<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED NOVEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-19393
MANAGED CARE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C>
DELAWARE 36-3338328
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
7600 NORTH 16TH STREET
SUITE 150
PHOENIX, ARIZONA 85020
(Address of principal executive offices)
(Zip Code)
602-331-5100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
There were 4,364,712 shares of common stock outstanding as of January 10, 1997.
<PAGE> 2
TABLE OF CONTENTS
Page
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets..................................3
Consolidated Statements of Operations......................4-5
Consolidated Statements of Cash Flows........................6
Notes to Unaudited Consolidated Financial Statements.......7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................9-12
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................13
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MANAGED CARE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
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<CAPTION>
NOVEMBER 30, MAY 31,
1996 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents, including restricted cash
of $4,482,000 and $3,082,000 $ 6,957,000 $ 3,804,000
Short-term investments 2,356,000 3,000,000
Accounts and notes receivable and unbilled services, net 5,445,000 4,353,000
Related party accounts and notes receivable 93,000 91,000
Prepaid expenses and other current assets 1,563,000 832,000
Deferred taxes, net 169,000 169,000
------------ ------------
Total current assets 16,583,000 12,249,000
Notes receivable 280,000 139,000
Related party notes receivable 793,000 2,783,000
Property and equipment, net 4,698,000 4,147,000
Performance bonds 4,192,000 4,078,000
Goodwill, net 3,375,000 3,534,000
Deferred taxes, net 73,000 73,000
Other assets 596,000 596,000
------------ ------------
$ 30,590,000 $ 27,599,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 810,000 $ 379,000
Accrued medical claims 8,200,000 6,331,000
Risk pool payable 2,431,000 1,646,000
Related party risk pool payable 162,000 117,000
Accrued expenses 4,071,000 3,609,000
Loss contract reserve -- 510,000
Due to Medicus Systems Corporation 194,000 647,000
Current portion of long-term debt 200,000 1,650,000
------------ ------------
Total current liabilities 16,068,000 14,889,000
Long-term debt 2,956,000 267,000
Related party long-term debt 549,000 249,000
------------ ------------
Total liabilities 19,573,000 15,405,000
------------ ------------
Commitments -- --
Stockholders' Equity:
Voting preferred stock, $1,000 par value
Authorized, issued and outstanding - 6.85 shares 7,000 7,000
Common stock, $0.01 par value
Authorized - 10,000,000 shares
Issued - 4,365,000 shares 44,000 44,000
Capital in excess of par value 14,540,000 14,310,000
Retained earnings (deficit) (3,574,000) (2,167,000)
------------ ------------
Total stockholders' equity 11,017,000 12,194,000
------------ ------------
$ 30,590,000 $ 27,599,000
============ ============
</TABLE>
3
The accompanying notes are an integral part of these statements.
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MANAGED CARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
---------------------------------
NOVEMBER 30, NOVEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 17,566,000 $ 1,997,000
------------ ------------
Direct cost of operations 14,621,000 1,600,000
Marketing, sales and administrative 3,431,000 169,000
------------ ------------
Total costs and expenses 18,052,000 1,769,000
------------ ------------
Operating income (loss) (486,000) 228,000
------------ ------------
Interest expense (95,000) --
Interest income 166,000 67,000
------------ ------------
Net interest income 71,000 67,000
------------ ------------
Income (loss) from continuing operations before income
taxes (415,000) 295,000
Provision (benefit) for income taxes -- 151,000
------------ ------------
Income (loss) from continuing operations (415,000) 144,000
Discontinued operations, net of taxes -- 188,000
------------ ------------
Net income (loss) $ (415,000) $ 332,000
============ ============
Income (loss) per share:
Continuing operations $ (0.09) $ 0.07
Discontinued operations -- 0.08
------------ ------------
$ (0.09) $ 0.15
============ ============
Weighted Average Common and Common
Equivalent Shares Outstanding 4,365,000 2,146,000
============ ============
</TABLE>
4
The accompanying notes are an integral part of these statements.
<PAGE> 5
MANAGED CARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
NOVEMBER 30, NOVEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues $ 35,101,000 $ 3,853,000
------------ ------------
Direct cost of operations 28,699,000 3,042,000
Marketing, sales and administrative 7,963,000 467,000
------------ ------------
Total costs and expenses 36,662,000 3,509,000
------------ ------------
Operating income (loss) (1,561,000) 344,000
------------ ------------
Interest expense (131,000) --
Interest income 235,000 118,000
Net interest income 104,000 118,000
------------ ------------
Income (loss) from continuing operations before income
taxes (1,457,000) 462,000
Provision (benefit) for income taxes (50,000) 165,000
------------ ------------
Income (loss) from continuing operations (1,407,000) 297,000
Discontinued operations, net of taxes -- 528,000
------------ ------------
Net income (loss) $ (1,407,000) $ 825,000
============ ============
Income (loss) per share:
Continuing operations $ (0.32) $ 0.14
Discontinued operations -- 0.24
------------ ------------
$ (0.32) $ 0.38
============ ============
Weighted Average Common and Common
Equivalent Shares Outstanding 4,365,000 2,148,000
============ ============
</TABLE>
5
The accompanying notes are an integral part of these statements.
<PAGE> 6
MANAGED CARE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
NOVEMBER 30, NOVEMBER 30,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Income (loss) from continuing operations $(1,407,000) $ 297,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Bad debt expense 764,000 --
Depreciation and amortization 893,000 31,000
Changes in current assets and current liabilities:
Deferred income taxes -- 23,000
Accounts receivable and unbilled services (1,856,000) (787,000)
Prepaid expenses and other current assets (731,000) (671,000)
Accounts payable 431,000 52,000
Accrued medical claims 1,869,000 --
Risk pool payable 785,000 --
Related party risk pool payable 45,000 --
Accrued expenses 462,000 63,000
Loss contract reserve (510,000) --
----------- -----------
Net cash provided by (used in) operating activities 745,000 (992,000)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (1,285,000) (258,000)
Proceeds from maturity/sale of short-term investments 1,919,000 4,000,000
Related party notes receivable 1,782,000 --
Increases in assets securing performance bond (114,000) --
Purchases of short-term investments (1,210,000) --
----------- -----------
Net cash provided by investing activities 1,092,000 3,742,000
----------- -----------
Cash flows from financing activities:
Due to Medicus Systems Corporation (453,000) --
Principal payment on long-term debt (1,531,000) --
Issuance of long-term debt 3,070,000 --
Purchase of treasury stock -- (532,000)
Reissuance of treasury stock -- 541,000
Dividends paid -- (384,000)
Issuance of stock warrants 230,000 --
----------- -----------
Net cash provided by financing activities 1,316,000 (375,000)
----------- -----------
Net increase in cash and cash equivalents 3,153,000 2,375,000
Cash and cash equivalents, beginning of period 3,804,000 1,475,000
Cash allocated from discontinued operations -- 1,190,000
----------- -----------
Cash and cash equivalents, end of period $ 6,957,000 $ 5,040,000
=========== ===========
</TABLE>
6
The accompanying notes are an integral part of these statements.
<PAGE> 7
MANAGED CARE SOLUTIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
In management's opinion, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair statement of the results for the
interim periods presented. The results of operations for the period ended
November 30, 1996 are not necessarily indicative of the results to be expected
for the full year. The interim consolidated financial statements should be read
in conjunction with Managed Care Solutions, Inc. ("MCS" or "Company")
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended May 31, 1996.
NOTE 2 - MERGERS
The Company as it presently exists is the result of a spinoff and subsequent
merger transactions which occurred on March 1, 1996. Prior to March 1, 1996 the
Company was named Medicus Systems Corporation (the "Predecessor Corporation").
On March 1, 1996, all of the assets of the Predecessor Corporation, other than
those related to its managed care business, were transferred to a wholly owned
subsidiary of the Predecessor Corporation, and all of the shares of that
company, then named Medicus Systems Corporation, were distributed (the
"Distribution") on a share-for-share basis to stockholders of the Predecessor
Corporation. Immediately after the Distribution, the Company, which then
consisted only of the managed care business of the Predecessor Corporation,
effected a one-for-three reverse stock split. Also on March 1, 1996, immediately
after the reverse stock split, the Company acquired three Arizona corporations
engaged in the managed care business through merger transactions (the "Mergers")
pursuant to which each of the Arizona corporations (Managed Care Solutions,
Inc., now named Managed Care Solutions of Arizona, Inc. ("MCSAZ"), Ventana
Health Systems, Inc. ("Ventana") and Arizona Health Concepts, Inc. ("AHC"))
became wholly owned subsidiaries of the Company, and the Company's name was
changed to Managed Care Solutions, Inc.
NOTE 3 - DISCONTINUED OPERATIONS
The software and related lines of business of the Predecessor Corporation that
were separated as of March 1, 1996 are reported as discontinued operations.
Prior years' operating results have also been reclassified to segregate the
discontinued operations. Revenues from discontinued operations were $8,161,000
and $16,642,000 for the three and six months ended November 30, 1995,
respectively.
NOTE 4 - EARNINGS PER SHARE
Income (loss) per common share has been computed by dividing net income (loss)
by the weighted average common equivalent shares outstanding during the period.
Common stock equivalents include shares issuable on the exercise of stock
options and warrants when dilutive, using the treasury stock method from date of
grant. Average shares outstanding and all per share amounts included in the
financial statements and notes thereto have been adjusted retroactively to
reflect the one-for-three reverse stock split effective March 1, 1996.
7
<PAGE> 8
NOTE 5 - RESTRICTIONS ON FUND TRANSFERS
Certain of the Company's operating subsidiaries are subject to state regulations
which require compliance with certain net worth, reserve and deposit
requirements. To the extent the operating subsidiaries must comply with these
regulations, they may not have the financial flexibility to transfer funds to
the parent organization, MCS. Net assets of subsidiaries (after inter-company
eliminations) which, at November 30, 1996, may not be transferred to MCS by
subsidiaries in the form of loans, advances or cash dividends without the
consent of a third party is referred to as "Restricted Net Assets". Total
Restricted Net Assets of these operating subsidiaries was $8,529,000 at
November 30, 1996, with deposit and reserve requirements (performance bonds)
representing $2,171,000 of the Restricted Net Assets and net worth requirements,
in excess of deposit and reserve requirements, representing the remaining
$6,358,000.
NOTE 6 - LIQUIDITY
The Company experienced a loss from continuing operations in the six month
period ended November 30, 1996. In an effort to improve its operating results in
fiscal 1997, the Company reduced its total workforce by approximately 10% in
July 1996. In addition, the Company has implemented stringent controls over
other expenses. In August 1996, the Company consolidated its AHC operations by
closing two satellite offices in Arizona. The Company also relocated its
corporate headquarters in January 1997 in an effort to reduce rent expense and
more efficiently utilize the space available.
On October 2, 1996, the Company signed an agreement with Blue Cross and Blue
Shield of Texas, Inc. ("BCBSTX") whereby BCBSTX invested $3,000,000 in the
Company in the form of a convertible secured loan. The loan has an original term
of three years with a renewal option for an additional two years if certain
conditions are met. The loan is initially secured by all of the assets of the
Company. Eligible assets must be maintained pursuant to the pledge agreement
equal to at least 150% of the outstanding balance. The Company can have
collateral released from the pledge with the consent of BCBSTX. The loan bears
interest at a rate of 8% per annum. Principal and interest are payable at the
end of the initial three year term, and, thereafter, at the end of each annual
extension. The loan is convertible into the Company's common stock at a
conversion price of $3.85 per share. BCBSTX also received a warrant to purchase
100,000 shares of the Company's common stock at an exercise price of $4.45 per
share and has the right of first refusal to participate as an equity partner in
future MCS funding requirements.
In a separate transaction, a trust controlled by William Brown, a director of
MCS, invested $300,000 in the Company through a convertible unsecured loan and
received a warrant to purchase 10,000 shares of MCS common stock. The interest
rate, term, conversion price and warrant exercise price are the same for Mr.
Brown's trust as for BCBSTX, except that interest on the loan is payable
monthly.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion pertains to the managed care business and continuing
operations of the Company. The other business activities, which had been
conducted by the Predecessor Corporation prior to the distribution on March 1,
1996, are separately identified as discontinued operations. Results presented
consist of the Company's managed care business consolidated with the operations
of all three wholly-owned subsidiaries (MCSAZ, Ventana and AHC) for the
reporting period since March 1, 1996.
Revenues increased from $1,997,000 and $3,853,000 for the three and six month
periods ended November 30, 1995, respectively, to $17,566,000 and $35,101,000
for the three and six month periods ending November 30, 1996, respectively,
principally as a result of the Mergers. For the three and six months periods
ending November 30, 1996, revenues consisted of $5,497,000 and $10,780,000,
respectively, from fees received from management of health plans not owned by
the Company and $12,069,000 and $24,321,000, respectively, from capitation
revenue received by Ventana and AHC. Management fee revenue increased 171% and
179% for the three and six months ended November 30, 1996, respectively, over
the comparable periods in the prior year due to an increase in rates and
services provided on contracts in existence at June 1, 1995, the addition of new
contracts and revenues generated by contracts managed by MCSAZ since the
effective date of the Mergers.
The most significant new contract revenue growth occurred as a result of a
contract that commenced December 1995 with Colorado Access to administer its
Medicaid and indigent acute care program. The Company incurred significant
operating losses attributable to the Colorado Access contract in the third and
fourth quarters of fiscal 1996 as a result of a rate reduction and start-up
expenses. The contract included a significant rate reduction when membership
reached the 40,000 membership level. Colorado Access achieved a 42,000
membership level in its third month of operation. It was originally estimated
that the program would not reach this membership level for two years, at which
time the cost to administer this program would have decreased significantly.
After unsuccessful attempts to negotiate a rate increase, the Company notified
Colorado Access in July 1996 that it was terminating the contract. It was
mutually agreed that the Company would assist in a timely transfer of management
operations to Colorado Access. The transition was completed on October 31, 1996.
