1,000 962 1,962 75,744
Paid-in capital 2,038,038 2,038,038 62,725,462
Retained earnings (accumulated deficit) 1,541,199 (1,541,199) (39,796,889)
---------------------------------------- -----------
Total liabities and stockholders equity $1,856,957 $ 5,597,801 $ 7,454,758 $57,337,305
======================================== ===========
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE> 13
Response Oncology, Inc. and Subsididaries
Pro Forma Consolidated Statement of Operations
Period Ended March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Previous
Acquisition
Historical Subsequent to Pro Forma Pro Forma
Company March 31, 1996 Adjustments Results
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Net revenue $13,340,885 $1,056,218 (b) $14,397,103
Other Income 16,729 $ 50,851 (50,851) 16,729
Net patient service revenue 1,566,635 (1,566,635)(a) 0
----------------------------------------------------------------
Total Revenue 13,357,614 1,617,486 (561,268) 14,413,832
Expenses:
Operating expenses 10,344,781 563,890 (25,889)(a) 10,882,782
General and administrative 1,266,840 150,868 1,417,708
Depreciation and amortization 570,965 59,100 44,319 (d) 674,384
Interest 192,281 23,328 216,047 (c) 431,656
Provision for doubtful 372,100 0 372,100
----------------------------------------------------------------
Total Expenses 12,746,967 797,186 234,477 13,778,630
Earnings before minority interest 610,647 820,300 (795,745) 635,202
Minority interest 94,369 94,369
----------------------------------------------------------------
Net Earnings to common stockholders $ 516,278 $ 820,300 $ (795,745) $ 540,833
================================================================
<CAPTION>
Pro Forma Total
Paonessa Adjustments Pro Forma Pro Forma
----------------------------------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Net revenue $1,774,012 (b) $1,774,012 $16,171,115
Other Income $ 29,404 (29,404) 0 16,729
Net patient service revenue 2,470,571 (2,470,571)(a) 0 0
----------------------------------------- -----------
Total Revenue 2,499,975 (725,963) 1,774,012 16,187,844
Expenses:
Operating expenses 1,506,324 (271,101)(a) 1,235,223 12,118,005
General and administrative 1,417,708
Depreciation and amortization 13,789 95,766 (d) 109,555 783,939
Interest 51,000 51,000 482,656
Provision for doubtful 0 372,100
----------------------------------------- -----------
Total Expenses 1,520,113 (124,335) 1,395,778 15,174,408
Earnings before minority interest 979,862 (601,628) 378,234 1,013,436
Minority interest 0 94,369
----------------------------------------- -----------
Net Earnings to common stockholders $ 979,862 $ (601,628) $ 378,234 $ 919,067
========================================= ===========
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE> 14
Response Oncology, Inc. and Subsididaries
Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Previous
Acqusitions
Historical Subsequent to Pro Forma Pro Forma
Company December 31, 1995 Adjustments Results
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Net revenue $44,297,798 $ 9,256,086 (b) $53,553,884
Other Income 282,011 $ 297,195 (297,195) 282,011
Net patient service revenue 14,723,018 (14,723,018)(a) 0
----------------------------------------------------------------
Total Revenue 44,579,809 15,020,213 (5,764,127) 53,835,895
Expenses:
Operating expenses 32,892,728 11,510,977 (2,981,261)(a) 41,422,444
General and administrative 5,512,306 5,512,306
Depreciation and amortization 1,736,055 342,156 452,437 (d) 2,530,648
Interest 16,860 269,114 1,303,268 (c) 1,589,242
Provision for doubtful accounts 2,105,696 77,066 2,182,762
----------------------------------------------------------------
Total Expenses 42,263,645 12,199,313 (1,225,556) 53,237,402
Earnings before minority interest 2,316,164 2,820,900 (4,538,571) 598,493
Minority interest 1,806 1,806
----------------------------------------------------------------
Earnings before income taxes 2,314,358 2,820,900 (4,538,571) 596,687
Income tax expense 210,000 (210,000)(e) 0
----------------------------------------------------------------
Net earnings 2,314,358 2,610,900 (4,328,571) 596,687
Common stock dividend to
preferred stockholders 3,825 3,825
----------------------------------------------------------------
Net earnings to common stockholders $ 2,310,533 $2,610,900 $(4,328,571) $ 592,862
================================================================
<CAPTION>
Pro Forma Total
Paonessa Adjustments Pro Forma Pro Forma
---------------------------------------------- -----------
<S> <C> <C> <C> <C>
Revenue:
Net revenue $ 5,918,057 (b) $5,918,057 $59,471,941
Other Income $ 55,158 (55,158) 0 282,011
Net patient service revenue 7,896,188 (7,896,188)(a) 0 0
---------------------------------------------- -----------
Total Revenue 7,951,346 (2,033,289) 5,918,057 59,753,952
Expenses:
Operating expenses 4,742,455 (964,757)(a) 3,777,698 45,200,142
General and administrative 0 5,512,306
Depreciation and amortization 40,359 383,065 (d) 423,424 2,954,072
Interest 204,000 (c) 204,000 1,793,242
Provision for doubtful accounts 0 2,182,762
---------------------------------------------- -----------
Total Expenses 4,782,814 (377,692) 4,405,122 57,642,524
Earnings before minority interest 3,168,532 (1,655,597) 1,512,935 2,111,428
Minority interest 0 1,806
---------------------------------------------- -----------
Earnings before income taxes 3,168,532 (1,655,597) 1,512,935 2,109,622
Income tax expense 0 0
---------------------------------------------- -----------
Net earnings 3,168,532 (1,655,597) 1,512,935 2,109,622
Common stock dividend to
preferred stockholders 0 3,825
---------------------------------------------- -----------
Net earnings to common stockholders $3,168,532 $(1,655,597) $1,512,935 $ 2,105,797
============================================== ===========
</TABLE>
See accompanying notes to pro forma consolidated financial information.
<PAGE> 15
RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The accompanying pro forma consolidated financial information presents the pro
forma financial condition of Response Oncology, Inc. and subsidiaries (the
"Company") as of March 31, 1996 and the results of their operations for the
year ended December 31, 1995 and the three months ended March 31, 1996.
On June 20, 1996, the Company acquired from unaffiliated individual sellers
100% of the issued and outstanding general partnership interest ("the Acquired
Interests") of Jeffrey L. Paonessa, M.D., P.A. ("Paonessa").
The accompanying pro forma consolidated balance sheet includes the acquired
assets, assumed liabilities and effects of financing, as if Paonessa had been
acquired on March 31, 1996. The accompanying pro forma consolidated statements
of operations reflect the pro forma results of operations, as adjusted, as if
all acqusition practices held by the Company had been acquired on January 1,
1995.
PRO FORMA CONSOLIDATED BALANCE SHEET
The adjustments reflected in the pro forma consolidated balance sheet are to
reflect the values of assets acquired and liabilities assumed in connection
with the acquisition of Paonessa to reflect the issuance of long-term debt and
cash payment to complete the acquisition; and to reflect the recording of
management service agreements acquired.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The adjustments reflected in the pro forma consolidated statements of operations
are as follows:
(a) To eliminate certain revenues and expenses of Paonessa that would not
constitute revenue to the Company or be the responsibility of the
Company pursuant to the Service Agreement.
(b) To accrue net revenue resulting from service agreements related to the
acquisition of the Group. Amounts were calculated based upon actual
operating results for the period, as adjusted, under the terms of the
related service agreement.
(c) To reflect interest on the long-term debt issued. Interest was
calculated at the annual rate of 6.5%.
(d) To record amortization of the intangible asset related to the service
agreement. The asset is amortized over the service agreement period,
or 40 years.
<PAGE> 16
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits: Form of the following agreement filed with Response's
current report on Form 8-K:
99.1 Service Agreement dated as of June 19, 1996 by and among
Response Oncology, Inc., J. Paonessa, M.D., P.A. and
Jeffrey L. Paonessa, M.D.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SEAFIELD CAPITAL CORPORATION
Dated: July 24, 1996 By: /s/ Steven K. Fitzwater
-----------------------------------------
Steven K. Fitzwater
Vice President, Chief
Accounting Officer and Secretary
<PAGE> 1
EXHIBIT 99.1
CONFIDENTIAL TREATMENT REQUESTED FOR
A PORTION OF EXHIBIT BY RESPONSE ONCOLOGY, INC.
SERVICE AGREEMENT
THIS SERVICE AGREEMENT dated as of June 19, 1996 by and among RESPONSE
ONCOLOGY, INC., a Tennessee corporation ("Response"), J. PAONESSA, M.D., P.A.,
a Florida professional association (the "Provider") and JEFFREY L. PAONESSA,
M.D. (the "Stockholder").
RECITALS:
WHEREAS, Response is in the business of owning certain assets of and
managing and operating medical clinics, and providing support services to and
furnishing medical practices with the necessary facilities, equipment,
personnel, supplies and support staff to operate a medical practice;
WHEREAS, the Provider and the Stockholder desires to retain Response to
perform the practice management functions described herein in order to permit
the Provider and its employees to devote substantially full time and efforts on
a concentrated and continuous basis to the rendering of medical services to
patients;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, effective June 19, 1996, the Provider, the
Stockholder and Response agree to the terms and conditions provided in this
Agreement.
ARTICLE 1.
RELATIONSHIP OF THE PARTIES
1.1. Independent Relationship. The Provider and Response intend to act
and perform as independent contractors, and the provisions hereof are not
intended to create any partnership, joint venture, agency or employment
relationship between the parties. Notwithstanding the authority granted to
Response herein, Response and the Provider agree that the Provider shall retain
the authority to direct the medical, professional, and ethical aspects of its
medical practice. Each party shall be solely responsible for and shall comply
with all state and federal laws pertaining to employment taxes, income
withholding, unemployment compensation contributions and other employment
related statutes applicable to that party.
1.2. Responsibilities of the Parties. As more specifically set forth
herein, Response shall provide the Provider with offices and facilities,
equipment, supplies, support personnel, and management and financial advisory
services. As more specifically set forth herein, the Provider shall be
responsible for the recruitment and hiring of Physicians and all issues related
to medical practice patterns and documentation thereof. Notwithstanding
anything herein to the contrary, no "designated health service" as defined in
42 U.S.C. Section 1395nn, including any amendments or successors thereto, shall
be provided by Response under this Agreement.
1.3. Provider's Matters. Matters involving the internal agreements and
finances of the Provider, including the distribution of professional fee income
among individual Physician Stockholders (as hereinafter defined), tax planning,
and pension and investment planning (and expenses relating solely to these
internal business matters), and hiring, firing and licensing of Non-Physician
Employees (hereinafter defined) shall remain the sole responsibility of the
Provider and the individual Physician Stockholders.
1.4. Patient Referrals. The parties agree that the benefits to the
Provider hereunder do not require, are not payment for, and are not in any way
contingent upon the admission, referral or any other arrangement for the
provision of any item or service offered by Response to any of the Provider's
patients in any facility or laboratory controlled, managed or operated by
Response.
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<PAGE> 2
1.5. Professional Judgment. Each of the parties acknowledges and agrees
that the terms and conditions of this agreement pertain to and control the
business and financial relationship between and among the parties but do not
pertain to and do not control the professional and clinical relationship
between and among the Provider, the Provider's employees, and the Provider's
patients. Nothing in this Agreement shall be construed to alter or in any way
affect the legal, ethical and professional relationship between and among the
Provider and the Provider's patients, nor shall anything contained in this
Agreement abrogate any right, privilege, or obligation arising out of or
applicable to the physician-patient relationship.
ARTICLE 2.