In April 1996, the Company entered into an agreement with Community Health Care,
Inc. (CHCI) pursuant to which the Company became a 49% owner in Community Health
Choice, Inc. ("Choice"), a new HMO being developed in Illinois. The Company had
undertaken to develop the HMO, provide the capital to purchase equipment for the
plan and provide the equity capital necessary to apply for the HMO license. The
equity capital requirement was met in April 1996, when the Company loaned Choice
$2,000,000 pursuant to a seven year note. The Company concluded that existing
capitation and hospital rates would not allow choice to be financially viable
and therefore, the Company notified Choice that the Company's relationship with
Choice should be terminated and the $2,000,000 repaid. On November 18, 1996 the
Company entered into an agreement pursuant to which the parties terminated their
relationship, mutually released each other from all liability, and Choice
returned to the Company $1,782,000 of the money loaned. The total loss recorded
in the three month period ended November 30, 1996 for the Colorado Access and
Choice contracts was $505,000.
Ventana is the Company's long term care Medicaid HMO that provided services in
eight Arizona counties under a contract that expired September 30, 1996. In July
1996, Ventana was awarded a five year contract for seven counties, which
commenced October 1, 1996.
9
<PAGE> 10
AHC, the Company's acute care Medicaid HMO in Arizona, is operating under a
three year contract (October 1994 through September 1997) that had intense
pricing competition during the bidding process. The agreed upon rates have
resulted in AHC, as well as several other HMO plans participating in this
program, incurring operating losses. Arizona Health Care Cost Containment System
Administration ("AHCCCSA") has increased capitation rates for the third year of
the contract by approximately 5%, which began October 1, 1996. However, AHCCCSA
also increased hospital rates in counties served by AHC by approximately 7%. The
Company is unable to determine, at this time, whether these rate changes,
combined with planned improvements in medical expense costs currently
anticipated, will reduce or eliminate operating losses at AHC or the extent of
any such improvements in results.
In conjunction with the acquisition of AHC, the Company recorded a loss contract
reserve of $542,000, including anticipated contract losses of $440,000 for the
period June 1, 1996 to September 30, 1996. The Company has charged operating
losses incurred totaling $110,000 and $440,000 for the three and six month
periods ended November 30, 1996, respectively, against this reserve. As a
result, these contract losses are not fully reflected in the Company's operating
results for the periods presented. Management does not believe that an
additional loss contract reserve is necessary.
AHC, under its contract with AHCCCSA, is obligated to maintain a positive net
worth. AHCCCSA requested that AHC increase its net worth sighting AHC's negative
position. In November 1996, MCS increased its investment in AHC by $950,000 to
fulfill this request.
AHC has been notified by one of its subcontractors that the subcontractor is
significantly behind in paying claims received from providers for services
rendered to AHC members. At November 30, 1996, the subcontractor currently owes
approximately $1,400,000 for such claims and contends that, in spite of a lack
of cash, it will be able to satisfy all related obligations. In the event this
subcontractor cannot fulfill these obligations, AHC could be held liable for
payment. AHC is aggressively pursuing payment of these claims by the
subcontractor.
Direct cost of operations increased to $14,621,000 and $28,699,000 for the three
and six month periods ended November 30, 1996, respectively, from $1,600,000 and
$3,042,000 for the three and six month periods ended November 30, 1995,
respectively. For the three and six month periods ended November 30, 1996 direct
cost of operations consisted of $3,863,000 and $6,777,000, respectively, related
to fees generated from management of health plans not owned by the Company and
$10,758,000 and $21,922,000, respectively, from operating expenses of Ventana
and AHC. The direct cost of operations to manage plans as a percentage of
revenue was 92% for the three month period ended November 30, 1995 and 1996. For
the six month period ending November 30, 1996, the direct cost of operations to
manage plans as a percentage of related revenue increased to 90% from 84% for
the comparable period in the prior year. The increase was primarily a result of
the Colorado Access Contract.
The direct costs as a percentage of related revenue for the three and six month
periods ending November 30,1996 were 86% and 84% for Ventana and 93% and 90% for
AHC.
Marketing, sales and administrative expenses increased from $169,000 and
$467,000 for the three and six month periods ended November 30, 1995,
respectively, to $3,431,000 and $7,963,000 for the three and six month periods
ended November 30, 1996, respectively. This increase is primarily the result of
the additional marketing, sales and administrative activities of MCSAZ, Ventana
and AHC subsequent to the effective date of the Mergers.
Net interest income for the three and six month periods ended November 30, 1996
was $71,000 and $104,000, respectively, which is primarily related to
investments held by Ventana and AHC subsequent to the effective date of the
Merger. For the three and six month periods ended November 30, 1995, net
interest income was $67,000 and $118,000, respectively, related to short-term
investments of the Company.
10
<PAGE> 11
Income taxes are the result of the Company carrying back the losses generated by
the parent entity against income generated in prior periods. The current
subsidiaries' losses can only be utilized against taxable income of the
consolidated group subsequent to the effective date of the Mergers. A tax
valuation allowance has been provided against any such losses recognized in the
current fiscal year as their realizability is not certain. The variation in the
tax rate between the six months ended November 30, 1996 and the comparable prior
year period is primarily due to nondeductible goodwill amortization and the
valuation allowance for the net operating losses of the subsidiaries.
Income (loss) from continuing operations was ($415,000) and ($1,407,000) for the
three and six month periods ended November 30, 1996 respectively versus $144,000
and $297,000 for the related periods in the prior fiscal year. The primary
reasons for the change in profitability were costs related to terminating
contracts in Colorado, Illinois and Missouri and costs associated with
terminated employees as part of the workforce reduction effort in July 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended November 30, 1996, the Company's cash and cash
equivalents increased $3,153,000 to $6,957,000 on November 30, 1996. Operating
activity provided $745,000 for the six month period ended November 30, 1996,
versus using $992,000 for the same period in the prior fiscal year. The primary
cause for the change was the growth in current liabilities, partially offset by
the loss from continuing operations and growth in accounts receivable.
Investing activities provided $1,092,000 for the six months ended November 30,
1996 versus $3,742,000 for the comparable periods of the prior fiscal year.
Sources of cash consisted of proceeds from the maturity of investments and the
settlement of the loan with Choice. Cash was used to purchase $1,285,000 of
property and equipment primarily for the Michigan, Indiana and Colorado
contracts.
Financing activities provided $1,316,000 for the six months ended November 30,
1996 versus using $375,000 for the comparable period of the prior fiscal year.
Principal payment on long-term debt in fiscal 1997 was the primary use of funds,
while treasury stock activity and dividend payments were the primary use of
funds for the comparable periods in the prior fiscal year. Sources of cash
consisted of proceeds from the long term debt issued to BCBSTX and to a trust
controlled by William Brown.
On October 2, 1996, the Company signed an agreement with BCBSTX whereby BCBSTX
invested $3,000,000 in the Company in the form of a convertible secured loan.
The loan has an original term of three years with a renewal option for an
additional two years if certain conditions are met. The loan is initially
secured by all of the assets of the Company. Eligible assets must be maintained
pursuant to the pledge agreement equal to at least 150% of the outstanding
balance. The Company can have collateral released from the pledge with the
consent of BCBSTX. The loan bears interest at a rate of 8% per annum. Principal
and interest are payable at the end of the initial three-year term, and,
thereafter, at the end of each annual extension. The loan is convertible into
the Company's common stock at a conversion price of $3.85 per share. BCBSTX also
received a warrant to purchase 100,000 shares of the Company's common stock at
an exercise price of $4.45 per share and has the right of first refusal to
participate as an equity partner in future MCS funding requirements.
In a separate transaction, a trust controlled by William Brown, a director of
MCS, invested $300,000 in the Company through a convertible unsecured loan and
received a warrant to purchase 10,000 shares of MCS common stock. The interest
rate, term, conversion price and warrant exercise price are the same for Mr.
Brown's trust as for BCBSTX, except that interest on the loan is payable
monthly.
11
<PAGE> 12
Certain of the Company's operating subsidiaries are subject to state regulations
which require compliance with certain net worth, reserve and deposit
requirements. To the extent the operating subsidiaries must comply with these
regulations, they may not have the financial flexibility to transfer funds to
MCS. Net assets of subsidiaries (after inter-company eliminations) which, at
November 30, 1996, may not be transferred to MCS by subsidiaries in the form of
loans, advances or cash dividends without the consent of a third party is
referred to as "Restricted Net Assets". Total Restricted Net Assets of these
operating subsidiaries was $8,529,000 at November 30, 1996, with deposit and
reserve requirements (performance bonds) representing $2,171,000 of the
Restricted Net Assets and net worth requirements, in excess of deposit and
reserve requirements, representing the remaining $6,348,000. Ventana provided
funds to MCS under loan agreements totaling $2,345,000 at November 30, 1996. VHS
provided these loans in the normal course of operations. All such agreements
were pre-approved as required by AHCCCSA.
The Company experienced a loss from continuing operations in the six-month
period ended November 30, 1996. In an effort to improve its operating results in
the six month period ended November 30, 1996, the Company reduced its total
workforce by approximately 10%, which is expected to result in an estimated
annual savings of $1,700,000. In addition, the Company has implemented stringent
controls over other expenses. In August, the Company consolidated its AHC
operations by closing two satellite offices in Arizona. The closure of these two
offices is expected to result in estimated savings of $240,000 annually and, by
bringing these operations into one facility, is also expected to improve
controls over medical expenses. There can be no assurance as to the amount of
savings which will actually result from the actions described above.
The Company believes that, based on its current projections, its cash and
capital resources should be sufficient to meet its financial requirements in
fiscal 1997. The Company will continue its effort to increase revenues,
renegotiate existing agreements and minimize operating costs. However, the
Company can make no assurances that it will meet its current projections.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1)(a) Contract between Ventana Health Systems and
Arizona Health Care Cost Containment System
(10.1)(a)(1) Contract Amendment 1 to contract between
Ventana Health Systems and Arizona Health Care Cost
Containment System
(10.1)(a)(2) Solicitation Amendment 1 between Ventana
Health Systems and Arizona Health Care Cost
Containment System
(10.1)(a)(3) Solicitation Amendment 2 to contract
between Ventana Health Systems and Arizona Health
Care Cost Containment System
(10.1)(a)(4) Solicitation Amendment 3 to contract
between Ventana Health Systems and Arizona Health
Care Cost Containment System
(10.2) Loan Agreement between the Company and Blue
Cross Blue Shield of Texas, Inc.
(10.3) Loan Agreement between the Company and William
Brown Gardner Trust.
(10.4) Lease Agreement between the Company and
Pivotal Simon Office XVI, LLC
(21) Subsidiaries of the Registrant
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
13
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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 thereunto duly authorized.
MANAGED CARE SOLUTIONS, INC.
By: /s/ James A. Burns
-----------------------------------
James A. Burns, President and Chief
Executive Officer
By: /s/ Michael J. Kennedy
-----------------------------------
Michael J. Kennedy, Chief Financial
Officer
Dated: January 13, 1997
14
<PAGE> 1
EXHIBIT (10.1)(a)
ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM
SOLICITATION, OFFER AND AWARD
Contract No: RFP No: YH6-0012 Date Issued: APRIL 1, 1996
Issued by: AHCCCSA Subject of Solicitation:
Contracts and Purchasing
701 E. Jefferson Ave. LONG-TERM CARE SERVICES
Phoenix, AZ 85034 FOR CY 97 (10/1/96 - 9/30/97)
================================================================================
I. SOLICITATION
Sealed offers (original and 5 copies) for providing the services described
herein will be received at the issuing office (above) until 3:00 p.m. local time
June 14, 1996. For information call:
Mark Renshaw, Contracts and Purchasing Phone: (602) 417-4577
================================================================================
TABLE OF CONTENTS
A. SOLICITATION, OFFER AND AWARD FORM ......................... 1
B. RATES ...................................................... 2
C. DEFINITIONS ................................................ 3-7
D. PROGRAM REQUIREMENTS ....................................... 8-38
E. CONTRACT CLAUSES ........................................... 39-47
F. LIST OF ATTACHMENTS ........................................ 48
G. REPRESENTATIONS & CERTIFICATIONS ........................... 49-57
H. INSTRUCTIONS TO OFFERORS ................................... 58-66
I. EVALUATION FACTORS ......................................... 67-69
INDEX ......................................................... 70-71
================================================================================
II. OFFER (Must be fully completed by Offeror)
The undersigned Offeror hereby agrees, if this offer is accepted within 120 days
of bid opening to provide all services in accordance with the terms and
requirements stated herein, including all attachments, amendments, and
best-and-final offer (if any).
NAME OF OFFEROR: Ventana Health Systems, Inc PHONE: (602) 943-5660
ADDRESS: 2510 W. Dunlap Avenue, Suite #300
CITY/STATE: Phoenix, Arizona Zip: 85021
NAME OF PERSON AUTHORIZED
TO SIGN OFFER: James A. Burns TITLE: Chief Executive Officer
OFFEROR'S SIGNATURE: James A. Burns DATE: 6-14-96
================================================================================
III. AWARD (To be completed by AHCCCSA)
The offer, including all attachments, amendments and best-and-final offer (if
any), contained herein, is accepted.
NAME OF AHCCCSA CONTRACTING OFFICER: Michael Veit DATE:_____________________
SIGNATURE OF AHCCCSA CONTRACTING OFFICER:_______________________________________
================================================================================
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SECTION B - CAPITATION RATES
The Program Contractor shall provide services as described in this solicitation.
In consideration for these services, the Program Contractor will be paid as
shown below. (The Offeror must enter below its proposed monthly capitation rates
for each county bid.)
- --------------------------------------------------------------------------------
PROPOSED CAPITATION RATES
(Per member per month)
COUNTY: PROPOSED RATE (PMPM):
Apache $1,672.41
Cochise* $
Coconino $
Gila $2,050.14
Graham $
Greenlee $2,153.03
La Paz $1,901.53
Maricopa** $
Mojave $1,778.26
Navajo $1,812.29
Pima** $
Pinal* $
Santa Cruz $1,957.35
Yavapai* $
Yuma $
* By statute, this county has the right of first refusal to act as sole
program contractor for the county. It has indicated its intention to
continue functioning in this capacity for Contract Year 96-97 and no
competing offers will be considered at this time.
** By statute, this county is required to act as sole program contractor for
the county. No competing offers will be considered at this time.
SECTION C - DEFINITIONS
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ABUSE (OF MEMBER) Intentional infliction of physical, emotional
or mental harm, caused by negligent acts or
omissions, unreasonable confinement, sexual
abuse or sexual assault. (See ARS
Section 46-451.)
ABUSE (BY PROVIDER) Provider practices that are inconsistent with
sound fiscal, business or medical practices,
and result in an unnecessary cost to the
AHCCCS program, or in reimbursement for
services that are not medically necessary or
that fail to meet professionally recognized
standards for health care. It also includes
recipient practices that result in
unnecessary cost to the AHCCCS program. (See
42 CFR 455.2)
ADHS Arizona Department of Health Services.
ADULT CARE HOME An ALTCS HCBS approved alternative
residential setting that is licensed by the
Arizona Department of Health Services to
provide room, board, supervision, personal
care and/or custodial care services for up to
10 adults. (AHCCCS Medical Policy Manual,
Section 1230)
ADULT DAY HEALTH A program that provides planned care and
supervision, recreation and socialization,
personal care, personal living skills
training, group meals, health monitoring and
various preventive, therapeutic and
restorative health care services.
ADULT FOSTER CARE An ALTCS HCBS approved alternative
residential setting which is certified by the
ADHS to provide room, board, supervision and
coordination of necessary ALTCS HCBS services
within a family type environment for up to
four adult residents. (AHCCCS Medical Policy
Manual, Section 12030)
AGENT Any person who has been delegated the
authority to obligate or act on behalf of
another person or entity.
AHCCCS Arizona Health Care Cost Containment System
as defined by ARS 36-2901, et seq.
AHCCCSA Arizona Health Care Cost Containment System
Administration
ALTCS The Arizona Long Term Care System (ALTCS), a
program under AHCCCSA that delivers long
term, acute and behavioral health care
services to eligible members, as authorized
by ARS 36-2931 et seq.
AMPM AHCCCS Medical Policy Manual
ATTENDANT CARE A service wherein a certified trained
attendant provides assistance with
homemaking, personal care, general
supervision and companionship.
BEHAVIORAL HEALTH, A behavioral health service agency licensed
LEVEL I by ADHS to provide a structured
treatment setting with 24-hour supervision,
on-site medical services and an intensive
behavioral health treatment program. These
facilities are the highest level of inpatient
behavioral health services (other than
psychiatric hospitalization) and when
considered an alternative residential setting
may provide mental health crisis
stabilization and/or substance abuse
detoxification.
BEHAVIORAL HEALTH, A behavioral health service agency licensed
by ADHS to provide a
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LEVEL II structured residential setting with 24-hour
supervision and counseling or other
therapeutic activities for individuals who do
not require the intensity of treatment
services or on-site medical services found in
a Level I behavioral health facility.
BIDDERS' LIBRARY A repository of manuals, statutes, rules and
other reference material referred to in this
RFP, located at AHCCCS Contracts and
Purchasing, 701 E. Jefferson, Phoenix, AZ.
CAPITATION Payment to contractor by AHCCCSA of a fixed
monthly payment per person in advance for
which the contractor provides a full range of
covered services.
CATEGORICALLY ELIGIBLE A member eligible for Medicaid under ARS
MEMBER 36-2901(4)(b) and 36-2931(5).
CONTINUING OFFEROR An existing ALTCS program contractor who
submits a response to this solicitation.
CONTRACT YEAR (CY) Corresponds to federal fiscal year (Oct. 1
through Sept. 30). For example, Contract Year
97 is 10/1/96 - 9/30/97.
CONVICTED A judgment of conviction has been entered by
a federal, state or local court, regardless
of whether an appeal from that judgment is
pending.
CO-PAYMENT An amount which the member pays directly to a
contractor or provider at the time covered
services are rendered.
COST AVOIDANCE The process of identifying and utilizing all
sources of third-party benefits BEFORE
SERVICES ARE RENDERED by the Program
Contractor or before payment is made by the
Program Contractor. (This assumes the Program
Contractor can avoid costs by not paying
until the third party has paid what it covers
first, or having the third party contracted
provider render the service so that the
Program Contractor is only liable for
coinsurance and/or deductibles.)
COVERED SERVICES ALTCS services to be delivered by the Program
Contractor which are so designated in Section
D of this contract and the Arizona
Administrative Code R9-28-201 et seq.
CRS Children's Rehabilitative Services
DAYS Calendar days unless otherwise specified.
DME Durable medical equipment; an item that can
withstand repeated use such as hospital beds,
wheelchairs, crutches.
DUAL ELIGIBLE QUALIFIED A person, eligible under ARS 36-2971(4), who
MEDICARE BENEFICIARY is entitled to Medicare Part A insurance,
meets certain income, resource and residency
requirements of the Qualified Medicare
Beneficiary program, and who has been
determined categorically eligible for full
AHCCCS acute, behavioral health and/or
long-term care benefits.
ENCOUNTER An encounter is a record of a medically
related service rendered by a provider or
providers registered with AHCCCSA to a member
who is enrolled with a program contractor on
the date of service. It includes all services
for which the program contractor incurred any
financial liability.
ENROLLMENT The process by which a person who has been
determined eligible becomes a member with a
program contractor subject to the limitations
specified in the
4
<PAGE> 5
AHCCCS Rules.
EPSDT Early and Periodic Screening, Diagnosis and
Treatment services for persons under 21 years
of age as described in AHCCCS Rules R9-22-101
and R9-22-213.
FEE-FOR-SERVICE (FFS) A method of payment to registered providers
on an amount-per-service basis.
FFP Federal financial participation (FFP) refers
to the contribution that the federal
government makes to the Title XIX program
portion of AHCCCS as described in AHCCCS Rule
R9-28-101 (26).
FISCAL YEAR (STATE) July 1 through June 30.
FISCAL YEAR (FEDERAL) October 1 through September 30.
FRAUD An intentional deception or misrepresentation
made by a person with the knowledge that the
deception could result in some unauthorized
benefit to himself or some other person. It
includes any act that constitutes fraud under
applicable state or federal law. (42 CFR
455.2)
HCBS Home and community-based services. (See
Section D.)
HCFA Health Care Financing Administration, an
organization within the U.S. Department of
Health and Human Services which administers
the Medicare and Medicaid programs.
HEALTH MAINTENANCE Various forms of plan organization, including
ORGANIZATION (HMO) staff and group models, that meet the HMO
licensing requirements of the federal and/or
state government and offer a full array of
health care services to members on a
capitated basis.
HOME DELIVERED MEALS A service that provides a nutritious meal
containing at least one-third of the federal
recommended daily allowance for the member,
delivered to the member's place of residence.
HOMEMAKER SERVICE Assistance in the performance of routine
household activities such as shopping,
cooking, running errands, etc.
HOSPICE A program that provides care to terminally
ill patients who have six months or less to
live. A participating Hospice must meet
Medicare requirements and have a written
provider contract with the Program
Contractor.
IBNR Incurred But Not Reported liabilities for
services rendered for which claims have not
been received.
IHS Indian Health Service; a division of the U.S.
Public Health Service. It administers a
system of hospitals and health centers
providing health services to Native Americans
and Native Alaskans.
MANAGEMENT SERVICES A person or organization who agrees to
SUBCONTRACTOR perform any administrative service for the
Program Contractor related to securing or
fulfilling the Program Contractor's
obligations to AHCCCSA under the terms of the
contract.
MATERIAL OMISSION A fact, data or other information excluded
from a report, contract, etc. the absence of
which could lead to erroneous conclusions
following reasonable review of such report,
contract, etc.
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<PAGE> 6
MEDICAID A federal/ state program authorized by Title
XIX of the Social Security Act, as amended,
which provides federal matching funds for a
medical assistance program for recipients of
federally aided public assistance and SSI
benefits and other specified groups. Certain
minimum populations and services must be
included to receive FFP; however, a state
may, at its option, include additional
populations and services at state expense and
also receive FFP.
MEDICARE A federal program authorized by Title XVIII
of the Social Security Act, as amended.
MEMBER For purposes of this solicitation, a person
eligible for ALTCS who is enrolled with a
program contractor.
OFFEROR The organization, entity or person which
submits a proposal in response to this AHCCCS
Request for Proposal. An offeror who is
awarded a contract becomes a program
contractor.
PAS Pre-admission screen; diagnostic tool
administered by an AHCCCS DMS social worker
or nurse to assess, or refer to a physician
for assessment, the functional, medical,
nursing and social needs of the member.
PASARR Preadmission Screening and Annual Resident
Review. Assessment required prior to
admission to a nursing facility. Level I is
the identification of members who are
suspected of having mental illness or mental
retardation. Level II determines whether
nursing facility or specialized services are
needed.
PAY AND CHASE Recovery method used by the Program
Contractor to collect from legally liable
third parties AFTER the Program Contractor
pays the member's medical bills. The service
may be provided by a contracted or
noncontracted provider. Regardless of who
provides the service, pay and chase assumes
that the Program Contractor will pay the
provider, then seek reimbursement from the
third party.
PERSONAL CARE A service that provides assistance with
personal physical needs such as washing hair,
bathing and dressing.
PRIMARY CARE PROVIDER/ An individual responsible for the management
PRACTITIONER (PCP) of the member's health care that includes,
but is not limited to, a physician who is a
family practitioner, general practitioner,
pediatrician, general internist,
obstetrician, gynecologist, certified nurse
practitioner or, under the supervision of a
physician, a physician's assistant. The PCP
must be an individual, not a group or
association of persons such as a clinic.
REINSURANCE A risk-sharing program provided by AHCCCSA to
program contractors for the reimbursement of
certain contract service costs incurred by a
member beyond a certain monetary threshold.
RELATED PARTY A party that has, or may have, the ability to
control or significantly influence a program
contractor, or a party that is, or may be,
controlled or significantly influenced by a
program contractor. "Related parties"
include, but are not limited to, agents,
managing employees, persons with an ownership
or controlling interest in the disclosing
entity, and their immediate families,
subcontractors, wholly-owned subsidiaries or
suppliers, parent companies, sister
companies, holding companies, and other
entities controlled or
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<PAGE> 7
managed by any such entities or persons.
RESPITE CARE A service that provides short-term care
and supervision to relieve primary
caregivers. It is available 24-hours per day
and is limited to 30 days per year.
RFP Request For Proposal; document prepared by
AHCCCSA which describes the services required
and which instructs prospective offerors how
to prepare a response (proposal).
STATE PLAN The written agreement between the State of
Arizona and HCFA which describes how the
AHCCCS program meets HCFA requirements for
participation in the Medicaid program.
SUBCONTRACT An agreement entered into by a program
contractor with a provider of health care
services who agrees to furnish covered
services to members, or with any other
organization or person who agrees to perform
any administrative function or service for a
program contractor specifically related to
fulfilling the program contractor's
obligations to AHCCCSA under the terms of
this contract.
SUBCONTRACTOR (1) A person, agency or organization to
which a program contractor has contracted or
delegated some of its management functions or
responsibilities to provide covered services
to its members; or (2) A person, agency or
organization with which a fiscal agent has
entered into a contract, agreement, purchase
order or lease (or leases of real property)
to obtain space, supplies, equipment or
services provided under the AHCCCS agreement.
SUPPORTIVE RESIDENTIAL Supportive Residential Living Center -- An
LIVING CENTER ALTCS HCBS approved alternative residential
setting composed of individual apartments
licensed by ADHS to provide room, board and
general supervision, as well as coordinate
supportive living services to members on a
24-hour basis. (AHCCCS Medical Policy Manual,
Section 1230)
THIRD PARTY A person, program or entity that is or may
be, by agreement, circumstance or otherwise,
liable to pay all or part of the medical
expenses incurred by an AHCCCS member.
THIRD PARTY LIABILITY Resources available from person, program or
entity that is or may be, by agreement,
circumstance or otherwise, liable to pay
all or part of the medical expenses incurred
by an AHCCCS member.
TRAUMATIC BRAIN INJURY An ALTCS HCBS approved alternative
TREATMENT FACILITY residential setting which is licensed by the
ADHS as an Unclassified Health Care Facility
and whose purpose is to provide services for
the treatment of people with traumatic brain
injuries.
VENTILATOR DEPENDENT An ALTCS member who is dependent on a
ventilator for respiratory support at least
six hours per day for at least 30 consecutive
days.