DEFINITIONS
2.1. Definitions. For the purposes of this Agreement, the following
definitions shall apply:
Financial and Accounting Definitions:
(a) "Account Debtor" shall mean an account debtor or any other Person
obligated in respect of an Account Receivable.
(b) "Accounts Receivable" shall mean, with respect to the Provider, all
accounts and any and all rights to payment of money or other forms of
consideration of any kind now owned or hereafter acquired (whether classified
under the Uniform Commercial Code as accounts, chattel paper, general
intangibles, or otherwise) for goods sold or leased or for services rendered by
the Provider, including, but not limited to, accounts receivable, proceeds of
any letters of credit naming the Provider as beneficiary, chattel paper,
insurance proceeds, contract rights, notes, drafts, instruments, documents,
acceptances, and all other debts, obligations and liabilities in whatever form
from any other Person, provided that cash, checks and credit card purchases are
not included in the definition of Accounts Receivable.
(c) References to "amounts recorded" shall mean all amounts recorded or
recordable in accordance with GAAP, including, without limitation, all billed
Physician Services Revenue and Non-Physician Revenue, earned Capitation Revenue
and all expenses that are subject to accrual under GAAP.
(d) "Ancillary Clinic Expenses" shall mean all amounts recorded
comprising items described in the definition of Clinic Expenses below that are
directly attributable to the delivery of Ancillary Services, excluding interest
on indebtedness incurred by Response to finance the delivery of such Ancillary
Services.
(e) "Ancillary Revenue" shall mean all amounts recorded as Practice
Revenue that are directly attributable to the delivery of Ancillary Services.
(f) "Bad Debt Allowance" shall mean, with respect to Accounts Receivable,
an allowance for uncollectible Accounts Receivable determined based on a
methodology approved by the Oversight Committee.
(g) "Capitation Revenue" shall mean amounts recorded consisting of
revenue from managed care organizations, where payment is made periodically on
a per member basis, administration payments, co-payments and all other payments
by managed care organizations, including, without limitation, managed care
variable expense bonuses, hospital expense bonuses or any other bonus or
payment which rewards the Provider for its medical performance under any
managed care arrangement.
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<PAGE> 3
(h) "Clinic Expenses" shall mean all amounts recorded comprising the
expenses incurred in the operation of any Clinic, including, without
limitation:
(A) Non-Physician Employee Compensation, and salaries, benefits and
other direct costs of all personnel employed by Response at a Clinic, including
any Executive Director employed pursuant to Section 5.6 hereof;
(B) obligations of Response under leases or subleases of facilities
and personal property utilized by the Provider, including, without limitation,
Clinics and medical offices, medical, laboratory and other equipment utilized
by the Provider;
(C) personal property and intangible taxes assessed against
properties and assets utilized by the Provider or otherwise deployed in any
Clinic commencing on the date of this Agreement;
(D) other ordinary, necessary and reasonable expenses incurred by
Response in carrying out its obligations under this Agreement, including,
without limitation, depreciation on equipment utilized in the Clinics, interest
on secured loans (other than notes payable by Response to any Stockholder or
his/her assigns delivered pursuant to the Purchase Agreement) incurred to
purchase Clinic equipment, insurance (except professional liability of
Physicians, which will remain a Physician Expense, but including business
interruption insurance), laundry, supplies, cost of goods sold from inventory,
utilities, telephone service, printing, stationery, advertising, postage,
medical transcribing and waste disposal; and
(E) salaries and bonuses (up to an aggregate of $300,000 per calendar
year, per Physician), and all other Physician Expense of Physicians (except
Andy Peterson) who are full-time employees of the Provider and who are not
Physician Stockholders (hereinafter defined).
All Clinic Expenses shall be computed in accordance with GAAP. To the
extent expenses incurred benefit multiple clinics, such Clinic Expenses shall
be allocated among such Clinics benefiting from such expenditure as Response
shall reasonably determine with the approval of the Oversight Committee.
Ancillary Clinic Expenses shall be separately accounted for. Clinic Expenses
and Ancillary Clinic Expenses shall not include (i) Physician Expense (except
as set forth in subparagraph (E) above), (ii) any corporate overhead charges of
Response (including, without limitation, salaries and personnel cost of
Response corporate office and clinical trials personnel, occupancy expense,
legal, accounting and other professional expenses incurred by Response in the
ordinary course of conducting its corporate business, taxes, general corporate
expense and costs similar to the foregoing not directly attributable to the
operation of any Clinic), (iii) the cost of any capital expenditures incurred
by Response pursuant hereto, except to the extent of depreciation, amortization
(except amortization of the Service Agreement Intangible (hereinafter defined)
which shall not be a Clinic Expense), interest and other period charges under
GAAP in respect of such capital expenditures, (iv) any federal or state income
taxes, and (v) any expenses which are expressly designated herein as expenses
or responsibilities of and are paid by the Provider; provided, however, that in
the case of Non-Physician Employee Compensation, such expenses shall be Clinic
Expenses notwithstanding the obligation of the Provider to pay same.
(i) "Clinic Expense Portion" of the Service Fee shall have the meaning
set forth in Section 8.1 below.
(j) "Fee Adjustment" shall mean any adjustment for any discount,
non-allowed contractual or other adjustment under Medicare, Medicaid, any
preferred provider plan, workers' compensation plan, employee/dependent health
care benefit program or other contractual arrangement between the Provider and
any Third Party Payor, and any professional courtesy or other reasonable and
customary discount that results in fee revenue not being collected.
3
<PAGE> 4
(k) "GAAP" shall mean generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity or other practices and procedures as may be
approved by a significant segment of the accounting profession or prescribed by
the Securities and Exchange Commission, which are applicable to the
circumstances as of the date of determination. For purposes of this Agreement,
GAAP shall be applied in a manner consistent with the historic practices used
by Response.
(l) "Governmental Receivables" shall mean Accounts Receivable of the
Provider which (i) arise in the ordinary course of business of the Provider,
(ii) are payable by 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) are
required by federal or state law to be paid or to be made to the Provider as a
health care provider. Governmental Receivables shall not, however, refer to
amounts payable by private insurers under contract to provide benefits under
the Federal Employee Health Benefit Program.
(m) "Net Operating Income" shall mean all amounts recorded as Practice
Revenue, less all amounts recorded as Clinic Expenses. Net Operating Income
shall be characterized as "Base Services Net Operating Income" and "Ancillary
Services Net Operating Income" and separately account for in accordance with
procedures approved by the Oversight Committee. Ancillary Services Net
Operating Income shall mean all amounts recorded as Ancillary Revenue, less all
amounts recorded as Ancillary Clinic Expenses. Base Services Net Operating
Income shall mean Net Operating Income minus Ancillary Services Net Operating
Income.
(n) "Non-Physician Employee Compensation" shall mean all amounts recorded
as salaries, wages (including overtime), benefits, payroll taxes and other
compensation expense by the Provider in respect of Non-Physician Employees
(hereinafter defined).
(o) "Percentage Portion" of the Service Fee shall have the meaning set
forth in Section 8.1 below.
(p) "Physician Expense" shall mean the sum of (i) salaries, bonuses and
other compensatory payments to Physicians (hereinafter defined) employed by or
otherwise performing services for the Provider, including Physician
Stockholder; (ii) perquisites and benefits provided to such persons; (iii)
travel and entertainment expense, continuing education expense, professional
liability expense; provided, however, that any such expense incurred at the
direction of Response shall not be a Physician Expense and shall instead be a
Clinic Expense; and (iv) payroll taxes in respect of any of the foregoing.
(q) "Physician Services Revenue" shall mean all amounts recorded as fees
and revenue (net of Fee Adjustments and Bad Debt Allowance) by or on behalf of
the Provider as a result of professional medical services furnished to patients
by Physicians and Non-Physician Employees, whether rendered in an inpatient or
outpatient setting.
(r) "Practice Revenue" shall mean the sum of all amounts recorded by the
Provider as Physician Services Revenue, Capitation Revenue and other revenue
attributable to the conduct of the Provider's medical practice, but shall
specifically exclude profits from any investment of the Provider in any
partnership, joint venture, corporation, professional association and any other
revenue not derived from the providing of services by employees of the Provider
or Response.
(s) "Service Fee" shall mean the sum of the Clinic Expense Portion and
the Percentage Portion (if any).
4
<PAGE> 5
Other Definitions:
(t) An "Affiliate" of a corporation shall mean (a) any person or entity
directly or indirectly controlled by such corporation, (b) any person or entity
directly or indirectly controlling such corporation, (c) any subsidiary of such
corporation if the corporation has a fifty percent (50%) or greater ownership
interest in the subsidiary, or (d) such corporation's parent corporation if the
parent has a fifty percent (50%) or greater ownership interest in the
corporation. For purposes of this Section 2.1(t), the Provider is not an
affiliate of Response.
(u) "Ancillary Services" shall mean diagnostic, treatment or other
medical services that may from time to time be offered by Provider after the
effective date hereof, which were not offered by the Provider or the
Corporation on the effective date hereof, and which are delivered by the
Provider utilizing equipment and other capitalized costs incurred by Response
at an aggregate cost in excess of $100,000.
(v) "Applicable Law" shall mean all applicable provisions of
constitutions, statutes, rules, regulations, ordinances and orders of all
Governmental Authorities and all orders and decrees of all courts, tribunals
and arbitrators, and shall include, without limitation, any Health Care Law.
(w) "CHAMPUS" shall mean the Civilian Health and Medical Program of the
Uniformed Services.
(x) "Clinic" shall mean the practice facility currently utilized by the
Provider, and any facility, related business and all medical group business
operations which the Provider and Response may, in the future, mutually agree
to characterize as a Clinic.
(y) "Corporation" shall mean Response Oncology of St. Petersburg, Inc., a
Florida business corporation.
(z) "Employment Agreement" shall mean an employment agreement between
each physician now or hereinafter employed by the Provider and the Provider
pursuant to which the physician shall be employed by the Provider to provide
medical services on behalf of the Provider, which Employment Agreement shall be
substantially in the form set forth as Exhibit 7.1 hereof.
(aa) "Governmental Authority" shall mean any national, state or local
government (whether domestic or foreign), any political subdivision thereof or
any other governmental, quasi-governmental, judicial, public or statutory
instrumentality, authority, board, body, agency, bureau or entity or any
arbitrator with authority to bind a party at law.
(ab) "Health Care Law" shall mean any Applicable Law regulating the
acquisition, construction, operation, maintenance or management of a health
care practice, facility, provider or payor, including without limitation 42
U.S.C. Section 1395nn and 42 U.S.C. Section 1320a-7b.
(ac) "Liquidated Damages Amount" shall mean an amount equal to the
applicable Liquidated Damages Amount determined pursuant to Schedule A hereto.
(ad) "Medicaid" shall mean any state program pursuant to which health
care providers are paid or reimbursed for care given or goods afforded to
indigent persons and administered pursuant to a plan approved by the Health
Care Financing Administration under Title XIX of the Social Security Act.
(ae) "Medicare" shall mean any medical program established under Title
VIII of the Social Security Act and administered by the Health Care Financing
Administration.
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<PAGE> 6
(af) "Necessary Authorization" shall mean with respect to the Provider
all certificates of need, authorization, certifications, consents, approvals,
permits, licenses, notices, accreditation's and exemptions, filings and
registrations, and reports required by Applicable Law, including, without
limitation, Health Care Law, which are required, necessary or reasonably useful
to the lawful ownership and operation of the Provider's business.
(ag) "Oversight Committee" shall mean a three (3) member committee
established pursuant to Section 4.1. Except as otherwise provided, the act of
a majority of the members of the Oversight Committee shall be the act of the
Oversight Committee.