[END OF SECTION C]
SECTION D - PROGRAM REQUIREMENTS
TABLE OF CONTENTS
1. Covered Services..........................................................13
2. Behavioral Health Services................................................13
3. Therapeutic Leave And Bed Hold............................................13
4. Dental Services...........................................................14
5. Family Planning...........................................................14
7
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6. Emergency Services........................................................14
7. Children's Rehabilitative Services (Crs)..................................14
8. Altcs Transitional Program................................................15
9. Case Management...........................................................15
10 Pre-Admission Screening And Annual Resident Review (Pasarr).............17
11. Quality Management/ Utilization Management................................17
12. Quality Management/ Utilization Management Reports........................18
13. Denials Of Services Requiring Prior Authorization.........................18
14. Member Handbook And Member Communications.................................19
15. Enrollment And Disenrollment..............................................20
16. Request For Change In Enrollment..........................................20
17. Reporting Changes In Members' Circumstances...............................20
18. Out-Of-State Placement And Medical Services...............................21
19. Advance Directives........................................................21
20. Staff Requirements And Support Services...................................21
21. Medical Director..........................................................22
22. Written Policies, Procedures And Job Descriptions.........................23
23. Provider Manual...........................................................23
24. Network Development.......................................................24
25. Network Management........................................................24
26. Provider Registration.....................................................25
27. Network Deficiencies......................................................25
28. Appointment Standards.....................................................25
29. Fraud And Abuse...........................................................25
30. On-Site Reviews...........................................................26
31. Operational And Financial Readiness Reviews...............................27
32. Patient Trust Account Monitoring..........................................27
33. Financial Management......................................................27
34. Required Financial Reports................................................28
35. Performance Bond Or Bond Substitute.......................................28
37. Financial Viability Criteria And Performance Measures.....................29
38. Advances, Distributions And Loans.........................................29
39. Accumulated Fund Deficit..................................................30
40. Hcbs Assumed Mix And Recoupment...........................................30
41. Hospital Reimbursement....................................................30
42. Ventilator Dependent Reimbursement Rates..................................31
43. Reinsurance...............................................................31
44. Coordination Of Benefits/ Third Party Liability..........................32
45. Medicare Services And Cost Sharing........................................34
46. Member Share Of Cost.....................................................34
47. Management Services And Distribution Of Funds.............................35
48. Management Services Subcontractor Audits..................................35
49. Merger, Reorganization And Change Of Ownership............................35
50. Related Party Transactions................................................36
51. Requests For Information..................................................36
52. Data Management...........................................................36
53. Data Exchange Requirement.................................................36
54. Encounter Data Reporting..................................................36
55. Specialty Contracts.......................................................37
56. Sanctions.................................................................37
57. Term Of Contract And Option To Renew....................................38
58. Grievance Process And Standards...........................................38
59. Quarterly Grievance Report................................................38
60. Legislative Issues........................................................38
8
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SECTION D - PROGRAM REQUIREMENTS
BACKGROUND AND INTRODUCTION
1982 - ARIZONA JOINS MEDICAID
In 1982 Arizona introduced its Medicaid program by establishing the Arizona
Health Care Cost Containment System (AHCCCS), a demonstration program based on
principles of managed care. In 1987, the State passed legislation to add
long-term care services to the AHCCCS program by establishing the Arizona Long
Term Care System (ALTCS). Before the ALTCS program was introduced, nursing
facility care for the elderly and physically disabled was provided primarily
through the state's various county governments while the Arizona Department of
Economic Security, in coordination with the Area Agencies on Aging, provided
home and community based services and case management.
ALTCS officially began accepting developmentally disabled members in December
1988; the Department of Economic Security is, by law, the program contractor for
this population. The program for the elderly and physically disabled (EPD)
population was added January 1, 1989. The ALTCS program now administers acute,
long term and behavioral health services in both institutional and home and
community based settings, and provides case management services.
AHCCCSA'S MISSION
The AHCCCS Administration's mission is to administer innovative managed care
programs effectively and efficiently, and to continually improve the
accessibility and delivery of quality health care to members. To do this,
AHCCCSA annually evaluates the performance of its program contractors in the
following areas:
Executive management Case management
Medical direction Provider services
Network management Member services
Behavioral health services Quality management
Utilization management Grievance and appeals
Accounting systems Claims and encounter systems
In the future, performance will be measured against clinical quality management
indicators once baselines are established by the Administration.
WHO'S ELIGIBLE FOR ALTCS? First,the person must be financially eligible.
Anyone may apply for ALTCS at any of the 15 AHCCCS eligibility offices located
throughout the state. The applicant must either be age 65 or older, disabled,
under 18, or pregnant. The applicant must be an Arizona resident, a U.S. citizen
or legal alien, and have countable income and resources below certain
thresholds. Chapter 1600 of the ALTCS Eligibility Policy and Procedures Manual
provides a detailed discussion of all eligibility criteria.
Second, the person must be medically eligible.
Once a person's financial eligibility has been established, a preadmission
screen (PAS) is conducted by an AHCCCS registered nurse, social worker or, by
referral, a physician to evaluate the person's medical status. The PAS is also
used initially to determine whether the person should be placed, or is at risk
of being placed,
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in a nursing facility or an intermediate care facility for the mentally
retarded. In most cases, AHCCCS will reevaluate each ALTCS member annually.
THE GROWTH OF THE ALTCS PROGRAM
ALTCS services are provided in the 15 counties by program contractors under
contract with AHCCCS. Program contractors coordinate, manage and provide
long-term care services to ALTCS members. Unlike the acute care program,
however, there is currently only one ALTCS program contractor in each county.
The ALTCS population has grown from a total of 9,989 in its first full year to
21,356 as of February 1996, a 114% increase. Of this population, 64% are EPD and
less than 1% of these are ventilator dependent members. The yearly growth of the
EPD population is as follows:
STATE
FISCAL YEAR NUMBER INCREASE % INCREASE
1990 6,142
1991 7,971 1,829 +29.8%
1992 8,954 983 +12.3%
1993 10,145 1,191 +13.3%
1994 10,984 839 + 8.3%
1995 12,084 1,100 +10.0%
1996 (as of 2/96) 13,751 1,667 +13.8%
THE GROWTH OF Home and Community Based Services (HCBS)
ALTCS members are considered to be "at risk" of institutionalization.
Alternative residential settings have recently been developed, however, in which
some of these members can be safely cared for in a less restrictive setting.
These HCBS alternative residential settings allow placement options other than
the traditional nursing home when the member can no longer safely live at home.
(See Section D, Paragraph 1, for a listing of the alternative settings available
through the ALTCS program.) At first, because of its concern about an
unmanageable surge in demand, HCFA limited the amount Arizona could spend on
HCBS services to 5% of the total ALTCS budget. This limit was later changed from
a cap on spending to a limitation on member months. HCFA has since allowed ALTCS
to increase the HCBS cap by approximately 5% per year so that the cap is now at
40% for HCBS placements. As of December 1995, HCBS members comprised
approximately 35% of the ALTCS EPD population.
HCBS: THE FUTURE OF ALTCS
AHCCCS has supported and encouraged the growth of HCBS in the ALTCS program
through the Supportive Residential Living and Adult Care Home pilot programs.
The growth of HCBS has given members a variety of residential options to choose
from beyond the traditional nursing home. To encourage further growth and
expansion in this area, AHCCCS has established HCBS percentages and a
reimbursement method that rewards those program contractors who excel in the
development and expansion of these settings. In addition, AHCCCSA has requested
federal approval for removing the percentage cap entirely on HCBS placements.
1. COVERED SERVICES
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The Program Contractor shall, at a minimum, be responsible for providing the
following acute, long term and behavioral health services in accordance with the
AHCCCS Medical Policy Manual:
ACUTE CARE SERVICES (REF. AHCCCS RULE R9-22-202)
Inpatient and outpatient hospital
Emergency room
Physician
Outpatient, including those AHCCCS covered services that may be provided
in a rural health clinic or Federally Qualified Health Center
Laboratory, x-ray and medical imaging
Prescription drugs, including psychotropic medications
Medical supplies, durable medical equipment and prosthetic devices
Emergency transportation
Medically necessary transportation
Family Planning, including drugs, supplies, devices and surgical
procedures provided to delay or prevent pregnancy
Medically Necessary Abortions, when the pregnancy would endanger the life
of the mother if the fetus were carried to term, or if the pregnancy
is a result of rape or incest
Therapies (physical, occupational, respiratory, audiologic, speech)
Podiatry
Private Duty Nursing for ventilator dependent members
Early and periodic screening, diagnosis and treatment services for members
under the age of 21. These services include all medically necessary
Title XIX services.
Organ transplants deemed medically necessary are limited to the following
services: kidney, cornea, bone, heart, lung, heart/lung, liver,
autologous and allogeneic bone marrow with related chemotherapy or
radiotherapy
Eyeglasses and contact lenses for members 21 years and older as the sole
prosthetic device after a cataract extraction
Emergency dental care, extractions and medically necessary dentures for
members 21 years and older.
ACUTE CARE SERVICES - BEHAVIORAL HEALTH (REF. AHCCCS RULE R9-28-1104)
Inpatient hospital
Inpatient Psychiatric Facility for members under 21 years
Institution for mental diseases for members 65 years and older
Individual therapy and counseling
Group and family therapy and counseling
Partial care (Basic and Intensive)
Emergency crisis mental health care
Behavior management
Evaluation
Psychotropic medications, including adjustment and monitoring
LONG TERM CARE SERVICES (REF. AHCCCS RULE R9-28-202)
Nursing Facility, including Christian Science sanitoria and nursing
Hospice
Adult Day Health
Home Delivered Meals
Home Health Agency, including nursing services and home health aide
Homemaker
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Personal Care
Respite Care
Group Respite as an alternative to Adult Day Health
Attendant Care
Environmental modifications
LONG TERM CARE - INSTITUTIONAL SETTINGS
Nursing facility
Institution for Mental Disease (for age 65 and over)
Inpatient Psychiatric Residential Treatment Center (under age 21)
LONG TERM CARE - HCBS ALTERNATIVE RESIDENTIAL SETTINGS
Adult Care Home
Adult Foster Care
Behavioral health, Level I and Level II (Residential Treatment Center;
licensed by ADHS; under age 21)
Supportive Residential Living centers (certified by ADHS - Maricopa County
pilot program)
Traumatic Brain Injury treatment facility
Other services and settings, if approved by HCFA and/or the Director of AHCCCSA,
may be added as appropriate. Exclusions and limitations of ALTCS covered
services are discussed in AHCCCS and ALTCS Rules and the AHCCCS Medical Policy
Manual.
2. BEHAVIORAL HEALTH SERVICES
The Program Contractor shall provide medically necessary Title XIX (Medicaid)
behavioral health services to all members in accordance with the AHCCCS Medical
Policy Manual.
Referral for behavioral health services may be made by the Primary Care
Provider, case manager, nursing facility staff, family, guardian, the member, or
by any health care professional in coordination with the case manager assigned
to the member.
The Program Contractor shall develop, monitor and continually evaluate its
processes for timely referral, screening, evaluation and treatment planning for
behavioral health services. The Program Contractor is responsible for training
case managers and providers to identify and screen for members' behavioral
health needs. The initial behavioral health screen for HCBS members must be
performed within seven days of referral. There shall be procedures in place for
ensuring that members' behavioral health services are appropriately provided,
coordinated and tracked by the case manager, PCP and behavioral health providers
and included in the member's individual service plan. Quality management for
behavioral health services must be included in the Program Contractor's Quality
Management Plan and shall meet the quality management requirements of AHCCCSA.
Behavioral health utilization reports shall be submitted quarterly in a format
to be determined by AHCCCSA.
3. THERAPEUTIC LEAVE AND BED HOLD
For therapeutic leave and bed hold policies, refer to the AHCCCS Medical Policy
Manual, Section 1620-21.
4. DENTAL SERVICES
The Program Contractor shall ensure that members under age 21 have direct access
to dental providers. Members may also be referred by their PCPs. Members over
age three and under 21 shall be screened annually by a dentist who will perform
an evaluation and report findings and treatment to the member's PCP or the
Program
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Contractor. Members under age three shall be screened by their PCP and referred
to a dentist when medically necessary. Dental standards may be found in the
AHCCCS Medical Policy Manual, Section 310.
5. FAMILY PLANNING
The Program Contractor shall provide Family Planning services in accordance with
the AHCCCS Medical Policy Manual, Section 420, to members who choose to delay or
prevent pregnancy. The Program Contractor is responsible for annually notifying
members of reproductive age (12-55 years) of the availability of Family Planning
services.
6. EMERGENCY SERVICES
The Program Contractor shall provide the following at a minimum:
a. A designated emergency services facility providing care on a 24-hour-a-day,
7-day-a-week basis, accessible to members in each contracted service area. One
or more physicians and one nurse shall be on call or on duty at such facility at
all times.
b. An emergency services system employing at least one physician, registered
nurse, physician's assistant or nurse practitioner, accessible to members by
telephone 24-hours-a-day, 7-days-a-week, for information in the event of any
emergency and to providers who need verification of patient membership and
treatment authorization.
c. An emergency services telephone log containing member's name, address,
telephone number, date of call, time of call, nature of complaint or problem,
and instructions given to the caller.
d. A written procedure for the communication of emergency services information
to the member's primary care physician and other appropriate network elements.
7. CHILDREN'S REHABILITATIVE SERVICES (CRS)
CRS, a program administered by the Arizona Department of Health Services (DHS),
is designed to provide specialty medical and surgical care of a comprehensive
and rehabilitative nature to children who meet CRS financial and medical
eligibility criteria. CRS is not an emergency services program. While attempts
will be made by CRS administrators to accommodate emergency referrals, the
Program Contractor remains ultimately responsible for the provision of all
covered services to its members.
Since CRS is not an entitlement program and eligibility is based on medical
judgment, there is no guarantee that CRS administrators will accept
responsibility for treatment. The Program Contractor shall refer potentially
eligible children to CRS administrators. The referral process is discussed in
the CRS Policy and Procedures Manual, a copy of which may be obtained through
the Contracts and Purchasing Office. The CRS program provides a comprehensive
multi-disciplinary approach to management of CRS-covered conditions, but does
not provide primary care. Eligibility criteria for these services include:
a. Child has a CRS-covered condition as defined in the CRS Policy and
Procedures Manual.
b. Child requires comprehensive multi-disciplinary care.
c. Child has a reasonable potential for rehabilitation.
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CRS-covered services will ordinarily include the planned management of the
covered condition, including inpatient care, surgery, therapy, limited DME and
home health care, and social and educational services, as well as periodic
follow-up. Emergency services are not ordinarily covered by CRS, nor is initial
care of newborn infants.
8. ALTCS TRANSITIONAL PROGRAM
The ALTCS Transitional Program is available for members (both institutional and
HCBS) who, at the time of medical reassessment, have improved either medically,
functionally or both to the extent that they no longer need institutional care,
but who still need significant long term care services. For those members who
are living in a medical institution when determined eligible for the ALTCS
Transitional program, the Program Contractor shall arrange for home and
community based placement as soon as possible, but not later than 90 days after
the effective date of eligibility.
ALTCS Transitional members are entitled to all ALTCS covered services except for
institutional care* which is not covered unless it's medically necessary. In
such situations, the period of institutionalization may not exceed 90 days. If
institutional care is expected to exceed 90 days, the Program Contractor shall
request a medical eligibility reassessment (PAS). ALTCS Transitional members
determined by the PAS to be at risk of institutionalization will be transferred
from the ALTCS Transitional Program to the regular ALTCS program effective the
first of the month following the PAS reassessment decision date.
EPD institutionalized members will continue to be considered institutional
placement until the member is placed in an HCBS setting or expiration of the 90
day period, whichever occurs first. HCBS members will continue to be HCBS
placed. For ALTCS Transitional members who remain institutionalized after the 90
day period, member months will be considered as HCBS member months for the HCBS
recoupment process. (See Section D, Paragraph 40, HCBS Assumed Mix and
Recoupment, for a discussion of the HCBS recoupment process.) Program Contractor
compliance with this program will be monitored through the AHCCCS Office of
Managed Care and the Office of the Medical Director.
9. CASE MANAGEMENT
The Program Contractor shall ensure adequate staffing to meet case management
requirements. The case management caseload size for HCBS and mixed has been
revised and caseload limits have been established for acute care only,
ventilator dependent and hospice. The case management caseload sizes effective
October 1, 1996 are as follows:
- ------------------------------------
* I.e., nursing facility, institution for mental diseases for persons age 65 or
older, inpatient psychiatric facility for persons under the age of 21 or
intermediate care facility for the mentally retarded.
HCBS or Acute 1:48 CM visit every 90 days
Nursing Facility (NF) 1:120 CM visit every 180 days
Vent. Dep. and/or Hospice 1:16 CM visit every 30 days
Over a 180 day time period, one case manager could perform 96 HCBS or acute care
visits, 120 NF visits, or 96 ventilator dependent or hospice visits.
The formula for the mixed caseload assumes the following:
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1. 96 HCBS or Acute visits (48 members) = 120 NF visits (120 members) = 96 VD or
Hospice visits (16 members)
2. The equivalency of the factors used in the mixed caseload formula are:
HCBS or Acute: 96 / 48 = 2
NF: 96 / 120 = .8
VD or Hospice: 96 / 16 = 6
In order to calculate a mixed case load the following formula is used:
(# of HCBS and Acute clients x 2) + (# of NF clients x .8) + (# of VD and
Hospice clients x 6) = 96 or less
As an example of the formula above:
(30 HCBS x 2) + (22 NF x .8) + (3 VD x 6) = 95.6
60 + 17.6 + 18 = 95.6
Case management ratios will be reviewed annually to determine if adjustment is
warranted.
"Case manager" means a person who is either a degreed social worker, licensed
registered nurse, or one with a minimum of two years experience in providing
case management services to EPD or DD persons. Case managers shall not provide
direct care services to members and shall not spend more than 15 % of their time
on Title XIX activities other than case management. Staffing must be sufficient
to cover case manager absenteeism, turnover and out-of-county members.
The case manager shall make initial contact with the member within five days of
enrollment, initial on-site contact with the member within 10 days of
enrollment, and ensure initiation of necessary services and placement within an
appropriate setting within 30 days of enrollment. The case manager shall also
conduct periodic placement and service reviews every 30 days for ventilator
dependent members (on-site), every 30 days for Adult Care Home, and every 90
days for HCBS (on-site) or acute care only members (telephone or on-site), and
180 days for members in an institutional setting (on-site). The case manager
shall be responsible for determining placement based on member acuity with input
from the member (or member's representative), the Primary Care Provider, the
Program Contractor's Medical Director and/or the PAS. The case manager shall
also develop and maintain the member's placement history, a cost-effective
individualized service plan, and help resolve problems in the delivery of needed
services.
The case manager shall be responsible for the transition of and discharge
planning for members transferred to another Program Contractor or disenrolled
from the ALTCS program.
Case management of ventilator dependent members shall be performed by a team
consisting of a licensed registered nurse and a social worker. Case management
of members requiring behavioral health services shall be performed by a
behavioral health professional unless the case manager obtains an initial and
quarterly consultation with a qualified behavioral health professional.
The Program Contractor shall ensure complete, correct and timely entry of data
related to placement history, cost effectiveness studies and service plans into
the Client Assessment and Tracking System (CATS). "Timely" shall mean within 14
days of the event which gave rise to the transaction (e.g., service approval by
the case manager, placement change). Unless the Program Contractor is currently
transmitting data to CATS by tape, all data entry shall be on-line. If the
Program Contractor is not currently on-line, it must have a systems interface in
place so it
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can update the case management information no less than twice per month. The
acceptable reject rate of data is 5% for each submission. All rejects must be
corrected prior to the next submission of data to CATS.
The Program Contractor shall provide AHCCCSA a description of the internal
monitoring of its case management program and shall include the results of this
monitoring covering the previous 12 months. The Program Contractor shall include
those findings where improvement was indicated and the steps it has taken to
resolve deficiencies. Both the internal monitoring process and results will be
evaluated by AHCCCSA during on-site reviews.
AHCCCSA will generate a late placement report and send it to the Program
Contractor on a quarterly basis. This report will list members enrolled with the
Program Contractor who, according to the AHCCCSA CATS System, have not been
placed within 30 days of enrollment with the Program Contractor. The Program
Contractor will be requested to provide a written explanation of the reason the
client has not been placed. If the reason for the non-placement is deemed valid,
no action will be taken. If there is insufficient reason, or no long-term care
services were provided, the Program Contractor will be paid for acute care
services, case management services and administration only for each unplaced
member retroactive to the date of enrollment. If late placement or initiation of
service becomes a persistent problem with the Program Contractor, AHCCCSA
reserves the right to impose sanctions for non-compliance.
Even though the Program Contractor has up to 30 days to initiate services and
place a new member, AHCCCSA's performance standard is two weeks. For future
awards and contract renewals, AHCCCSA will evaluate the Program Contractor
against the two-week standard. For details on Case Management requirements, see
the AHCCCS Medical Policy Manual, Chapters 1200, 1500, 1600 and Appendix F.
10. PRE-ADMISSION SCREENING AND ANNUAL RESIDENT REVIEW (PASARR)
The Program Contractor shall ensure members have the Preadmission Screening and
Annual Resident Review (PASARR) Level I and, if needed, Level II screenings
prior to admission to a nursing facility. Level I is the identification of
members who are suspected of having mental illness or mental retardation. Level
II determines whether nursing facility or specialized services are needed.
Failure to have the proper PASARR screening prior to placement of members in a
nursing facility may result in federal financial participation (FFP) being
withheld from AHCCCSA. Should withholding of FFP occur, AHCCCSA will recoup the
withheld amount from the Program Contractor's next capitation payment. The
Program Contractor may, at its option, recoup the withholding from the nursing
facility which admitted the member without the proper PASARR.
11. QUALITY MANAGEMENT/ UTILIZATION MANAGEMENT
The Program Contractor shall maintain an AHCCCSA-approved internal quality
management/ utilization management system and plan in accordance with ALTCS
Rules, the AHCCCS Medical Policy Manual and federal regulations found at 42 CFR
434.34 and Part 456; this RFP document does not contain all the QM/UM
requirements. The Program Contractor shall respond to quality of care issues in
accordance with the time limits specified in AHCCCSA correspondence concerning
the individual issues.
The Program Contractor shall ensure all EPSDT eligible children receive services
in accordance with the AHCCCS Medical Policy Manual, Chapter 400, including the
required EPSDT screens.
The Program Contractor shall participate in any annual study requested by
AHCCCSA and shall cooperate in the collection of quality indicator data as
needed, including chart reviews. AHCCCSA reserves the right to add required
clinical indicators and set standards for compliance. The current ALTCS quality
indicators are:
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Influenza immunization among nursing facilities
Sacral/ Coccygeal pressure ulcers
Psychotherapeutic agents
Hospitalization and emergency room utilization
Activities of daily living
Fractures related to falls
The Program Contractor shall monitor activities related to the performance of
the provider network. These activities shall include, but not be limited to,
provider profiling in the areas of emergency room, hospital and pharmacy
utilization. The Program Contractor shall share provider profiling and
utilization information on a regular basis with individual providers. The
Program Contractor shall comply with all other medical audit provisions as
required by AHCCCS Rule R9-28-513.
12. QUALITY MANAGEMENT/ UTILIZATION MANAGEMENT REPORTS
The Program Contractor shall submit the following periodic reports:
REPORT: DUE DATE:
QM/ UM Plan 45 days after contract effective date
QM/ UM Plan Evaluation November 15, each year
Quarterly Inpatient Showing Reports 15 days after the end of each quarter
Submission of Plan of Correction 30 days after receipt of notice to
correct
AIDS/ HIV Notification Telephone as each case is identified or
report all cases 30 days after the end
of each quarter
EPSDT Progress Report First day of each quarter
Maternity Care Plan November 1, each year
EPSDT Participation Plan November 1, each year
Pregnancy Termination Report End of the month following pregnancy
termination
Behavioral Health Utilization Report 30 days after the end of each quarter
Provider Affiliation Tape 30 days after the end of each quarter
13. DENIALS OF SERVICES REQUIRING PRIOR AUTHORIZATION
When a service requiring prior authorization is denied, the Program Contractor
shall ensure the member is notified of the reasons for the denial. This
notification must be given to the member verbally or mailed to the member within
three working days from the date the decision to deny is made. Chapter 300 of
the AHCCCS Medical Policy Manual contains further detail on notification
requirements. AHCCCSA reserves the right to change the notification requirements
at any time during the term of this contract.
14. MEMBER HANDBOOK AND MEMBER COMMUNICATIONS
All member informational materials (e.g. member handbooks, newsletters,
brochures) prepared by the Program Contractor shall be approved by AHCCCSA prior
to distribution to members. Information shall be provided in English and a
second language when 200 members or 5% of the Program Contractor's enrolled
population, whichever is greater, speak the same non-English language. The
Program Contractor is solely responsible for determining the necessity of this
second-language requirement. All written communications shall be written at the
fourth grade level. Suggested reference material to determine whether this
requirement is being met are:
Fry Readability Index
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PROSE, the Readability Analyst (Software developed by Education
Activities, Inc.)
Gunning FOG Index
McLaughlin SMOG Index.
When there are program or service changes, the Program Contractor will provide
notification to the affected members at least 14 days before the change goes
into effect.
The Program Contractor shall produce and provide a Member Handbook to each
member within 10 days of enrollment. The Member Handbook shall be prepared in
accordance with AHCCCSA rules for printed information and shall explain, at a
minimum, the following:
a. A table of contents
b. Covered and non-covered services
c. Operations of the Program Contractor
d. How to contact Member Services and a description of its function
e. How to contact the case manager
f. How to select and change PCPs
g. Appointment procedures
h. What to do in case of an emergency including names, addresses and
telephone numbers for members to call for instructions. In a
life-threatening situation, the member handbook should instruct members to
use the emergency medical services (EMS) available and/or activate EMS by
dialing 9-1-1.
i. Out-of-county and out-of-state moves
j. Grievance process and procedures
k. Advance directives
l. Contributions the member can make towards his or her own health
m. How to obtain emergency transportation and medically necessary
transportation.
n. EPSDT services
o. Maternity and family planning services
p. Behavioral health services
q. Coordination with Medicare and other potentially liable third parties
r. For members with Medicare coverage: indicate Medicare additional covered
services, services not generally covered by Medicare, reference to the
Medicare handbook "Other Things You Should Know About Medicare" which
describes dual coverage (Medicare/Medicaid, QMB's, etc.)
s. Member's share of cost
Regardless of the format chosen by the Program Contractor, the member handbook
must be written in a type-style and size that can be easily read by members of
varying degrees of visual impairment. At a minimum, the member handbook shall
also contain the following questions and answers, along with the two paragraphs
that follow. These items are required by HCFA:
Q. What if I have questions, problems, or complaints about [Program
Contractor ]?
A. If you have a question or problem, please call ___________. If you
have a specific complaint about your medical care, the Case Manager
will help you.
Q. What if I am not happy with the help given to me by the Case
Manager?
A. If you do not agree with the answer you receive, you may tell the
Case Manager you want to file a written or oral grievance. The
grievance must be filed no later than 35 days after the date of the
action, decision, or incident.
[Program Contractor name] will make a final decision within 45 days of
getting your written grievance. A letter will be mailed to you stating our
decision and the reason for the decision. The
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letter will tell you how you can appeal the decision if you are still
unsatisfied. You must let us know you want to appeal within 15 days of
being notified of our decision.
If you decide to appeal, we will send your request for appeal to AHCCCS.
You will receive information from AHCCCS on how your appeal will be
handled. AHCCCS will then decide if our decision was correct under the
circumstances.
15. ENROLLMENT AND DISENROLLMENT
AHCCCSA is responsible for enrolling and disenrolling ALTCS members and for
providing notification of same to the Program Contractor. The effective date of
enrollments and disenrollments with the Program Contractor is two days after the
date the Program Contractor receives notification. Exceptions to the
disenrollment policy are discussed in ALTCS Eligibility Policy and Procedures
Manual, Chapter 1600.
16. REQUEST FOR CHANGE IN ENROLLMENT
If a member moves out of the current Program Contractor's service area, the
current Program Contractor may request a program contractor change by submitting
a Program Contractor Change Request Form (DE-621) to the program contractor
responsible for the member's new county of residence and request that the new
program contractor agree to accept the member. If the new program contractor
agrees to accept the member, the DE-621 will be sent to AHCCCSA for processing.