(ah) "Person" shall mean an individual, corporation, partnership, joint
venture, trust, association, or unincorporated organization, or a government or
any agency or political subdivision thereof including, without limitation, a
Third Party Payor.
(ai) "Physician" shall mean any medical doctor employed by the Provider
or with whom the Provider has entered into an independent contractor or other
non-employee relationship.
(aj) "Non-Physician Employees" shall mean all persons other than
Physicians who deliver billable medical or health care services under the
direction of the Provider and its Physicians or are otherwise under contract
with the Provider to provide professional services to Clinic patients and, in
each case, who are duly licensed to provide professional medical services in
the State of Florida and all Technical Employees.
(ak) "Physician Extender Personnel" shall mean employees of Response who
deliver services to the Provider, including without limitation nurse
anesthetists, physician assistants, registered and licensed practical nurses,
nurse practitioners, psychologists, and other such persons, other than
physicians, who are not Non-Physician Employees.
(al) "Physician Stockholders" shall mean those Physicians who are at any
time or from time to time hereafter members or stockholders of the Provider.
(am) "Practice Assets" shall have the meaning ascribed to that term in
Section 11.5 of this Agreement.
(an) "Provider" shall have the meaning set forth in the initial
paragraph.
(ao) "Provider Event of Default" shall have the meaning ascribed to such
term in Section 11.4 hereof.
(ap) "Purchase Agreement" shall mean that certain Stock Purchase
Agreement dated as of June 19, 1996 by and among Response, the Stockholder and
the Provider.
(aq) "Response" shall mean Response Oncology, Inc., a Tennessee
corporation, and its wholly owned subsidiaries, including the Corporation.
(ar) "Response Event of Default" shall have the meaning ascribed to such
term in Section 11.3 of this Agreement.
(as) "Stockholder" has the meaning set forth in the initial paragraph
hereof.
(at) "Technical Employees" shall mean technicians who provide services in
the diagnostic areas of the Provider's practice, such as employees of any
Clinic laboratory, radiology technicians and radiation therapy technicians.
All Technical Employees shall be Non-Physician Employees.
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<PAGE> 7
(au) "Third Party Payor" shall mean each Person which makes payment under
a Third Party Payor Program, and each Person which administers a Third Party
Payor Program.
(av) "Third Party Payor Program" shall mean Medicare, Medicaid, CHAMPUS,
insurance provided by Blue Cross and/or Blue Shield, managed care plans, and
any other private health care insurance programs and employee assistance
programs as well as any future similar programs.
ARTICLE 3.
FACILITIES TO BE PROVIDED BY RESPONSE
3.1. Facilities. Response shall provide and make available to the
Provider for its use in its group medical practice the offices and facilities
more fully described in Exhibit 3.1 hereto, the furnishings, fixtures and
equipment located thereupon, and shall pay as hereinafter provided all costs
(all of which shall be Clinic Expense) of repairs, maintenance and
improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, refuse disposal and all other costs and expenses
reasonably incurred in conducting the operations contemplated by this Agreement
in each Clinic during the term of this Agreement, including, without
limitation, related real or personal property lease cost payments and expenses,
taxes and insurance. The Provider shall comply with all terms and provisions
of any lease or other agreement with respect to such facility and shall
maintain such facility and equipment used by the Provider in updated, fully
operational condition, ordinary wear and tear excepted. Response shall consult
with the Provider regarding the condition, use and needs for the offices,
facilities and improvements, and any purchase, lease or improvement of any
offices, facilities or equipment, or change in any of the foregoing, shall be
as directed and/or approved by a majority of the Oversight Committee. Response
shall follow all reasonable directions of the Oversight Committee in respect of
improvements to the offices, facilities and equipment to be used by the
Provider. The Provider shall not amend, modify or terminate any sub-lease
agreements without the prior written consent of Response.
3.2 Use of Facilities. The Provider shall not use or occupy any facility
or equipment owned or leased by Response for any purpose which is prohibited by
any Applicable Law, this Agreement, or the terms of any lease or other
arrangement with respect to the use or occupancy of such facility, or which may
be dangerous to life, limb, or property (except medical services provided in
the ordinary course of business), or which would increase the fire or extended
coverage insurance rate on such facility.
ARTICLE 4.
DUTIES OF THE OVERSIGHT COMMITTEE
4.1. Formation and Operation of the Oversight Committee. The parties
shall establish an Oversight Committee which shall be responsible for
developing management and administrative policies for the overall operation of
each Clinic. The Oversight Committee shall consist of three (3) members.
Response shall designate, and shall have the right to remove and replace, in
its sole discretion, one (1) member of the Oversight Committee. The Provider
shall designate, and shall have the right to remove and replace, in its sole
discretion, two (2) members of the Oversight Committee. In that regard, the
Stockholder may, in lieu of appointing a person in addition to himself to the
Oversight Committee, cast two (2) votes to each vote cast by Response on
Oversight Committee decisions. The Oversight Committee shall have the
authority to adopt bylaws (which shall include the fixing of a quorum for the
conduct of business by the Oversight Committee), establish regular meeting
times and places, call special meetings for any purpose and elect a chairman
and a secretary who shall preside over and record, respectively, the
proceedings at any meeting of the Oversight Committee. Except as otherwise
provided in Section 4.2(n) below, the affirmative vote of a majority of the
members of the Oversight Committee shall be required for approval of any action
taken thereby.
4.2. Duties and Responsibilities of the Oversight Committee. The
Oversight Committee shall have the following duties and obligations:
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<PAGE> 8
(a) Capital Improvements and Expansion. Any renovation and expansion
plans and capital equipment expenditures with respect to any Clinic shall be
reviewed and approved by the Oversight Committee and shall be based upon
economic feasibility, physician support, productivity and then current market
conditions.
(b) Annual Budgets. All annual capital and operating budgets prepared by
Response, as set forth in Section 5.2, shall be subject to the review and
approval of the Oversight Committee, which shall have the authority to reject
individual items in the budget and to fix such amounts so rejected. . In
addition to the foregoing, the Oversight Committee shall approve the
characterization as a Clinic Expense of any expense item not specifically
identified in the definition of Clinic Expense set forth in Section 2.1(h)
above.
(c) Drug Purchasing. Drug purchasing programs shall be subject to the
prior review and approval of the Oversight Committee, provided that if Response
demonstrates an ability to purchase any drug at a price less than that offered
by the vendor approved by the Oversight Committee, then the Oversight Committee
shall approve the purchase of drugs from the vendor recommended by Response
unless it establishes a compelling business reason to do otherwise.
(d) Advertising. All advertising and other marketing of the services
performed at any Clinic shall be subject to the prior review and approval of
the Oversight Committee.
(e) Patient Fees; Collection Policies. As a part of the annual operating
budget, in consultation with the Provider and Response, to the extent allowed
by Applicable Law, the Oversight Committee shall review and advise the Provider
as to an appropriate fee schedule for all physician and ancillary services
rendered by the Provider, which fee schedule shall ultimately be determined by
the Provider in its sole discretion. In addition, the Oversight Committee
shall approve the credit collection policies of any Clinic.
(f) Non-Physician Services. The Oversight Committee shall establish
Clinic-provided non-physician services based upon the pricing, access to and
quality of such services.
(g) Provider and Payor Relationships. Decisions regarding the
establishment or maintenance of relationships with managed care organizations,
institutional health care providers and Third Party Payors shall be made by the
Oversight Committee in consultation with Response and the Provider.
(h) Strategic Planning. The Oversight Committee shall develop long-term
strategic planning objectives.
(i) Capital Expenditures. The Oversight Committee shall determine the
priority of major capital expenditures benefiting the Clinics.
(j) Physician Hiring. The Oversight Committee shall determine the number
and type of physicians required for the efficient operation of each Clinic.
(k) Executive Director. The selection and retention of any Executive
Director pursuant to Section 5.6 and the salary and cash fringe benefits of
each Executive Director shall be pursuant to the direction and control of the
Oversight Committee. If the Provider is dissatisfied with the services
provided by any Executive Director, the Provider shall refer the matter to the
Oversight Committee. The Oversight Committee shall, in good faith, determine
whether the performance of such Executive Director could be brought to
acceptable levels through counsel and assistance, or whether the Executive
Director's employment should be terminated.
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<PAGE> 9
(l) Fringe Benefits. The Oversight Committee shall determine fringe
benefits to be offered to Non-Physician Employees and may, subject to budgetary
constraints, offer benefits to Response employees working in each Clinic
supplemental to benefits provided by Response to such persons.
(m) Employee Grievances. The Oversight Committee may establish a
committee to receive, make suggestions with respect to, settle or mediate
grievances brought by employees at the Clinics.
(n) Matters Requiring Unanimous Approval. Approval by unanimous vote of
the Oversight Committee shall be required with respect to the following
matters:
(i) increase of any budget amount by more than ten percent (10%)
above the amount proposed by Response without a commensurate decrease in other
budget items reasonably acceptable to Response;
(ii) exclusion of any revenue from Practice Revenue; and
(iii) variations in any restrictive covenant in any Physician
employment contract.
ARTICLE 5.
ADMINISTRATIVE SERVICES TO BE PROVIDED BY RESPONSE
5.1. Performance of Management Functions. Response shall provide or
arrange for the services set forth in this Article 5, the cost of all of which
shall be paid by Response in accordance with this Agreement and included in
Clinic Expenses. Response is hereby expressly authorized to perform its
services hereunder in whatever manner it deems reasonably appropriate to meet
the day-to-day requirements of Clinic operations in accordance with the general
standards approved by the Oversight Committee, including, without limitation,
performance of some of the business office functions at locations other than a
Clinic. The Provider will not act in a manner which would prevent Response
from efficiently managing the day-to-day operations of each Clinic in a
business-like manner.
5.2. Financial Planning and Goals. Response shall prepare annual capital
and operating budgets reflecting in reasonable detail anticipated revenue and
expenses, sources and uses of capital for growth in the Provider's practice and
medical services rendered at each Clinic. Response shall determine the amount
and form of capital to be invested annually in each Clinic and shall specify
the targeted profit margin for each Clinic which shall be reflected in the
overall budget. Response realizes that a Clinic may realize opportunities to
provide new services and utilize new technologies that will require capital
expenditures and anticipates that such opportunities may include outpatient
treatment centers, renovations to Clinic facilities, the addition of satellite
locations and new and replacement equipment pursuant to Section 3.1, and, upon
the direction of the Oversight Committee, Response agrees to provide funds to
allow the Clinic to provide such new services and to utilize such new
technologies. Such budgets shall be presented to the Oversight Committee at
least sixty (60) days prior to the end of the preceding calendar year. The
Oversight Committee shall us its best efforts to agree upon a budget at least
thirty (30) days prior to the end of such preceding Calendar year as provided
in Section 4.2(b), and, once approved in such manner, shall be binding upon
Response and the Provider unless modified or revised in like manner by the
Oversight Committee.
5.3. Financial Statements. Response shall prepare annual financial
statements on an accrual basis reflecting the results of operations of the
Provider. If the Provider desires an audit of any financial statement, the
Provider may obtain such an audit at its own expense. Response shall prepare
monthly unaudited financial statements containing a combined balance sheet and
statements of operations for the Clinics, which shall be delivered to the
Provider within thirty (30) days after the close of each calendar
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month. Notwithstanding the foregoing, Response shall be under no obligation to
keep multiple sets of books for cash basis and accrual basis methods of
accounting, but shall be entitled to keep one set of books maintained on an
accrual basis method of accounting, which shall be converted by workpaper-only
entries to the cash basis method of accounting for purposes of tax reporting.