If the new program contractor does not agree to accept the ALTCS member, the
current program contractor may request AHCCCSA to review the request. AHCCCSA
will make the final decision. The Program Contractor shall comply with all
timelines as required in AHCCCS policy. For more detailed information, refer to
the ALTCS Eligibility Policy and Procedures Manual, chapter 1600.
17. REPORTING CHANGES IN MEMBERS' CIRCUMSTANCES
The ALTCS Member Change Report Form (7240T) provides the Program Contractor with
a method for notifying the ALTCS eligibility offices and AHCCCSA of changes or
corrections to the member's circumstances. This includes but is not limited to
changes in residence, living arrangements, third party payers, share of cost,
income or resources; a medical condition which could affect eligibility, or the
member's death. See the ALTCS Eligibility Policy and Procedures Manual, chapter
1600.
18. OUT-OF-STATE PLACEMENT AND MEDICAL SERVICES
The Program Contractor shall obtain prior written approval from AHCCCSA before
placing a member in an institutional setting outside the state and notify
AHCCCSA once placement has been completed. ALTCS members who are temporarily
absent from Arizona are eligible for acute emergency services only. The Program
Contractor shall report temporary absences from the state to the ALTCS
eligibility office for a determination of continued eligibility.
19. ADVANCE DIRECTIVES
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The Program Contractor shall specify in its contracts or agreements with each
hospital, nursing facility, home health agency and hospice program that each
provider comply with federal and state law on advance directives for adult
members. At a minimum, the identified providers shall:
a. Maintain written policies and provide written information for adult
members regarding their ability to make decisions about medical care,
including the right to accept or refuse medical care and the right to
execute an advance directive
b. Document whether or not the adult member has executed an advance directive
c. Not condition the provision of care or discriminate against a member
because of the member's decision to execute or not execute an advance
directive
d. Provide education for staff on issues concerning advance directives
20. STAFF REQUIREMENTS AND SUPPORT SERVICES
The Program Contractor shall have in place the organizational, management and
administrative systems capable of fulfilling all contract requirements. At a
minimum, the following staff are required:
a. A full-time ADMINISTRATOR to oversee the entire operation of the Program
Contractor
b. A MEDICAL DIRECTOR who is an Arizona-licensed physician. The Medical
Director shall be actively involved in all major clinical program
components of the Program Contractor. The Medical Director shall devote
sufficient time to the Program Contractor's operations to ensure timely
medical decisions, including after-hours consultation as needed
c. A full-time FINANCIAL OFFICER to oversee the budget and accounting systems
implemented by the Program Contractor
d. A QUALITY MANAGEMENT/ UTILIZATION MANAGEMENT COORDINATOR who is an
Arizona-licensed registered nurse, physician or physician's assistant
e. A BEHAVIORAL HEALTH COORDINATOR who has a combination of a minimum of a
bachelors degree in a behavioral health related field as well as a minimum
of two years training and experience in actual behavioral health services
delivery
f. PRIOR AUTHORIZATION STAFF to authorize medical care 24 hours per day, 7
days per week. This staff shall be directly supervised by an
Arizona-licensed registered nurse, physician or physician's assistant
g. CONCURRENT REVIEW STAFF to conduct inpatient concurrent review. This staff
shall consist of an Arizona-licensed registered nurse, physician,
physician's assistant or an Arizona-licensed practical nurse experienced
in concurrent review and under the direct supervision of a registered
nurse, physician or physician's assistant.
h. CASE MANAGEMENT COORDINATOR (OR MANAGER) or CASE MANAGERS to coordinate
the provision of services to members in HCBS and institutional settings
i. PROVIDER SERVICE STAFF to coordinate communications between the Program
Contractor and its subcontractors. There shall be sufficient Provider
Services staff to enable providers to receive prompt resolution to their
problems or inquiries.
j. CLAIMS ADMINISTRATOR and CLAIMS PROCESSORS to ensure the timely and
accurate processing of original claims, claims correction letters,
resubmissions and overall adjudication of claims
k. ENCOUNTER PROCESSORS to ensure the timely and accurate processing and
submission to AHCCCSA of encounter data and reports
l. A GRIEVANCE COORDINATOR who will manage and adjudicate member and provider
grievances
m. CLERICAL AND SUPPORT STAFF as necessary to ensure proper functioning of
the Program Contractor's operation.
The Program Contractor shall inform AHCCCSA, Office of Managed Care, in writing
within seven days of learning of an intended resignation in any of the following
key positions. In addition, AHCCCSA may require the Program Contractor to
provide a written plan for filling the vacant position, including expected
timelines.
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- Administrator
- Medical Director
- Financial Officer
- Quality Management Coordinator
- Case Management Coordinator
- Claims Administrator
- Behavioral Health Coordinator
- Grievance Coordinator
The Program Contractor shall ensure that all staff have appropriate training,
education and experience to fulfill the requirements of the position.
21. MEDICAL DIRECTOR
The Program Contractor shall have on staff a Medical Director who is currently
licensed in Arizona as a Medical Doctor or Doctor of Osteopathic Medicine. The
Medical Director shall be responsible for:
a. The development, implementation and medical interpretation of medical
policies and procedures to guide and support the provision of medical care
to members. This includes, among others, policies pertaining to prior
authorization, concurrent review, claims review, discharge planning,
credentialling and referral management.
b. Oversight of provider recruitment activities
c. Reviewing all providers' applications and submit recommendations to those
with contracting authority regarding credentialling and reappointment of
all physicians prior to the physician's contracting (or renewal of
contract) with the Program Contractor
d. Oversight of provider profiling, including utilization management
activities. Administration of all medical activities of the Program
Contractor
f. Continuous assessment and improvement of the quality of care provided to
members (e.g. quality of care issues, quality indicators, annual medical
study)
g. The development and implementation of the quality management plan and
serving as Chairperson of Quality Management Committee
h. Oversight of provider education, inservice training and orientation
i. Assuring that adequate staff and resources are available for the provision
of proper medical care to members
j. Attending quarterly ALTCS Medical Director meetings.
During periods when the Medical Director is not available, the Program
Contractor shall have adequate back-up physician staff to provide competent
medical direction.
22. WRITTEN POLICIES, PROCEDURES AND JOB DESCRIPTIONS
The Program Contractor shall develop and maintain written policies, procedures
and job descriptions for each functional area of its health plan, consistent in
format and style. The Program Contractor shall maintain written guidelines for
developing, reviewing and approving all policies, procedures and job
descriptions, as appropriate, in order to ensure all contract requirements are
being met.
All policies and procedures shall be reviewed at least annually to ensure that
the Program Contractor's current practices reflect written policies. Review
dates shall be documented on the policy. Reviewed policies shall be dated and
signed by the Program Contractor's appropriate manager, coordinator, director or
administrator. All medical and quality management policies must be approved and
signed by the Contractor's Medical Director.
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Job descriptions shall be reviewed at least annually to ensure that current
duties performed by the employee reflect written requirements. Review dates
shall be documented on the job descriptions.
23. PROVIDER MANUAL
The Program Contractor shall develop, distribute and maintain a provider manual.
The Program Contractor shall document the approval of the provider manual by its
Administrator and Medical Director and shall maintain documentation which
verifies that the provider manual is reviewed at least annually. The Program
Contractor shall ensure that each provider (individual or group that submits
claim and encounter data) is issued a copy of the provider manual. At a minimum,
the provider manual must contain information on the following:
a. A table of contents
b. Introduction to the Program Contractor which explains its organization and
administrative structure
c. Provider responsibilities and the Program Contractor's expectation of the
provider such as gatekeeping activities, etc.
d. Overview of the Program Contractor's Provider Services department and
function
e. Listing and description of covered and non-covered services, requirements
and limitations
f. Emergency room utilization (appropriate and non-appropriate use of the
emergency room)
g. Behavioral health services
h. The Program Contractor's policy regarding PCP assignments
i. Referrals to specialists and other providers
j. Grievance process and procedures
k. Billing and encounter submission information
- indicate which form, UB92, HCFA 1500, or Form C is to be used for
services
- indicate which fields are required for a claim to be considered
acceptable by the Program Contractor. A completed sample of each
form shall be included
l. Program Contractor's written policies and procedures which affect the
provider(s) and/or the provider network
m. Claims re-submission policy and procedure
n. Reimbursement rate
o. Explanation of remittance advice
p. Prior authorization procedures
q. Claims medical review
24. NETWORK DEVELOPMENT
The Program Contractor shall develop and maintain a provider network that is
sufficient to provide all covered services to ALTCS members. It shall ensure
covered services are provided promptly and are reasonably accessible in terms of
location and hours of operation. There shall be sufficient professional and
paramedical personnel for the provision of all covered services, including
emergency medical care on a 24-hour-a-day, 7-day-a-week basis. The proposed
network shall be sufficient to provide covered services within designated time
and distance limits.
If a service or setting is not available or is inadequate, the Offeror must
submit with its proposal an action plan for the creation, recruitment or other
activities designed to establish the service or setting.
The Program Contractor shall develop and submit with the proposal its plan for
the further development and expansion of Home and Community Based Services. This
plan must address all HCBS services and settings as described in Section D,
Paragraph 1, Covered Services and must be updated annually and submitted to
AHCCCSA, Office of Managed Care no later than Oct. 31 each year.
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25. NETWORK MANAGEMENT
The Program Contractor shall have policies and procedures in place that pertain
to all service specifications described in the AHCCCS Medical Policy Manual,
Chapter 1200. These include, but are not limited to, policies on how the Program
Contractor will:
a. Communicate with the network regarding contractual and/or program changes
and requirements
b. Monitor and control network compliance with policies and rules of AHCCCSA
and the Program Contractor
c. Evaluate the quality of services delivered by the network
d. Provide or arrange for medically necessary covered services should the
network become temporarily insufficient within the contracted service area
e. Monitor network capacity to ensure that there are sufficient providers to
handle the volume of members
f. Provide respite care
g. Ensure service accessibility, including monitoring appointment procedures
standards, appointment waiting times, and service provision standards
h. Recruit, select, credential, re-credential and contract with providers in
a manner that incorporates quality management, utilization, office audits
and provider profiling
i. Manage or share risk with providers
j. Provide training for its providers and maintain records of such training
k. Provide eligibility information and prior authorization 24 hours per day,
7 days per week.
The Program Contractor shall comply with the provider network and staffing
requirements described in the AHCCCS Medical Policy Manual, Chapter 600.
The Program Contractor shall comply with medical policy and standards related to
care coordination described in the AHCCCS Medical Policy Manual, Chapter 500.
The Program Contractor shall submit monthly to AHCCCSA, Office of Managed Care,
a report noting additions and deletions to the provider network.
26. PROVIDER REGISTRATION
The Program Contractor shall ensure that all its subcontractors have registered
with AHCCCSA as approved service providers and have received AHCCCS Provider ID
Numbers. A Provider Participation Agreement must be signed with each provider
who does not also participate as an AHCCCS FFS provider and retained in
Contractor's files. The provider registration process must be completed in order
for the Program Contractor to report services a subcontractor renders to
enrolled members and for Contractor to be paid reinsurance.
27. NETWORK DEFICIENCIES
The Program Contractor shall develop and maintain throughout the term of this
contract a provider network sufficient to provide all ALTCS covered services and
approved settings to members. In the event any network deficiency should occur,
i.e. a covered service or setting becomes unavailable, the Program Contractor
shall take immediate action to correct it. If the Program Contractor is unable
to contract with a provider to remedy the deficiency within 30 days from the
date the covered service or setting becomes unavailable, it shall promptly
notify the ALTCS Manager, Office of Managed Care, of the circumstances making it
unable to correct the network deficiency. Refer to Attachment B, Service Area
Minimum Network Standards.
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28. APPOINTMENT STANDARDS
The Program Contractor shall have procedures in place that ensure:
a. Emergency appointments the same day or within 24 hours of the member's
phone call or other notification, or as medically appropriate
b. Urgent care appointments within two days
c. Routine care appointments within 21 days
d. Routine dental appointments within 30 days
For SPECIALTY REFERRALS, the Program Contractor shall be able to provide:
a. Emergency appointments within 24 hours of referral
b. Urgent care appointments within 3 days of referral
c. Routine care appointments within 30 days of referral
For BEHAVIORAL HEALTH SERVICES, the Program Contractor shall be able to provide
appointments as follows:
a. Emergency appointments within 24 hours of request
b. Non-emergency appointments within 7 days of request
If the Program Contractor needs to provide medically-necessary transportation to
a member, the Program Contractor shall require its transportation provider to
schedule the transportation so that the member arrives no sooner than one hour
before the appointment and does not have to wait more than one hour after making
the call to be picked up after the appointment.
29. FRAUD AND ABUSE
The Program Contractor is responsible for reporting all cases of suspected fraud
and abuse or inappropriate practices by subcontractors, members or employees.
The Program Contractor shall provide written notification of such incidents to
AHCCCSA, Internal Audit and Program Investigation Unit. The Program Contractor
shall develop programs to detect and prevent fraud and abuse and shall cooperate
with AHCCCSA as requested to investigate fraud and abuse cases. For a full
description of the Program Contractor's responsibilities, see the AHCCCS Health
Plans and Program Contractors - Policy for Prevention, Detection and Reporting
of Fraud and Abuse which is available in the Bidders' Library and incorporated
herein by reference.
The AHCCCS policy on fraud and abuse is currently under review and will likely
be revised to include more specific requirements regarding the prevention and
detection of fraud and abuse. Upon contract award the Program Contractor shall
participate in a fraud and abuse workgroup which will consist of representatives
from acute care health plans, program contractors, AHCCCSA, the Attorney
General's office, and the Health Care Financing Administration. The purpose of
the workgroup is to explore ways to minimize the occurrence of fraud and abuse
within the AHCCCS system and to recommend updates and revisions to the policy.