5.4. Inventory and Supplies. Subject to Oversight Committee direction
and control as set forth in Section 4.2(c) above, Response shall order and
purchase reasonable and requested medical and office inventory, pharmaceuticals
and supplies required by the Provider in the day-to-day operations of its
medical practice.
5.5. Management Services and Administration.
(a) The Provider hereby appoints Response as its sole and exclusive
manager and administrator of all day-to-day business functions connected with
its group medical practice. The Provider agrees that the purpose and intent of
this Service Agreement is to relieve the Provider, the Physicians and
Non-Physician Employees, to the maximum extent possible, of the administrative,
accounting, payroll, accounts payable, personnel and business aspects of its
practice, with Response assuming responsibility for and being given all
necessary authority to perform these functions. Response agrees that the
Provider, and only the Provider, will perform the medical functions of its
practice. Response will have no authority, directly or indirectly, to perform,
and will not perform, any medical function. Response may, however, advise the
Provider as to the relationship between its performance of medical functions
and the overall administrative and business functioning of its practice. To
the extent that they assist the Provider in performing medical functions, all
Physician Extender Personnel performing patient care services obtained and
provided by Response shall be subject to the professional direction and
supervision of the Provider and, in the performance of such medical functions,
shall not be subject to any direction or control by, or liability to, Response,
except as may be specifically authorized by the Provider. The Provider hereby
indemnifies and holds Response, its officers, directors, shareholders, agents
and affiliates, their successors and assigns ("Indemnified Persons") harmless,
and shall reimburse the Indemnified Persons for, from and against each claim,
loss, liability, cost and expense (including, without limitation, interest,
penalties, costs of preparation and investigation, and the reasonable fees and
disbursement expenses of attorneys and other professional advisors) directly or
indirectly relating to, resulting from or arising out of any medical function
performed, or which should have been performed, under the supervision of the
Provider or Non-Physician Employees.
(b) Response shall, on behalf of the Provider and under the Provider's
provider number, bill patients and Third Party Payors, and shall collect the
professional fees for medical services rendered by the Provider in each Clinic,
for services performed outside a Clinic for the Provider's hospitalized
patients, and for all other professional and Clinic services. Response's
billing and collection practice shall be consistent with those of comparable,
nationally recognized, well managed group medical practices. The Provider
hereby appoints Response for the term hereof to be its true and lawful
attorney-in-fact, for the following purposes: (i) to bill patients in the
Provider's name and on its behalf; (ii) subject to Applicable Law, to collect
Accounts Receivable resulting from such billing in the Provider's name and on
its behalf; (iii) subject to Applicable Law, to receive payments from insurance
companies, prepayments from health care plans, and payments from all other
Third Party Payors; (iv) subject to Applicable Law, to take possession of and
endorse in the name of the Provider (and/or in the name of an individual
Physician, such payment intended for purpose of payment of a Physician's bill)
any notes, checks, money orders, insurance payments and other instruments
received in payment of Accounts Receivable; and (v) with the advance consent
of the Oversight Committee, to initiate legal proceedings in the name of the
Provider or any Physician to collect any accounts and monies owed to the
Provider, Clinic or any Physician, to enforce the rights of the Provider or any
Physician as a creditor under any contract or in connection with the rendering
of any service, and to contest adjustments and denials by any Governmental
Authority (or its fiscal intermediaries) as Third Party Payors. All
adjustments made for uncollectible accounts, professional courtesies and other
activities that do not generate a collectible fee shall be done in a reasonable
and consistent manner.
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(c) Response shall design, supervise and maintain custody of all files
and records relating to the operation of each Clinic, including but not limited
to accounting, billing, patient medical records, and collection records.
Patient medical records shall at all times be and remain the property of the
Provider and shall be located at Clinic facilities so that they are readily
accessible for patient care. The Physicians shall have the obligation to
oversee the preparation and maintenance of patient medical records, and to
provide such medical information as shall be necessary and appropriate to the
clinical function of such records, and to maintain such records so as to ensure
the availability of Third-party Payor reimbursement for services rendered. The
management of all files and records shall comply with applicable state and
federal statutes. Response shall use its best efforts to preserve the
confidentiality of patient medical records and use information contained in
such records only for the limited purpose necessary to perform the services set
forth herein; provided, however, in no event shall a breach of said
confidentiality be deemed a default under this Agreement. Response shall
indemnify and hold the Provider harmless from and against any monetary loss
suffered by the Provider on account of Response's breach of the foregoing
confidentiality provisions.
(d) Response shall supply to the Provider necessary clerical, accounting,
payroll, bookkeeping and computer services, laundry, linen, uniforms, printing,
stationary, advertising, postage and duplication services, medical transcribing
services and any other ordinary, necessary or appropriate item or service for
the operation of a Clinic, the cost of all of which shall be Clinic Expense.
(e) Subject to the provisions of Section 4.2(d), Response shall design
and implement adequate and appropriate public relations programs on behalf of
the Provider, with appropriate emphasis on public awareness of the availability
of services at the Provider's Clinics. Any public relations program shall be
conducted in compliance with applicable laws and regulations governing
advertising by medical professionals and applicable canons or principles of
professional ethics governing the Provider and its physicians.
(f) Response shall provide the data necessary for the Provider to prepare
its annual income tax returns and financial statements, and shall provide
payroll and related services for Physicians and Non-Physician Employees.
Response shall have no responsibility for the filing of such tax returns, the
payment of such income taxes or the cost of preparation of income tax returns
or financial statements on behalf of the Provider or any Physician employed
thereby.
(g) Response shall assist the Provider in recruiting additional
Physicians and Non-Physician Employees, carrying out such administrative
functions as may be appropriate such as advertising for and identifying
potential candidates, checking credentials, and arranging interviews; provided,
however, the Provider shall interview and make the ultimate decision as to the
suitability of any Physician or Non-Physician Employee to become associated
with a Clinic. All Physicians recruited by Response and accepted by the
Provider shall be the sole employees of the Provider, to the extent such
Physicians are hired as employees. Any expenses incurred in the recruitment of
Physicians or Non-Physician Employees, including, but not limited to,
employment agency fees, relocation and interviewing expenses, shall be Clinic
Expenses.
(h) Subject to the provisions of Section 4.2(g), Response shall negotiate
and administer all managed care contracts on behalf of the Provider.
(i) Subject to the provisions of Sections 5.3 and 5.5(f), Response shall
arrange for legal and accounting services related to Clinic operations incurred
traditionally in the ordinary course of business, including the cost of
enforcing any physician contract containing restrictive covenants.
(j) Response shall provide for the proper cleanliness of the physical
premises occupied and/or utilized by the Provider, and maintenance and
cleanliness of the equipment, furniture and furnishings located upon such
premises.
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5.6. Executive Director. Subject to the provisions of Section 4.2(k),
Response shall recruit, hire and appoint an Executive Director to manage and
administer all of the day-to-day business functions of each Clinic (it being
understood and agreed that, if reasonable, a single Executive Director may have
responsibility for multiple Clinics). Subject to Oversight Committee approval,
Response shall determine the salary, bonuses (if any) and fringe benefits of
each Executive Director, which salary, bonuses (which may be payable in
Response common stock or by issuance of options on Response common stock) and
benefits shall, to the extent the same are current expenses under GAAP, be
Clinic Expenses. At the direction, supervision and control of Response, the
Executive Director, subject to the terms of this Agreement, shall implement the
policies established by the Oversight Committee and shall generally perform the
duties and have the responsibilities of an administrator. The Executive
Director shall be responsible for organizing the agenda for the meetings of the
Oversight Committee referred to in Article 4.
5.7. Personnel. Response shall provide Physician Extender Personnel and
other non-physician professional support (other than Technical Employees and
other persons who are required to be Non-Physician Employees) and
administrative personnel, clerical, secretarial, bookkeeping and collection
personnel reasonably necessary for the conduct of operations at each Clinic.
Response shall determine and cause to be paid the salaries and fringe benefits
of all such personnel, which shall be Clinic Expenses. Such personnel shall be
under the direction, supervision and control of Response, except to the extent
they are required to be under the professional supervision of the Provider. If
the Provider is dissatisfied with the services of any person, the Provider
shall consult with Response. Response shall in good faith determine whether
the performance of that employee could be brought to acceptable levels through
counsel and assistance, or whether such employee's employment should be
terminated. All of Response's obligations regarding staff shall be governed by
the overriding principle and goal of providing the optimal quality of medical
care consistent with the efficient operation of the Clinic. Employee
assignments shall be made to assure consistent and continued rendering of the
optimal quality medical support services consistent with the efficient
operation of the Clinic and to ensure prompt availability and accessibility of
individual medical support personnel to Physicians in order to develop
constant, familiar and routine working relationships between individual
Physicians and individual members of the medical support personnel. Response
shall maintain established working relationships wherever possible and Response
shall make every reasonable effort consistent with sound business practices to
honor the specific requests of the Provider with regard to the assignment of
its employees.
5.8. Events Excusing Performance. Response shall not be liable to the
Provider for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies or other events over which Response has no control for so long as such
events continue, and for a reasonable period of time thereafter.
5.9. Compliance with Applicable Laws. Response shall comply with all
Applicable Law, in the conduct of its obligations under this Agreement.
5.10. Quality Assurance. Response shall assist the Provider in
fulfilling its obligations to its patients to maintain the optimal quality of
medical and professional services consistent with the efficient operation of
each Clinic.
5.11. Provider Bank Accounts. The Provider agrees to establish and
maintain two (2) separate bank accounts. One such account, which shall be
referred to as the Provider Receipts Account, will be under the sole direct
control of the Provider and will be utilized only as a depository for Practice
Revenue. Such account shall be subject to, and the Provider agrees to execute
and deliver to an appropriate commercial bank, a Lockbox Operating Procedural
Agreement, and, pursuant thereto, shall instruct such bank to transfer
automatically all amounts deposited in the Provider Receipts Account to the
Provider Operating Account. The second account shall be referred to as the
Provider Operating Account, and shall be maintained for the purpose of (a)
depositing amounts swept from the Provider Receipts Account and advances from
the Receivables Line (defined below) pursuant to Section 5.12 and (b) paying
(i) the Clinic
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Expense Portion of the Service Fee owed pursuant to Section 8.1 of this
Agreement, (ii) Non-Physician Employee Compensation, (iii) the Percentage
Portion of the Service Fee owed pursuant to Section 8.1 of this Agreement, and
(iv) Physician Expense and other distributions to the Provider, and the
distributions shall be made in that order of payment. Provider hereby
designates, constitutes and appoints Response, through its duly authorized
officers and employees as approved by the Oversight Committee, as a signatory
on the Provider Operating Account, with full power and authority, along with
the Stockholder, to sign checks and cause drafts and other debits to be made on
the Provider Operating Account in the name of the Provider and to otherwise
manage the cash resources and flow of the Provider. After the payment of the
Service Fee and expenses hereinabove described, the Provider may withdraw
amounts for distributions to Physician Stockholders; provided, however, that
the Provider agrees to maintain an adequate balance in the Provider Operating
Account to pay the Clinic Expense Portion of the Service Fee as projected in
the budget formulated pursuant to this Agreement.
5.12. Credit Line. Response shall from time to time during the term of
this Agreement advance to Provider, in readily available United State funds, by
wire transfer, intrabank transfer or other electronic means, to be deposited
into the Provider Operating Account, an amount (the "Receivables Line") equal
to 100% of Accounts Receivable, net of any Bad Debt Allowance and all Fee
Adjustments with respect thereto. Amounts advanced by Response under the
Receivables Line will not bear interest except after demand for payment shall
have been made by Response, in which event such advanced amounts shall bear
interest at the maximum rate permitted to be lawfully charged. Amounts
advanced by Response pursuant to this Section 5.12 shall be payable by Provider
within seven (7) days after demand, and if no demand be made, upon termination
of this Agreement. Demand may be made by Response only in the event a Provider
Event of Default occurs, and such demand shall be in writing duly delivered to
the Provider. In the event that Response exercises its right to terminate this
Agreement upon the occurrence of a Provider Event of Default, if the Provider
does not exercise its option to acquire the Practice Assets as provided in
Section 11.6 below, then the amount then outstanding under the Receivables Line
shall be reduced by the fair market value of the Practice Assets retained by
Response. Advances on the Receivables Line will be secured by a security
interest in and to Accounts Receivable granted pursuant to Section 15.7 below.
So long as a Provider Event of Default has not occurred, advances on the
Receivables Line shall be made by Response as required to provide funds in the
Provider Operating Account sufficient to pay, in the following order (i) the
Clinic Expense Portion of the Service Fee, (ii) Non-Physician Employee
Compensation, (iii) the Percentage Portion of the Service Fee, and (iv) the
Physician Expense.
5.13. Ancillary Services. Response shall operate such ancillary services
as approved by the Oversight Committee, including Ancillary Services as defined
herein.
ARTICLE 6.
OBLIGATIONS OF THE PROVIDER
6.1. Professional Services. The Provider shall provide professional
services to patients in compliance at all times with ethical standards, laws
and regulations applying to the medical profession, in a manner and to an
extent consistent with that established by the Provider prior to effectiveness
of this Agreement. The Provider shall also make all reports and inquiries to
the National Practitioners Data Bank and/or any state medical licensing board
required by Applicable Law. The Provider shall use its best efforts to ensure
that each Non-Physician Employee associated with the Provider to provide
medical care to patients of the Provider is licensed by the State of Florida to
the extent required. The Provider shall promptly notify Response in writing,
citing the underlying circumstances, in the event the Provider or any Physician
or Non-Physician Employee associated therewith (i) shall be or become the
subject of any investigation into or proceeding with respect to allegations of
professional misconduct or incompetence; (ii) shall be or become the subject of
any investigation by any Federal or state regulatory agency with respect to any
possible violation of any Federal or state law regulating the providing of
health care services; (iii) shall be named party to any proceeding alleging
violation of any law relating to such person's professional activities or
seeking to revoke or suspend such person's professional license or
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privileges to practice in any hospital or medical center; or (iv) shall
become the subject of any proceeding to exclude such person from any Federal or
state reimbursement program or shall suffer the revocation or suspension of
such person's Medicare provider number, DEA permit, professional license or
privileges to practice in any hospital or medical center. In the event that
any disciplinary action or medical malpractice actions is initiated against any
Physician or other person assisting in the providing of medical services, the
Provider shall immediately inform the Executive Director and/or Response of
such action and the underlying facts and circumstances. The Provider shall
develop a program to monitor the quality of medical care practiced at each
Clinic. In that regard, the Provider shall at all times supervise and assume
primary professional responsibility for the delivery of all medical or other
services to patients by Physician Extender Personnel and any other employee of
Response.
6.2. Medical Practice. The Provider shall use and occupy each Clinic
exclusively for the practice of medicine, and shall comply with all Applicable
Law and all standards of medical care. It is expressly acknowledged by the
parties that the medical practice or practices conducted at a Clinic shall be
conducted solely by Physicians associated with the Provider, and no other
physician or medical practitioner shall be permitted to use or occupy a Clinic
without the prior written consent of Response and the Provider.
6.3. Employment of Physicians and Non-Physician Employees. The Provider
shall have complete control of and responsibility for the hiring, compensation,
supervision, evaluation and termination of its Physicians and Non-Physician
Employees, although at the request of the Provider, Response shall consult with
the Provider respecting such matters. Except as provided in Section 2.1(h) the
Provider shall be responsible for the payment of all Physician Expense now or
hereafter applicable to Physicians; provided, however, that Response shall
provide the payroll service for computing, accounting for and disbursing or
paying all salaries and benefits of the Provider employees, all of whom may be
paid out of the Provider Operating Account. With respect to Physicians, the
Provider shall only employ and contract with licensed Physicians meeting
applicable credentialling guidelines established by the Provider.
6.4. Licensing Fees, Professional Dues and Education Expenses. Except as
provided in Section 2.1(h) and Section 5.5(g), the Provider and Physicians
shall be solely responsible for payment of the cost of professional licenses
and dues for membership in professional associations and continuing
professional education costs of all Physicians. The Provider shall ensure that
each of its Physicians and Non-Physician Employees participates in such
continuing medical education as is necessary for such person to maintain
current practical and academic knowledge of the field of medicine and health
care in which the Provider is engaged.
6.5. Professional Insurance Eligibility. The Provider shall use its best
efforts to cause its Physicians and Non-Physician Employees to at all times be
insurable, and shall reasonably participate in any ongoing risk management
program maintained by Response. Except as provided in Section 2.1(h)
professional liability insurance with respect to Physicians shall be paid for
by the Provider or its Physicians and shall not be Clinic Expense.
Professional liability insurance with respect to Non-Physician Employees shall
be paid for by Response and shall be Clinic Expense.
6.6. Events Excusing Performance. The Provider shall not be liable to
Response for failure to perform any of the services required herein in the
event of strikes, lock-outs calamities, acts of God, unavailability of supplies
or other events over which the Provider has no control for so long as such
events continue, and for a reasonable period of time thereafter. In any such
event, the provisions of Section 15.9 below shall likewise be suspended;
provided, however, that the Provider shall use reasonable effort to procure and
maintain business interruption insurance providing coverage reasonably
acceptable to the Oversight Committee and to cause Response to be named as a
co-insured party thereunder to the extent of 40% of any amounts payable
thereunder.
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6.7. Fees for Professional Services. The Provider shall be solely
responsible for legal, accounting and other professional service fees incurred
by the Provider, except as set forth in Section 5.5(i) herein.
6.8. Peer Review; Clinical Trials. The Provider agrees to participate in
Response's clinical trials program or any data collection and analysis program
maintained by Response from time to time. The Provider agrees to cooperate with
Response in establishing a system of peer review as necessary to obtain
provider contracts. In connection therewith, the Provider agrees to assist in
the formulation of oncology and cancer care provider guidelines for each
treatment or surgical modality, and agrees to abide by said guidelines, and
further agrees to submit to periodic reviews by a third party to monitor
compliance with said guidelines. The Provider acknowledges that the
establishment of provider guidelines may be necessary to obtain PPO, HMO, IPA
and other similar provider contracts, both private and government funded. To
the extent that said provider guidelines must be filed or registered with any
Third Party Payor, the Provider agrees to cooperate with Response in making
such filings or registrations. It is agreed and acknowledged that all such
peer review guidelines shall be established and monitored by medical personnel
on the staff of the Provider and other practices that are part of the peer
review process, and shall not be promulgated, established or enforced
independently by Response. To the extent possible, all information obtained
through the peer review process shall remain confidential and the parties shall
take all steps reasonably necessary to assure that all privileges and
immunities provided by Applicable Law remain intact. Compliance with the
foregoing provisions shall in all events be governed by and subject to relevant
ethical codes, canons, rules and standards governing the medical profession and
the delivery of medical care by medical doctors.
6.9. Provider Employee Benefit Plans.
(a) Effective as of the date of the closing under the Acquisition
Agreement, the Provider shall adopt and assume the Corporation's tax-qualified
retirement plan (the "Provider Plan") and shall amend same to provide that
employees of Response who are classified as "leased employees" (as defined in
Code Section 414(n)) of the Provider shall be treated as the Provider's
employees for purposes described in Code Section 414(n)(3). Not less often
than annually, the Provider and Response shall agree upon and identify in
writing those individuals to be classified as leased employees of the Provider
(the "Designated Leased Employees"). The Provider and Response shall establish
mutually agreeable procedures with respect to the participation of Designated
Leased Employees in the Provider Plan. Such procedures shall be designed to
avoid the tax disqualification of the Provider Plan, similar plans of practices
similarly situated, (collectively, the "Plans").
(b) If the Oversight Committee determines that the relationship between
Response and the Provider (and other practices similarly situated) constitutes
an "affiliated service group" (as defined in Code Section 414(m)), Response and
the Provider shall take such actions as may be necessary to avoid the tax
disqualification of the Plans. Such actions may include the amendment, freeze,
termination or merger of the Provider Plan.
(c) The Provider shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of the Employment Retirement Income Security Act of
1974, as amended ("ERISA") without the consent of Response (which will not be
unreasonably withheld). In addition, the Provider shall not offer any
retirement benefits or make any material retirement payments other than under
the Provider Plan to any Stockholder of the Provider without the express
written consent of Response (which will not be unreasonably withheld). Except
as otherwise required by law, the Provider shall not materially amend, freeze,
terminate or merge the Provider Plan without the express written consent of
Response (which will not be unreasonably withheld). In the event of either of
the foregoing, Response's consent shall not be withheld if such action would
not jeopardize the qualification of any of the Plans. The Provider agrees to
make such changes to the Provider Plan, including the amendment freeze,
termination or merger of the
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Provider Plan, as may be approved by the Oversight Committee and Response but
only if such changes are necessary to prevent the disqualification of any of
the Plans and do not have a material adverse impact on Provider.
(d) Expenses incurred in connection with the Provider Plan or other
Provider employee benefit plans, including, without limitation, the
compensation of counsel, accountants, corporate trustees, and other agents
shall be included in Clinic Expenses.
(e) The contribution and administration expenses for the Designated
Leased Employees shall be included in the Provider's operating budget. The
Provider and Response shall not make employee benefit plan contributions or
payments to the Provider for their respective employees in excess of such
budgeted amounts unless required by law or the terms of the Provider Plan.
Response shall make contributions or payments with respect to the Provider Plan
or other Provider employee benefit plans, as a Clinic Expense, on behalf of
eligible Designated Leased Employees, and other eligible Provider employees.
In the event a Provider Plan or other Provider employee benefit plan is
terminated, Response shall be responsible, as a Clinic Expense, for any funding
liabilities related to eligible Designated Leased Employees; provided, however,
Response shall only be responsible for the funding of any liability accruing
after the date of the Purchase Agreement.
(f) Response shall have the sole and exclusive authority to adopt, amend
or terminate any employee benefit plan for the benefit of its employees,
regardless of whether such employees are Designated Leased Employees, unless
such actions would require the amendment, freeze or termination of the Provider
Plan to avoid disqualification of the Provider Plan, in which case any such
action would be subject to the express prior written consent of the Oversight
Committee. Response shall have the sole and exclusive authority to appoint the
trustee, custodian and administrator of any such plan.
(g) In the event that any "employee welfare benefit plan" (as defined in
ERISA Section 3(l)) maintained or sponsored by the Provider must be amended,
terminated, modified or changed as a result of the Provider or Response being
deemed to be a part of an affiliated service group, the Oversight Committee
will replace such plan or plans with a plan or plans that provides those
benefits approved by the Oversight Committee. It shall be the goal of the
Oversight Committee in such event to provide substantially similar or
comparable benefits if the same can be provided at a substantially similar cost
to the replaced plan.
ARTICLE 7.
EMPLOYMENT AGREEMENTS, RESTRICTIVE COVENANTS AND REMEDIES
The parties recognize that the services to be provided by Response shall
be feasible only if the Provider operates an active medical practice to which
the Physicians associated with the Provider devote their full time and
attention. To that end:
7.1. Employment Agreements with Physicians. As a condition to Response's
continuing obligations hereunder, the Provider and each Physician now or
hereinafter employed thereby shall execute and deliver to each other an
Employment Agreement.