The population served in the long-term care program is very vulnerable,
particularly in the area of abuse. The Program Contractor shall develop specific
controls to prevent and detect member abuse.
30. ON-SITE REVIEWS
In accordance with AHCCCS Rule R9-28-513, AHCCCSA will conduct operational
reviews at least once every three years for the purpose of, but not limited to,
ensuring program compliance. The type and duration of the
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review will be solely at the discretion of AHCCCSA. The reviews will identify
areas where improvements can be made and make recommendations accordingly,
monitor the Program Contractor's progress towards implementing mandated programs
and provide the Program Contractor with technical assistance if necessary.
Except in cases where advance notice is not possible or advance notice may
render the review less useful, AHCCCSA will give the Program Contractor at least
two weeks advance notice of the date of the on-site review. AHCCCSA may conduct
a review in the event the Program Contractor undergoes a merger, reorganization,
changes ownership or makes changes in three or more key staff positions within a
12-month period.
In preparation for the reviews, the Program Contractor shall cooperate fully
with AHCCCSA and the AHCCCSA Review Team by forwarding in advance such policies,
procedures, job descriptions, contracts, records, logs and other material that
AHCCCSA may request. Any documents not requested in advance by AHCCCSA shall be
made available upon request of the Review Team during the course of the review.
Program Contractor personnel as identified in advance shall be available to the
Review Team at all times during AHCCCSA on-site review activities. While
on-site, the Program Contractor shall provide the Review Team with work space,
access to a telephone, electrical outlets and privacy for conferences.
Certain documentation submission requirements may be waived at the discretion of
AHCCCSA if the Program Contractor obtains NCQA accreditation. The Program
Contractor must submit the entire NCQA report to AHCCCSA for such waiver
consideration.
The operations review is conducted by an AHCCCS review team comprised of staff
from the Office of Managed Care, the Office of the Medical Director and
Grievance and Appeals. The team will evaluate the Program Contractor's
performance and compliance with AHCCCS policies, rules and the terms of this
contract. The review will look at all aspects of operations including, but not
limited to:
Case management Quality management
Utilization management Medical direction
Grievance process Claims processing
Encounter reporting Provider and member services
Network management Executive and financial management
Performance will be evaluated by reviewing case files, quality and utilization
management plans, meeting minutes, policies, manuals, reports, handbooks and
other relevant material. The Program Contractor will be furnished a draft copy
of the Review Report and given an opportunity to comment on any review findings
prior to AHCCCSA finalizing the report. Where there are outstanding
deficiencies, the Program Contractor may be required to submit a corrective
action plan without the opportunity to comment on the draft report.
Recommendations made by the Review Team to bring the Program Contractor into
compliance with federal, state, AHCCCS, and/or RFP requirements, must be
implemented by the Program Contractor. AHCCCSA may conduct a follow-up review or
require a corrective action plan to determine the Program Contractor's progress
in implementing recommendations and achieving program compliance. Follow-up
reviews may be conducted at any time after the initial review.
The Program Contractor shall submit a corrective action plan to improve areas of
non-compliance identified in the review. Once the corrective action plan is
approved by AHCCCSA, it shall be implemented by the Program Contractor.
Modifications to the corrective action plan must be agreed to by both parties.
Review findings may be used in the scoring of subsequent bid proposals submitted
by that Program Contractor.
31. OPERATIONAL AND FINANCIAL READINESS REVIEWS
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AHCCCSA may conduct Operational and Financial Readiness Reviews on any or all
offerors, either before award as part of the proposal evaluation, or after award
to assess the new Program Contractor's readiness to provide contract services. A
new Program Contractor will be permitted to commence operations only if the
Readiness Review factors are met to AHCCCSA's satisfaction.
32. PATIENT TRUST ACCOUNT MONITORING
The Program Contractor shall monitor trust fund accounts for institutionalized
members to ensure that expenditures from a member's trust fund comply with
federal and state regulations. Suspected incidents of fraud involving the
management of these accounts must be reported in accordance with Section D,
Paragraph 29, Fraud and Abuse.
33. FINANCIAL MANAGEMENT
Both AHCCCSA and HCFA require specific financial management and reporting
standards to protect the financial integrity of spending under the ALTCS
program. In addition, financial information must be available for the Program
Contractor to manage the program, to assess its own financial risk and to
determine if members are receiving necessary services. At a minimum, the Program
Contractor's system shall:
a. Gather and report data on critical financial indicators (e.g., Incurred
But Not Reported Claims)
b. Establish and maintain a financial information base to support current
operations
c. Provide information regarding financial status, including all reporting
mandated by law and accounting of HCBS expenditures, to internal
management and AHCCCSA on a regular basis
d. Make records available for independent audit
e. Ensure that subcontractors are reimbursed promptly and correctly
f. Monitor nursing facilities and other institutional patient trust accounts
g. Monitor records in accordance with 42 CFR 483.10
In addition, the Program Contractor's financial management systems must meet
specific standards established by HCFA. These are specified in 45 CFR, Part 74,
which is incorporated herein by reference.
34. REQUIRED FINANCIAL REPORTS
The Program Contractor shall comply with all financial reporting requirements
contained in the Reporting Guide for Long-Term Care Program Contractors with the
Arizona Health Care Cost Containment System. The Guide, which may be found in
the Bidders' Library, contains a complete listing of all monthly, quarterly and
annual reporting requirements including due dates for each report.
35. PERFORMANCE BOND OR BOND SUBSTITUTE
The Program Contractor shall be required to provide a performance bond of
standard commercial scope issued by a surety company doing business in this
state, an irrevocable letter of credit, or a cash deposit to AHCCCSA for as long
as the Program Contractor has AHCCCS-related liabilities of $50,000 or more
outstanding, or 15 months following the termination date of this contract,
whichever is later, to guarantee: (1) payment of the Program Contractor's
obligations to providers, and (2) performance by the Program Contractor of its
obligations under this contract. The performance bond shall be in a form
acceptable to
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AHCCCSA and payable to the Arizona Health Care Cost Containment System
Administration, an agency of the State of Arizona. In the case of an irrevocable
letter of credit the letter shall be issued by:
a. A bank doing business in this state and insured by the Federal Deposit
Insurance Corporation, or
b. A savings and loan association doing business in this state and insured by
the Federal Savings and Loan Insurance Corporation, or
c. A credit union doing business in this state and insured by the National
Credit Union Administration.
In the event of a default by the Program Contractor, AHCCCSA shall, in addition
to any other remedies it may have under this contract, obtain payment under the
performance bond or substitute security for the purposes of the following:
a. Paying any damages sustained by providers, contracted or otherwise,
because of a breach of the Program Contractor's obligations under this
contract,
b. Reimbursing AHCCCSA for any payments made by AHCCCSA on behalf of the
Program Contractor, and
c. Reimbursing AHCCCSA for any extraordinary administrative expenses incurred
by reason of a breach of the Program Contractor's obligations under this
contract, including, but not limited to, expenses incurred after
termination of this contract for reasons other than the convenience of the
state by AHCCCSA.
In the event AHCCCSA agrees to accept substitute security in lieu of the
performance bond, irrevocable letter of credit or cash deposit, the Program
Contractor agrees to execute any and all documents and perform any and all acts
necessary to secure and enforce AHCCCSA's security interest in such substitute
security including, but not limited to, security agreements and necessary UCC
filings pursuant to the Arizona Uniform Commercial Code. In the event such
substitute security is agreed to and accepted by AHCCCSA, the Program Contractor
acknowledges that it has granted AHCCCSA a security interest in such substitute
security to secure performance of its obligations under this contract. The
Program Contractor is solely responsible for establishing the credit-worthiness
of all forms of substitute security. AHCCCSA may, after written notice to the
Program Contractor, withdraw its permission for substitute security, in which
case the Program Contractor shall provide AHCCCSA with a form of security
described above.
36. AMOUNT OF PERFORMANCE BOND
The initial amount of the performance bond shall be equal to 110% of the total
capitation payment expected to be paid in the month of November or as determined
by AHCCCSA. This requirement must be satisfied by the Program Contractor no
later than 15 days after notification by AHCCCSA of the amount required.
Thereafter, AHCCCSA shall evaluate the enrollment statistics of the Program
Contractor on a monthly basis. If there is an increase in capitation payment
that exceeds 10% of the initial performance bond amount, AHCCCSA may require an
increase in the amount of the performance bond. The Program Contractor shall
have 15 days following notification by AHCCCSA to increase the amount of the
performance bond. The performance bond amount that must be maintained after the
contract term shall be the lesser of (a) the bond amount on the last day of the
contract; or (b) the total amount of AHCCCS-related liabilities outstanding.
37. FINANCIAL VIABILITY CRITERIA AND PERFORMANCE MEASURES
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AHCCCSA has established the following financial viability criteria and
performance measures that the Program Contractor shall adhere to. These
standards are subject to change as AHCCCSA deems appropriate:
a. CURRENT RATIO Standard: At least 1.00
(Current assets divided by current
liabilities)
b. EQUITY PER MEMBER Standard: At least $2,000
(Equity, less on-balance sheet
performance bond, divided by the number
of members at the end of the period.)
c. GROSS MEDICAL EXPENSES PERCENTAGE Standard: No more than 90%
(Gross medical expenses divided by
total revenue)
d. TOTAL ADMINISTRATIVE COST PERCENTAGE Standard: No more than 8%
(Total administrative expenses,
excluding income taxes, divided by
total revenue.)
e. RECEIVED BUT UNPAID CLAIMS DAYS OUTSTANDING Standard: No more than 30 days
(Received but unpaid claims divided by
the average daily medical expenses for
the period, net of sub-capitation
expense)
f. TOTAL MEDICAL CLAIMS DAYS OUTSTANDING Standard: No more than 90 days
(Total medical claims liability divided
by the average daily medical expenses
for the period, net of sub-capitation
expense)
38. ADVANCES, DISTRIBUTIONS AND LOANS
The Program Contractor shall not, without the prior written approval of AHCCCSA,
make any advances to a related party, or any distribution, loan or loan
guarantee to any entity, including another fund or line of business within its
organization. Requests for prior approval shall be submitted to the Office of
Managed Care.
39. ACCUMULATED FUND DEFICIT
The Program Contractor and its owners shall fund any accumulated fund deficit
through capital contributions in a form acceptable to AHCCCSA within 60 days
after receipt by AHCCCSA of the final audited financial statement. The amount of
any accumulated fund deficit will be determined in accordance with the Program
Contractor's annual audited financial statements.
40. HCBS ASSUMED MIX AND RECOUPMENT
The Program Contractor's capitation rate is based in part on the assumed ratio
("mix") of HCBS member months to the total number of member months (i.e. HCBS +
institutional). At the end of the contract year, AHCCCSA will compare the actual
HCBS member months to the assumed HCBS percentage that was used to calculate the
capitation rate for that year. If the Program Contractor's actual HCBS
percentage is greater than the assumed percentage, AHCCCSA will recoup (or
reimburse) the difference between the institutional capitation rate and the HCBS
capitation rate for the number of member months which exceeded (or was less
than) the assumed percentage. This reconciliation will be made in accordance
with the following schedule:
Percent in excess of assumed percentage: Amount to be recouped:
0 - .5 percentage points 0% of capitation overpayment
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.51 - 1.99 percentage points 20% of capitation overpayment
2 or more percentage points 30% of capitation overpayment
If the Program Contractor's actual HCBS percentage is less than the assumed
percentage, AHCCCSA will reimburse a portion of the difference between the
institutional rate and the HCBS capitation rate for the number of member months
lower than the assumed percentage. This reimbursement will be made in accordance
with the following schedule:
Percent lower than assumed percentage: Amount to be reimbursed:
0 - .5 percentage points 0% of capitation underpayment
.51 - 1.99 percentage points 20% of capitation underpayment
2 or more percentage points 30% of capitation underpayment
The Program Contractor shall not exceed the statewide cap established by HCFA
and shall not implement an HCBS waiting list without prior written approval from
AHCCCSA.
41. HOSPITAL REIMBURSEMENT
The Program Contractor shall reimburse hospitals for member care based on one of
the following rate methods:
a. AHCCCS Fee for Service Hospital Reimbursement Rate
Inpatient: AHCCCS hospital-specific tiered per diem rates
Outpatient: AHCCCS hospital-specific cost-to-charge ratio
multiplied by allowed charges,
OR:
b. Subcontracted rate (The aggregate of subcontracted rates must not exceed
what would have been paid had the AHCCCS Fee for Service Hospital
Reimbursement rate been used.)
Within seven days of subcontracting with a hospital, the Program Contractor
shall submit a copy of the subcontract, including all rates, terms and
conditions, to AHCCCSA, Office of Managed Care. This submittal shall include
documentation that the negotiated rate will, when considered in the aggregate,
be the same or less than what would have been paid under Paragraph a above. To
aid in making this determination, the Program Contractor shall require their
independent auditor to evaluate the reasonableness of their assumptions as part
of the annual audit.
The Program Contractor shall reimburse out of state hospitals at the lowest of
the following rates for inpatient and outpatient services:
a. Negotiated discounted rate, or
b. Arizona average cost-to-charge ratio multiplied by allowed charges, or
c. Medicaid rate in effect in the state in which the hospital is located at
the time services are provided.
The Program Contractor may conduct prepayment and postpayment medical reviews of
all hospital claims. Inpatient tiered per diem rates and outpatient
cost-to-charge ratios will be adjusted in accordance with ARS 36-2903.01 (J).
For a more complete description of the guidelines for hospital reimbursement,
refer to applicable statutes and rules, copies of which may be found in the
Bidders' Library.