7.2. Restrictive Covenants by Provider and Physicians. As a material
inducement to Response to consummate the Purchase Agreement and execute,
deliver and perform this Service Agreement, the Provider and each Physician
Stockholder shall not without the consent of Response, engage in the practice
of medical oncology or hematology, within a 50 mile radius of the St.
Petersburg, Florida city hall (the "Practice Territory") during the term of
this Agreement and for a period of five (5) years after any termination of this
Agreement or cessation of a Physician's employment with the Provider.
Notwithstanding the foregoing, any such restrictive covenant shall not restrict
such Physician from (i)
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delivering physician services that are unrelated to the fields of hematology or
oncology, including the practice of internal medicine, (ii) teaching hematology
and/or oncology or (iii) assuming directorships of hospices following
termination of any such employment relationship with the Provider.
7.3. Restrictive Covenants of Response. During the term of this
Agreement, and for a period of five (5) years after termination of this
Agreement on account of a Response Event of Default, neither Response nor any
Affiliate, officer, director or employee of Response or any Affiliate shall,
without the consent of the Provider, purchase or otherwise acquire any medical
oncology or hematology practice within the Practice Territory or establish,
operate or enter into a service agreement with, or provide services similar to
those provided under this Agreement to, any medical group or physician engaged
in the practice of medical oncology or hematology within the Practice
Territory.
7.4. Enforcement. Response, the Provider and the Stockholder acknowledge
and agree that since a remedy at law for any breach or attempted breach of the
provisions of this Article 7 shall be inadequate, either party shall be
entitled to specific performance and injunctive or other equitable relief in
case of any such breach or attempted breach, in addition to whatever other
remedies may exist by law. All parties hereto also waive any requirement for
the securing or posting of any bond in connection with the obtaining of any
such injunctive or other equitable relief. If any provision of Article 7
relating to the restrictive period, scope of activity restricted and/or the
territory described therein shall be declared by a court of competent
jurisdiction to exceed the maximum time period, scope of activity restricted or
geographical area such court deems reasonable and enforceable under applicable
law, the time period, scope of activity restricted and/or area of restriction
held reasonable and enforceable by the court shall thereafter be the
restrictive period, scope of activity restricted and/or the territory
applicable to the restrictive covenant provisions in this Article 7. The
invalidity or non-enforceability of this Article 7 in any respect shall not
affect the validity or enforceability of the remainder of this Article 7 or of
any other provision of this Agreement.
ARTICLE 8.
FINANCIAL ARRANGEMENTS
8.1. Service Fee. Subject to the terms of Section 5.11, in consideration
for its services hereunder, Response shall receive the Service Fee, consisting
of the Clinic Expense Portion and the Percentage Portion, defined in and
computed pursuant to Schedule A hereto, as compensation for its services
hereunder, payable by means of the procedure set forth in Section 8.2 below.
8.2. Payment of Service Fee. The Clinic Expense Portion of the Service
Fee shall be payable by the Provider to Response out of the Provider Operating
Account as Clinic Expenses are incurred or as amounts are recorded by Response,
subject to ordinary, reasonable and customary payment terms on invoices for
goods and services. The Percentage Portion of the Service Fee shall be accrued
monthly as of the last day of the month, with the first such monthly period
commencing June 1, 1996, and shall be payable by the Provider to Response out
of the Provider Operating Account on a monthly basis. The Percentage Portion
for the month ended June 30, 1996, which is hereby stipulated to be *** will be
payable in three (3) consecutive equal monthly payments, without interest,
commencing August 1, 1996. All payments of the Percentage Portion for months
ending after June 30, 1996 shall be made by the fifteenth (15th) day of the
month following accrual.
ARTICLE 9.
RECORDS
9.1. Patient Records. Upon termination of this Agreement, the Provider
shall retain all patient medical records maintained by the Provider or Response
in the name of the Provider. Response shall, at its option, and if allowed
under Applicable Law be entitled to have reasonable access during normal
business hours to the Provider's patient medical records applicable to the
period of Response's performance under this Agreement. Moreover, the Provider
shall, at its option, be entitled to retain copies
*** - MATERIAL REDACTED PURSUANT TO CLAIM FOR CONFIDENTIAL TREATMENT
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of financial and accounting records relating to all services performed
by the Provider or Response under this Agreement. All parties agree to
maintain the confidentiality of patient identifying information and not to
disclose such information except as may be required or permitted by Applicable
Law.
9.2. Records Owned by Response. All records relating in any way to the
operation of a Clinic which are not the property of the Provider under the
provisions of Section 9.1 above, shall at all times be the property of
Response.
9.3. Access to Records. During the term of this Agreement and
thereafter, the Provider or its designee shall have reasonable access during
normal business hours in St. Petersburg, Florida to the Provider's and
Response's financial and accounting records, including, but not limited to,
records of collections, expenses and disbursements, as kept by Response in
performing Response's obligations under this Agreement, and the Provider may
copy any and or all such records.
9.4. Government Access to Records. To the extent required by Section
1861(v)(1)(I) of the Social Security Act, each party shall, upon proper
request, allow the United States Department of Health and Human Services, the
Comptroller General of the United States, and their duly authorized
representatives access to this Agreement and to all books, documents, and
records necessary to verify the nature and extent of the costs of services
provided by either party under this Agreement, at any time during the term of
this Agreement and for an additional period of four (4) years following the
last date services are furnished under this Agreement. If either party carries
out any of its duties under this Agreement through an agreement between it and
an individual or organization related to it or through a subcontract with an
unrelated party, that party to this Agreement shall require that a clause be
included in such agreement (the value of which is in excess of $10,000.00) to
the effect that until the expiration of four (4) years after the furnishing of
services pursuant to such agreement, the related organization shall make
available, upon request by the United States Department of Health and Human
Services, the Comptroller General of the United States, or any of their duly
authorized representatives, all agreements, books, documents, and records of
such related organization that are necessary to verify the nature and extent of
the costs of services provided under that agreement.
ARTICLE 10.
INSURANCE AND INDEMNITY
10.1. Insurance to be Maintained by the Provider. Throughout the term of
this Agreement, the Provider shall maintain comprehensive professional
liability insurance with limits of not less than $500,000 per claim and with
aggregate policy limits of not less than $1,000,000 per physician and a
separate limit for the Provider. The Provider shall be responsible for all
liabilities in excess of the limits of such policies. Response shall have the
option, with Oversight Committee approval, of providing such professional
liability insurance through an alternative program, provided such program meets
the requirements of the Insurance Commissioner of the State of Florida.
Response shall reimburse the Provider for any unearned professional liability
insurance premiums paid by the Provider to the extent not reimbursed or
reimbursable by the Provider's insurance carrier if the Provider's existing
professional liability insurance program is canceled and replaced by a
comparable professional liability insurance program initiated by Response.
10.2. Insurance to be Maintained by Response. Throughout the term of
this Agreement, Response shall provide and/or maintain comprehensive
professional liability insurance for all Non-Physician Employees and Physician
Extender Employees, the cost of which shall be a Clinic Expense, with limits as
determined reasonable by Response in its national program, and comprehensive
general liability and property insurance covering each Clinic premises and
operations.
10.3. Additional Insureds. The Provider and Response each agrees to use
its best efforts to have the other named as an additional insured on their
respective professional liability insurance programs.
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10.4. Indemnification Matters Involving Third Parties. The Provider and
Response (as appropriate, the "Indemnitor") shall indemnify, hold harmless and
defend the other (as appropriate, the "Indemnitee") from and against any and
all liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees, except to the extent limited below), whether or not
covered by insurance ("Adverse Consequences"), caused or asserted to have been
caused, directly or indirectly, by or as a result of the acts (intentional or
negligent) or omissions by, in the case of the Provider, any Physician or other
person acting (or who should have been acting) under the direct supervision and
control thereof, or, in the case of Response, by any employee, agent, officer,
director or shareholder thereof who is not acting under the supervision and
control of a Physician of the Provider.
(a) If any third party shall notify an Indemnitee with respect to any
matter (a "Third Party Claim") which may give rise to a claim for
indemnification under this Section 10.4, then the Indemnitee shall promptly
notify the Indemnitor of same in writing; provided, however, that no delay on
the part of the Indemnitee in notifying the Indemnitor of such matter shall
relieve the Indemnitor from any obligation hereunder unless (and then solely to
the extent) the Indemnitor is prejudiced by such delay.
(b) The Indemnitor will have the right to defend the Indemnitee against
the Third Party Claim with counsel of its choice reasonably satisfactory to the
Indemnitee so long as (A) the Indemnitor notifies the Indemnitee in writing
within 15 days after the Indemnitee has given notice of the Third Party Claim
that the Indemnitor will indemnify the Indemnitee in accordance with this
Article 10, (B) the Indemnitor provides the Indemnitee with evidence acceptable
to the Indemnitee that the Indemnitor will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money damages
and does not seek an injunction or other equitable relief, (D) settlement of,
or an adverse judgment with respect to, the Third Party Claim is not, in the
good faith judgment of the Indemnitee, likely to establish a precedential
custom or practice adverse to the continuing business interests of the
Indemnitee, and (E) the Indemnitor conducts the defense of the Third Party
Claim actively and diligently.
(c) So long as the Indemnitor is conducting the defense of the Third Party
Claim in accordance with Section 10.4(b) above, (A) the Indemnitee may retain
separate co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnitee will not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnitor (not to be withheld
unreasonably), and (C) the Indemnitor will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnitee (not to be unreasonably
withheld).
(d) In the event any of the conditions in Section 10.4(b) above is or
becomes unsatisfied, however, (A) the Indemnitee may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it may deem appropriate (and the
Indemnitee need not consult with, or obtain any consent from, the Indemnitor in
connection therewith), (B) the Indemnitor will reimburse the Indemnitee
promptly and periodically for the costs of defending against the Third Party
Claim (including attorneys' fees and expenses), and (C) the Indemnitor will
remain responsible for any Adverse Consequences the Indemnitee may suffer
resulting from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest extent provided in this Section 10.4.
10.5. Other Indemnification Provisions. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any party may have for breach of
representation, warranty, or covenant.
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ARTICLE 11.
TERM AND TERMINATION
11.1. Term of Agreement. This Service Agreement shall be effective as of
the closing of the Asset Purchase and shall expire on June 30, 2036, unless
earlier terminated pursuant to the terms hereof.
11.2. Extended Term. Unless earlier terminated as provided for in this
Agreement, the term of this Agreement shall be automatically extended for
additional terms of five (5) years each, unless either party delivers to the
other party, not less than one hundred eighty (180) days prior to the
expiration of the preceding term, written notice of such party's intention not
to extend the term of this Agreement.
11.3. Response Event of Default. The occurrence of any of the following
events shall constitute a default by Response (a "Response Event of Default")
under this Agreement, giving the Provider the right to the remedies set forth
in Section 11.5 below:
(a) the filing by Response of a petition in voluntary bankruptcy or an
assignment by Response for the benefit of creditors, or upon other action taken
or suffered, voluntarily or involuntarily, under any federal or state law for
the benefit of debtors by Response, except for the filing of a petition in
involuntary bankruptcy against Response which is dismissed within sixty (60)
days thereafter.
(b) any material default by Response in the performance of any of its
material duties or obligations under this Agreement, and such default or breach
shall continue for a period of sixty (60) days (fifteen (15) days in the case
of Response's failure to provide required advances under the Receivables Line)
after written notice thereof has been given to Response by the Provider.
(c) in the event Response shall, intentionally or in bad faith, misapply
funds or assets of the Provider or commit a similar act which cause material
harm to the Provider.
11.4. Provider Event of Default. The occurrence of any of the following
events shall constitute a default by the Provider (an "Provider Event of
Default") under this Agreement, giving Response the right to the remedies set
forth in Section 11.6 below:
(a) the filing by the Provider of a petition in voluntary bankruptcy or
an assignment by the Provider for the benefit of creditors, or upon other
action taken or suffered, voluntarily or involuntarily, under any federal or
state law for the benefit of debtors by the Provider, except for the filing of
a petition in involuntary bankruptcy against the Provider which is dismissed
within one hundred fifty (150) days thereafter; provided, further, that if the
physicians comprising the Provider are lawfully able, within 150 days after the
occurrence of such event, to reorganize the practice or transfer its assets,
patients, goodwill and going concern value to a newly-formed entity and
continue such practice, and if such new entity and its principal stockholders
or owners assumes all of the obligations of the Provider under the Service
Agreement or enter into a new Service Agreement with Response for the remaining
term and containing substantially the same terms and conditions as the original
Service Agreement, then Response will not terminate the original Service
Agreement;
(b) any material default by the Provider in the performance of any of its
material duties or obligations under Sections 6.1, 6.2, 6.3 and 6.8 of this
Agreement, and such default or breach shall continue for a period of one
hundred twenty (120) days after written notice thereof has been given to the
Provider by Response; provided, however, that such period shall be extended for
up to ninety (90) additional days so long as the Provider is using every
reasonable effort to cure such default.
(c) the final determination of termination or suspension of the
Provider's Medicare or Medicaid Provider Number, and such termination or
suspension shall continue for one hundred fifty (150) days, or if any Physician
employed by the Provider shall have his license to practice medicine or DEA
license revoked or suspended and the affected Physician or the Provider, as the
case may be, shall not, within 150 days, either gain reinstatement of such
license or otherwise find a suitable
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replacement for such Physician (which replacement may be the shifting of case
load to an existing Physician employee of the Provider), or unless the loss of
the services of such Physician would not have a material adverse effect on
Practice Revenue; or
(d) the failure to comply in all material respects with the covenants
contained in the first paragraph of Section 15.1 below.
Notwithstanding anything in the foregoing to the contrary, the death or
disability of the Stockholder shall not be a Provider Event of Default so long
as (i) Response is able to procure a policy of insurance on the life of the
Stockholder in an amount equal to at least $15,000,000, or (ii) in the event
of such death or disability, Response is able within twelve (12) months
following the death or disability of the Stockholder to recruit Physicians to
service the Provider's patient base and Practice Revenue shall be restored by
the 24th month following such date to a level equal to at least 75% of the
Practice Revenue of the Provider for the twelve months ended December 31, 1995.
11.5. Remedies upon Response Event of Default. Upon the occurrence of a
Response Event of Default, the Provider shall have the right (but not the
obligation) to terminate this Agreement by written notice to Response without
any further obligation to Response for the Service Fee after the giving of such
notice. In addition, the Provider shall have the option to purchase from
Response, and upon proper exercise of such option by the Provider in the manner
hereinbelow provided, Response shall sell to the Provider, all assets and
properties, owned by Response and used by the Provider in its medical practice
("Practice Assets") for a price, payable one-half (1/2) in cash and one-half
(1/2) in eight (8) consecutive equal quarterly amortized installments of
principal and interest (computed at a rate of 4% per annum), equal to the fair
market value of the Practice Assets.
11.6. Remedies upon Provider Event of Default. Upon the occurrence of a
Provider Event of Default, Response shall have the right (but not the
obligation) to terminate this Agreement by written notice to the Provider, and
the Provider shall have no further obligation to Response for the Service Fee
after the date such notice is received. Upon such termination, the Provider
shall be obligated to pay to Response the Liquidated Damages Amount in complete
satisfaction of any and all damages suffered by Response hereunder. Such
Liquidated Damages Amount shall be payable by the Provider one-half (1/2) in
cash within ninety (90) days after occurrence of the Provider Event of Default
and the balance in eight consecutive equal quarterly amortized installments of
principal and interest (computed at a rate of 4% per annum). The Stockholder
hereby guarantees the foregoing obligation of the Provider and agrees to pay to
Response the Liquidated Damages Amount if and to the extent not paid by the
Provider, which obligation may be satisfied in whole or in part by
Stockholder's delivery of Response common stock valued as of the date of any
event triggering the obligations hereunder. Moreover, if Response shall elect
to terminate this Agreement the Provider shall have the option to purchase from
Response, and upon proper exercise of such option by the Provider in the manner
hereinbelow provided, Response shall sell to the Provider, all Practice Assets
for a price, payable in cash, equal to the fair market value of the Practice
Assets as of the date of the Provider Event of Default.
11.7. Exercise of Option; Closing of Repurchase by the Provider and
Effective Date of Termination. The Provider shall exercise the option to
purchase the Practice Assets by giving written notice to Response within sixty
(60) days after the occurrence of the event giving rise to such option. Upon
delivery of such option, Response and the Provider shall negotiate in good
faith the fair market value as of the date of the triggering event of the
assets to be acquired. In the event that, after at least fifteen (15) days of
good faith negotiation, Response and the Provider shall not have agreed upon
the fair market value of the Practice Assets, each party shall select an
appraiser who shall provide an evaluation report with respect to the fair
market value of the Practice Assets. If the valuations of the appraisers are
within $25,000.00 of each other, then the lowest appraisal shall be deemed the
fair market value of the Practice Assets, and the Provider shall purchase the
Practice Assets for such value. If the valuation of the
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appraisers are more than $25,000.00 different, then the two appraisers shall
agree upon a third appraiser, and the average value set forth in the three
appraisals shall be deemed the fair market value of the Practice Assets, and
the Provider shall purchase the Practice Assets for such value.
The Provider shall pay cash for Practice Assets repurchased pursuant to
Section 11.5 or 11.6 above. The amount of the purchase price shall be reduced
by the amount of debt and liabilities of Response assumed by the Provider and
shall also be reduced by any payment Response has failed to make under this
Agreement, provided that such payments or obligations are not otherwise
accounted for in the liabilities assumed by the Provider in connection with the
repurchase described herein. The closing date for the repurchase shall be
determined by the Provider, but shall in no event occur later than 180 days
from the date of the notice of termination. In the event of exercise of such
option, each party shall use its best efforts to obtain such consents and
authorizations to such transaction as may be required by Applicable Law or
otherwise. In such event, Response shall execute and deliver to the Provider
such assignments to leases and other contracts and such bills of sale and other
transfer or closing documents necessary to effect such transaction. The
Provider shall execute and deliver to Response such officers' certificates,
assumption agreements and other closing documents necessary to close such
transaction. Between the date of termination and the earlier to occur of
closing the repurchase as hereinabove described or the termination (without
exercise) of any repurchase option, the Provider shall be entitled to use all
Practice Assets, and Response hereby grants the Provider a license to use the
Practice Assets in such event. In consideration of the foregoing license, the
Provider will pay to Response an amount equal to any rental payments by
Response to any third party vendor in respect of all Practice Assets.
ARTICLE 12
DAMAGE AND LOSS; CONDEMNATION
12.1. Use of Insurance Proceeds. All insurance or condemnation proceeds
payable by reason of any physical loss of any of the improvements comprising
the facilities or the furniture, fixtures and equipment used by the Clinics,
shall be available for the reconstruction, repair or replacement, as the case
may be, of any damage, destruction or loss. The Oversight Committee, in
consultation with the Provider, shall review and approve such reconstruction,
repair or replacement.
12.2. Temporary Space. In the event of substantial damage to or the
condemnation of a significant portion of the facilities, Response shall use its
best efforts to provide temporary facilities until such time as the facilities
can be restored or replaced.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES OF THE PROVIDER
The Provider represents, warrants, covenants and agrees with Response
(which representations and warranties shall survive the execution and delivery
hereof for the same period as set forth in Section 9(a) of the Purchase
Agreement) that:
13.1. Validity. The Provider is a professional association duly
organized, validly existing and in good standing under the laws of the State of
Florida. The Provider has the full power and authority to own its property, to
carry on its business as presently being conducted, to enter into this
Agreement, and to consummate the transactions contemplated hereby.
13.2. Permits. The Provider and all physicians and other health care
professionals associated with or employed by the Provider have all permits and
licenses and other Necessary Authorizations required by all Applicable Laws,
except where failure to secure such licenses, permits and other Necessary
Authorizations does not have a material adverse effect; have made all
regulatory filings necessary for the conduct of the Provider's business; and
are not in violation of any of said permitting or licensing requirements.
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13.3. Authority. The execution of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action, and this Agreement is a valid and binding Agreement of the Provider,
enforceable in accordance with its terms. The Provider has obtained all
third-party consents necessary to enter into and consummate the transaction
contemplated by this Agreement. Neither the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby, nor
compliance by the Provider with any of the provisions hereof, will:
(a) violate or conflict with, or result in a breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in the creation of, any lien,
security interest, charge or encumbrance upon any of the assets of the Group to
be acquired pursuant to the Purchase Agreement, the Provider's charter or
bylaws or any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, agreement or other instrument or
obligation to which the Provider is a party, or by which either the Provider or
any of the assets to be conveyed hereunder is bound; or
(b) violate any order, writ, injunction, decree, statute, rule or
regulation applicable either to the Provider or any of the assets to be
conveyed hereunder.
ARTICLE 14
REPRESENTATIONS AND WARRANTIES OF RESPONSE
Response represents, warrants, covenants and agrees (which representations
and warranties shall survive the execution and delivery hereof for the same
period as set forth in Section 9(a) of the Purchase Agreement) with the
Provider as follows:
14.1. Organization. Response is a corporation duly organized, validly
existing and in good standing under the laws of the State of Tennessee.
Response has the full power to own its property, to carry on its business as
presently conducted, to enter into this Agreement and to consummate the
transactions contemplated hereby.
14.2. Authority. The execution of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action, and this Agreement is a valid and binding Agreement of Response
enforceable in accordance with its terms. Response has taken all necessary
action to authorize the execution, delivery and performance of this Agreement,
as well as the consummation of the transactions contemplated hereby. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, violate any provisions of the
charter or the bylaws of Response or any indenture, mortgage, deed of trust,
lien, lease, agreement, arrangement, contract, instrument, license, order,
judgment or decree or result in the acceleration of any obligation thereunder
to which Response is a party or by which it is bound.
14.3. Permits. Response has all permits and licenses and other Necessary
Authorizations required by all Applicable Laws, except where failure to secure
such licenses, permits and other Necessary Authorizations does not have a
material adverse effect; have made all regulatory filings necessary for the
conduct of Response's business; and are not in violation of any of said
permitting or licensing requirements.
14.4. Full Disclosure. When considered in the context of all information
contained herein, no representation or warranty made by the Response in this
Agreement contains or will contain any untrue statement of a material fact.
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ARTICLE 15
COVENANTS OF THE PROVIDER
15.1. Merger, Consolidation and Other Arrangements. The Provider shall
not incorporate, merge or consolidate with any other entity or individual or
liquidate or practice at any location other than the Clinics or dissolve or
wind-up the Provider's affairs or enter into any partnerships, joint ventures
or sale-leaseback transactions or purchase or otherwise acquire (in one or a
series of related transactions) any part of the property or assets (other than
purchases or other acquisitions of inventory, materials and equipment in the
ordinary course of business) of any other person or entity without first
obtaining the prior written consent of Response; provided, however, that no
such consent shall be required in respect of any incorporation, merger,
consolidation, partnership, joint venture or acquisition transaction that (i)
results in the continued, unimpaired operation of the Clinics; and (ii) results
in the Stockholder maintaining at least a fifty percent (50%) voting and equity
interest in all Clinics. The Provider acknowledges and agrees that such
consent may be withheld if Response and the Provider cannot mutually agree upon
the terms and conditions of a new Service Agreement with the Provider.
Notwithstanding anything in this Agreement to the contrary, the
Stockholder may, at any time and from time to time, sell all or any portion of
his stock in the Provider to other Physician Stockholders and/or Physicians who
have been employees of the Provider for at least one (1) year prior to the date
of such sale. Moreover, the Stockholder may, with the advance written consent
of Response, which shall not be unreasonably withheld, sell all or any portion
of his stock in the Provider to any other Physician who is neither a Physician
Stockholder or who has not been an employee of the Provider for at least one
(1) year prior to the date of such sale. In either event, Response shall
release the Stockholder from his personal obligation pursuant to Section 11.6
above by an amount equal to the amount of such obligation assumed by any
Physician who shall purchase all or any portion of the Stockholder's stock in
the Provider.
15.2. Necessary Authorizations/Assignment of Licenses and Permits. The
Provider shall reasonably attempt to maintain all licenses, permits,
certifications, or other Necessary Authorizations and shall not assign or
transfer any interest in any license, permit, certificate or other Necessary
Authorization granted to it by any Governmental Authority, nor shall the
Provider assign, transfer, or remove or permit any other individual or entity
to assign, transfer or remove any records of the Provider, including without
limitation, patient records, medical and clinical records (except for removal
of such patient records as directed in writing by the patients owning such
records or as otherwise required under any Applicable Law).
15.3. Transaction with Affiliates. The Provider shall not enter into any
transaction or series of transactions, whether or not related or in the
ordinary course of business, with any Affiliate of Response, other than on
terms and conditions substantially as favorable to the Provider as would be
obtainable by the Provider at the time in a comparable arms-length transaction
with a person not an Affiliate of Response.
15.4. Compliance with All Laws. The Provider shall comply with all laws
and regulations relating to the Provider's practice and the operation of any
cancer care facility, including, but not limited to, all state, federal and
local laws relating to the acquisition or operation of a health care practice.
Furthermore, the Provider shall not violate any Applicable Laws.
15.5. Third Party Payor Programs. The Provider shall maintain the
Provider's compliance with the requirements of all Third Party Payor Programs
in which the Provider is currently participating or authorized to participate.
15.6. Change in Business or Credit and Collection Policy. The Provider
shall not make any change in the character of the Provider's business or in the
credit and collection policy, which change would, in either case, impair the
collectibility of any Accounts Receivable or otherwise modify, amend or extend
the terms of any such account other than in the ordinary course of business.
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15.7. Security Interest. The Provider shall, effective as of the date
hereof, be deemed to have granted (and the Provider does hereby grant) to
Response a first priority security interest in and to any and all of the
Accounts Receivable (except Governmental Receivables) and the proceeds thereof
(including the proceeds, after deposit into the Provider Receipts Account, from
the collection of Governmental Receivables) to secure the repayment of all
amounts advanced to the Provider under the Receivables Line and all accrued
interest thereon, and this Agreement shall be deemed to be a security
agreement. Upon a default by the Provider in the payment of amounts due under
the Receivables Line, Response may at its option exercise from time to time any
and all rights and remedies available to it under the UCC or otherwise. The
Provider represents and warrants that the location of the Provider's principal
place of business, and all locations where the Provider maintains records with
respect to its Accounts Receivable are set forth under its name in Section 16.5
hereof. The Provider agrees to notify Response in writing thirty (30) days
prior to any change in any such location. The exact name of the Provider is as
set forth at the beginning of this Agreement. The Provider is a new
professional association, and the medical practice conducted by the Provider
was formerly conducted under the name "Jeffrey L. Paonessa, M.D., P.A., d/b/a
Paonessa and Peterson," a Florida professional association. The Provider shall
notify Response in writing thirty (30) days prior to any change in any such
name.
15.8. Revenue Maintenance. The Provider shall pay, and the Stockholder
hereby guarantees payment of, a minimum monthly Percentage Fee of *** for the
initial *** of this Agreement, commencing June 1996. In the event for any year
during such *** period, the Percentage Fee paid by the Provider to Response
shall be less than *** then the Stockholder shall execute a promissory note,
payable to the order of Response, in the amount of such deficiency (but in no
event exceeding *** in principal amount), which note shall be payable in ***
consecutive equal quarterly installments of principal, plus interest at the
rate of *** percent per annum, commencing on October 1 of the year in which
such deficiency is determined. The Stockholder shall be afforded a thirty (30)
day grace period for any payment due under said note.
ARTICLE 16.
GENERAL PROVISIONS
16.1. Assignment. Response shall have the right to assign its rights
hereunder to any person, firm or corporation under common control with Response
and to any lending institution, for security purposes or as collateral, from
which Response obtains financing. Except as set forth above, neither Response
nor the Provider shall have the right to assign their respective rights and
obligations hereunder without the written consent of the other party.
16.2. No Practice of Medicine. The parties acknowledge that Response is
not authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of medicine. To the extent any act or
service required of Response in this Agreement should be construed or deemed by
any Governmental Authority or court to constitute the practice of medicine, the
performance of said act or service by Response shall be deemed waived and
forever unenforceable.
16.3. Whole Agreement; Modification. This Agreement supersedes all prior
agreements between the parties, and there are no other agreements or
understandings, written or oral, between the parties regarding this Agreement,
the Exhibits and the Schedules, other than as set forth herein. This Agreement
shall not be modified or amended except by a written document executed by both
parties to this Agreement, and such written modification(s) shall be attached
hereto.
16.4. Arbitration of Disputes; Legal Fees. Any dispute arising under
this Service Agreement shall be submitted by the parties to binding arbitration
pursuant to the Florida Uniform Arbitration Act, with any such arbitration
proceeding being conducted in St. Petersburg, Florida in accordance with the
rules of the American Arbitration Association. Any arbitration panel presiding
over any arbitration
*** - MATERIAL REDACTED PURSUANT TO CLAIM FOR CONFIDENTIAL TREATMENT
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proceeding hereunder is hereby empowered to render a decision in respect of
such dispute, to award costs and expenses (including reasonable attorney fees)
as it shall deem equitable and to enter its award in any court of competent
jurisdiction.
16.5. Notices. All notices required or permitted by this Agreement shall
be in writing and shall be addressed as follows:
To Response: Response Oncology, Inc.
1775 Moriah Woods Blvd.
Memphis, Tennessee 38117
Attn: Joseph T. Clark, CEO
With copies to: John A. Good, Esq.
Executive Vice-President -- General Counsel
Response Oncology, Inc.
1775 Moriah Woods Blvd.
Memphis, Tennessee 38117
To Provider: Jeffrey L. Paonessa, M.D.
and Stockholder Jeffrey L. Paonessa, M.D., P.A.
Suite 105
1201 Fifth Avenue, N.
St. Petersburg, Florida 33705
With copies to: Patrick M. O'Connor, Esq.
Patel, Moore & O'Connor, P.A.
18167 U.S. Highway 19 North
Suite 150
Clearwater, Florida 34624
or to such other addresses as either party shall notify the other.
16.6. Binding on Successors. Subject to Section 16.1, this Agreement
shall be binding upon the parties hereto, and their successors, assigns, heirs
and beneficiaries.
16.7. Waiver of Provisions. Any waiver of any terms and conditions
hereof must be in writing, and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a
waiver of any other terms and conditions hereof.
16.8. Governing Law. The validity, interpretation and performance of
this Agreement shall be governed by and construed in accordance with the laws
of the State of Florida. The parties acknowledge that Response is not
authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of medicine. To the extent any act or
service required of Response in this Agreement should be construed or deemed,
by any governmental authority, agency or court to constitute the practice of
medicine, the performance of said act or service by Response shall be deemed
waived and forever unenforceable. Response hereby consents to the jurisdiction
of the Circuit or County Courts of Pinellas County, Florida and the Federal
District Court for the Middle District of Florida, Tampa Division.
16.9. Severability. The provisions of this Agreement shall be deemed
severable and if any portion shall be held invalid, illegal or unenforceable
for any reason, the remainder of this Agreement shall be effective and binding
upon the parties.
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16.10. Additional Documents. Each of the parties hereto agrees to execute
any document or documents that may be requested from time to time by the other
party to implement or complete such party's obligations pursuant to this
Agreement.
16.11. Time is of the Essence. Time is hereby expressly declared to be
of the essence in this Agreement.
16.12. Confidentiality. Except for disclosure to its bankers,
underwriters or lenders, or as necessary or desirable for conduct of business,
including negotiations with other acquisition candidates, neither party hereto
shall disseminate or release to any third party any information regarding any
provisions of this Agreement, or any financial information regarding the other
(past, present or future) that was obtained by the other in the course of the
negotiations of this Agreement or in the course of the performance of this
Agreement, without the other party's written approval; provided, however, the
foregoing shall not apply to information which (i) is generally available to
the public other than as a result of a breach of confidentiality provisions;
(ii) becomes available on a non-confidential basis from a source other than the
other party or its affiliates or agents, which source was not itself bound by a
confidentiality agreement, or (iii) which is required to be disclosed by law or
pursuant to court order.
16.13. Contract Modifications for Prospective Legal Events. In the event
any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decisions, a regulatory agency or legal counsel in such a manner as to
indicate that the structure of this Agreement may be in violation of such laws
or regulations, the Provider and Response shall amend this Agreement as
necessary. To the maximum extent possible, any such amendment shall preserve
the underlying economic and financial arrangements between the Provider and
Response.
16.14. Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
16.15. Language Construction. The language in all parts of this
Agreement shall be construed, in all cases, according to its fair meaning, and
not for or against either party hereto. The parties acknowledge that each
party and its counsel have reviewed and revised this Agreement and that the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement.
16.16. No Obligation to Third Parties. None of the obligations and
duties of Response or the Provider under this Agreement shall in any way or in
any manner be deemed to create any obligation of Response or of the Provider
to, or any rights, in, any person or entity not a party to this Agreement.
16.17. Communications. The Provider and Response agree that good
communication between the parties is essential to the successful performance of
this Agreement, and each pledges to communicate fully and clearly with the
other on mattes relating to the successful operation of the Provider's practice
at a Clinic.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
J. PAONESSA, M.D., P.A.
By:
------------------------------------
Jeffrey L. Paonessa, M.D., President
RESPONSE ONCOLOGY, INC.
By:
-------------------------------------
John Good, Executive Vice President
STOCKHOLDER:
----------------------------------
Jeffrey L. Paonessa, M.D.
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RESPONSE ONCOLOGY, INC.
SERVICE AGREEMENT
SCHEDULE A
SERVICE FEE
The Service Fee shall be equal to the sum of (i) amounts recorded as
Clinic Expenses (the "Clinic Expense Portion") plus (ii) the sum of *** of Base
Services Net Operating Income and *** of Ancillary Services Net Operating
Income (the "Percentage Portion").
LIQUIDATED DAMAGES AMOUNT
A) Until the fifth anniversary of the Service Agreement, the liquidated
damages shall be equal to ***;
B) After the fifth anniversary of the Service Agreement and until the
tenth anniversary of the Service Agreement, the liquidated damages amount shall
be equal to ***;
C) From and after the tenth anniversary of the Service Agreement, the
liquidated damages amount shall be equal to ***;
*** - MATERIAL REDACTED PURSUANT TO CLAIM FOR CONFIDENTIAL TREATMENT
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