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42. VENTILATOR DEPENDENT REIMBURSEMENT RATES
The Program Contractor will be paid on a capitated basis for
ventilator-dependent (VD) members. Two different capitation rates will be paid,
one for members who are placed in Home and Community Based Services, the other
for members who are placed in approved ALTCS institutional settings. These rates
are set by AHCCCSA and are included on the capitation bid disk. In addition,
each ventilator-dependent member shall have an annual evaluation by a
pulmonologist to assess the prospects of weaning the member from dependency on
the ventilator. A copy of this evaluation shall be promptly forwarded to
AHCCCSA's ventilator-dependent coordinator.
AHCCCSA will make capitation payments to the Program Contractor monthly in
advance of the performance of services. The capitation rate paid each month will
be the capitation rate for ventilator dependent members placed in Home and
Community Based Services. On a quarterly basis, AHCCCSA will reimburse the
Program Contractor the difference in capitation rates for those ventilator
dependent members who were placed in institutions. For example:
HCBS VD capitation rate: $ 5,000
Institutional VD capitation rate: $ 12,000
Institutional VD member months for quarter: 35
Additional capitation due Program Contractor:
35 x ($12,000 - $5,000) = $245,000
43. REINSURANCE
Reinsurance is a stop-loss program provided by AHCCCSA to the Program Contractor
for the partial reimbursement of covered inpatient facility medical services
incurred for a member beyond an annual deductible. AHCCCSA is self-insured for
the reinsurance program which has an initial deductible level and a subsequent
coinsurance percentage. For dates of service after 10/1/96 (under regular
reinsurance), the Program Contractor will be reimbursed at 75% of allowable
charges over the following deductibles:
Urban county, with Medicare Part A $12,000
Urban county, without Medicare $20,000
Rural county, with Medicare Part A $ 5,000
Rural county, without Medicare $ 9,000
Behavioral Health/Traumatic Brain Injury [To be determined]
Regular reinsurance covers acute inpatient hospitalizations (i.e. anything
billed on a UB92). Effective 10/1/96, members considered by the AHCCCS Office of
the Medical Director (OMD) to be high-cost behavioral health or Traumatic Brain
Injured will be covered under regular reinsurance. Services for these members
must be approved in advance by OMD for the Program Contractor to qualify for
reinsurance reimbursement. Services to members identified as being
catastrophically eligible in accordance with OMD policies will be covered under
a special catastrophic program instead of the regular reinsurance program.
Catastrophic reinsurance coverage for transplants is limited to 85% of the
AHCCCS contract amount for the transplant services rendered, or 85% of the
Contractor-paid amount, whichever is lower. Catastrophic reinsurance for
hemophiliacs is covered at 85% of the Contractor-paid amount. The AHCCCS
contracted transplantation rates are available in the Bidders' Library.
AHCCCSA uses inpatient encounter data to determine regular reinsurance benefits.
Reimbursement for regular reinsurance benefits will be made to the Program
Contractor monthly. AHCCCSA will also provide for a
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reconciliation of reinsurance payments in the case where encounters used in the
calculation of reinsurance benefits are subsequently adjusted or voided.
Encounter data will not be used to determine catastrophic reinsurance benefits.
However, this does not relieve the Program Contractor of the responsibility for
submitting encounters for catastrophic reinsurance services. The Program
Contractor must submit catastrophic reinsurance claims in accordance with the
AHCCCS Reinsurance Policy/Procedure Manual. All catastrophic reinsurance claims
shall be subject to medical review by AHCCCSA or its designee.
Medical review on regular reinsurance cases will be determined based on
statistically valid random sampling. The AHCCCS Office of the Medical Director
will generate the sampling and will notify the Program Contractor of
documentation needed for the retrospective medical review process to occur at
the Program Contractor's offices. The results of the medical review sampling
will be extrapolated to the Program Contractor's entire regular reinsurance
reimbursement population. A partial recoupment of reinsurance reimbursements
made to the Program Contractor may occur based on the results of the medical
review sampling.
44. COORDINATION OF BENEFITS/THIRD PARTY LIABILITY
COST AVOIDANCE - The Program Contractor shall cost-avoid all claims or services
that are subject to third-party payment and may deny a service to a member if it
knows that a third party (i.e. other insurer) will provide the service. However,
if the third-party insurer requires the member to pay any co-payments or
deductibles, the Program Contractor is responsible for making these payments,
even if the services are provided outside of the Program Contractor's network.
(The Program Contractor must decide whether it is more cost-effective to provide
the service within its network or pay coinsurance and deductibles for a service
outside its network. For continuity of care, the Program Contractor may also
choose to provide the service within its network.) If the Program Contractor
knows that the third party insurer will neither pay for nor provide the covered
service, and the service is medically necessary, the Program Contractor shall
not deny the service nor require a written denial letter. If the Program
Contractor does not know whether a particular service is covered by the third
party, and the service is medically necessary, the Program Contractor shall
contact the third party and determine whether or not such service is covered
rather than requiring the member to do so.
The requirement to cost-avoid applies to all AHCCCS covered services. For
pre-natal care and preventive pediatric services, AHCCCS may require the Program
Contractor to provide such service and then coordinate payment with the
potentially liable third party ("pay and chase"). In emergencies, the Program
Contractor shall provide the necessary services and then coordinate payment with
the third-party payer. The Program Contractor shall also provide medically
necessary transportation so the member can receive third-party benefits.
Further, if a service is medically necessary, the Program Contractor shall
ensure that its cost avoidance efforts do not prevent a member from receiving
such service.
COST RECOVERIES - If the Program Contractor was not aware of third-party
coverage at the time services were rendered or paid for, or was unable to cost
avoid, the Program Contractor shall proceed as follows:
The Program Contractor shall identify all potentially liable third parties and
pursue reimbursement from them except in the following circumstances (unless
referred to the Program Contractor by AHCCCS or AHCCCSA's authorized
representative):
<TABLE>
<S> <C>
Uninsured/underinsured motorist insurance First and third-party liability insurance
Tortfeasors Adoption recovery
Estate recovery Worker's Compensation
</TABLE>
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The Program Contractor shall, however, report any cases involving the above
circumstances to AHCCCSA's authorized representative should the Program
Contractor identify such a situation. See AHCCCS Rule R9-28-902, C and D.
The Program Contractor shall cooperate with AHCCCSA's authorized representative
in all collection efforts and is encouraged to contract with this representative
to better facilitate overall third-party collections. As part of its efforts,
the Program Contractor is responsible for performing all research and
investigation and payment of lien-filing related costs for total plan cases.
The Program Contractor may retain up to 100% of its third-party collections if
all of the following conditions exist:
1. Total collections received do not exceed the total amount of the
Program Contractor's financial liability for the member (total
expenditures minus any member share of cost).
2. There are no payments made by AHCCCS related to fee-for-service,
reinsurance or administrative costs (i.e. lien filing, etc.).
3. Such recovery is not prohibited by state or federal law
REPORTING - The Program Contractor may be required to report case level detail
of third-party collections and cost avoidance. The Program Contractor shall
notify AHCCCSA's authorized representative within five working days of the
identification of a third-party liability case with known reinsurance (often
referred to as joint liability cases). The Program Contractor shall communicate
any known change in health insurance information, including Medicare, to the
ALTCS local office not later than 10 days from the date of discovery using the
form designated in the ALTCS Eligibility Policy and Procedures Manual, Chapter
1600.
45. MEDICARE SERVICES and COST SHARING
AHCCCS has members enrolled who are eligible for both Medicare and Medicaid
services. These members are referred to as "dual eligibles" and include persons
who are Qualified Medicare Beneficiaries (QMB) and non-QMB eligible persons. QMB
eligible persons are entitled to all covered Medicaid services and, in addition,
may receive the following Medicare services which are not covered by AHCCCS or
differ in scope or limitation:
Chiropractic services
Inpatient psychiatric services
Psychological services
Inpatient and outpatient occupational coverage
Respite services
Any new services which are added to the Medicare program and which are not
covered by AHCCCS
For all dual eligible persons, the Program Contractor shall be responsible for
providing all AHCCCS covered services and pay all Medicare coinsurance and
deductibles for Medicare services which are covered by AHCCCS and provided on a
fee-for-service basis within the Program Contractor's network.
For QMB eligible persons, the Program Contractor shall be responsible for paying
the Medicare coinsurance and deductibles for Medicare services not covered by
AHCCCS described above which are provided on a fee-for-service basis.
Since Medicaid is the payer of last resort, all Medicare covered services which
are provided to dual eligibles who are not enrolled in a Medicare TEFRA Risk HMO
shall be billed to Medicare or any other third party liability source.
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If a dual eligible is enrolled with a Medicare TEFRA Risk HMO, Medicare will not
reimburse the Program Contractor for Medicare covered services provided by the
Program Contractor. Therefore, the Program Contractor shall refer the member to
the Medicare TEFRA Risk HMO for all Medicare covered services and shall not be
responsible for the payment of any Medicare copayments, deductibles or premiums
assessed by the Medicare TEFRA Risk HMO. The Program Contractor shall be
responsible for any Medicaid covered services not provided by the Medicare TEFRA
Risk HMO.
46. MEMBER SHARE OF COST
ALTCS members are required to contribute toward the cost of their care based on
their income. Some members, either because of their limited income or the
methodology used to determine the share of cost, do not have to pay a share of
cost. Generally, only institutionalized ALTCS members currently have a share of
cost.
Effective 10/1/96, subject to adoption of administrative rule, the share of cost
for members in an HCBS alternative residential setting will allow for a Personal
Needs Allowance (PNA). This PNA will be the same as for institutional members.
This will allow for a PNA equal to the institutional rate of 15% of the SSI
maximum for an individual ($70.50 as of 1/96). This is a reduction from the
current PNA rate of 300% of the SSI maximum ($1410 as of 1/96) for members
residing in Alternative Residential Settings. A room and board amount as
charged, not to exceed $800 per month, and all other share of cost deductions
described in ARS 36-2932 (O) will be allowed.
The Program Contractor receives monthly capitation payments which incorporate an
assumed deduction for the share of cost which members contribute to the cost of
care. The Program Contractor is responsible for collecting their members' share
of cost. The Program Contractor has the option of collecting the share of cost
or delegating this responsibility to the provider. The Program Contractor may
transfer this responsibility to nursing facilities, Institutions for Mental
Disease for those 65 years of age and older, or Inpatient Psychiatric Facilities
for those under 21 years of age, and compensate these facilities net of the
share of cost amount. If the Program Contractor delegates this responsibility to
the provider, the provider contract must spell out complete details of both
parties' obligations in share of cost collection. The Program Contractor must
establish a process for collecting the share of cost from HCBS members.
At the end of the contract year, AHCCCSA will compare actual Share of Cost
assignment to the Share of Cost assignment assumed in the calculation of the
capitation rate. Assumed Share of Cost will be fully reconciled to actual Share
of Cost Assignment, and AHCCCSA will either recoup or refund the total
difference, as applicable. This share of cost reconciliation may, at AHCCCSA's
sole discretion, be performed more frequently than once per year.
47. MANAGEMENT SERVICES AND DISTRIBUTION OF FUNDS
All proposed management services subcontracts, MIS subcontracts, corporate cost
allocation plans, proposals to adjust management fees, and proposals for the
distribution of funds which may affect plan equity must be approved in advance
by AHCCCSA, Office of Managed Care. Cost allocation plans must be submitted with
the proposed management fee agreement. AHCCCSA reserves the right to perform a
thorough review of actual management fees charged and/or corporate allocations
made. If the fees or allocations are determined to be unjustified or excessive,
amounts may be subject to repayment to the Program Contractor. In addition, the
Program Contractor may be placed on monthly financial reporting and financial
sanctions may be imposed.
48. MANAGEMENT SERVICES SUBCONTRACTOR AUDITS
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All management services subcontractors are required to have an annual financial
audit. A copy of this audit shall be submitted to AHCCCSA, Office of Managed
Care, within 120 days after the subcontractor's fiscal year end.
49. MERGER, REORGANIZATION AND CHANGE OF OWNERSHIP
A proposed merger, reorganization or change in ownership of the Program
Contractor shall require prior approval of AHCCCSA and a subsequent contract
amendment. The Program Contractor must submit a detailed merger, reorganization
and/or transition plan to AHCCCSA, Office of Managed Care, for AHCCCSA review.
The purpose of the plan review is to ensure uninterrupted services to members,
evaluate the new entity's ability to perform the contract requirements, ensure
that services to members are not diminished and that major components of the
organization and AHCCCS programs are not adversely affected by such merger,
reorganization or change in ownership.
50. RELATED PARTY TRANSACTIONS
Any proposed subcontract involving a related party or entity requires prior
approval from AHCCCSA, Office of Managed Care. The minimum information required
on ownership and control in related party transactions is set by federal law (42
CFR 455.100 through 455.106) and the Program Contractor shall disclose all
required information, justify all related party transactions reported, and
certify the accuracy and completeness of the disclosures made. The Program
Contractor shall demonstrate that transactions occurring between the provider
and a related party-in-interest are reasonable, will not adversely affect the
fiscal soundness of the Program Contractor, and do not present a conflict of
interest.
51. REQUESTS FOR INFORMATION
AHCCCSA may, at any time during the term of this contract, request financial or
other information from the Program Contractor. Upon receipt of such requests for
information, the Program Contractor shall provide complete information as
requested no later than 30 days after the receipt of the request unless
otherwise specified in the request itself.
52. DATA MANAGEMENT
The Program Contractor shall have the capability for all required technical
interfaces with AHCCCSA. Refer to the AHCCCS Technical Interface Guidelines in
the Bidder's Library for further information. A copy of these guidelines will be
provided to the Program Contractor upon contract award.
53. DATA EXCHANGE REQUIREMENT
The Program Contractor shall exchange data with AHCCCSA in accordance with the
AHCCCS Technical Interface Guidelines. The Program Contractor is responsible for
any incorrect data, delayed encounter data submission and any penalty applied
due to error, omission, deletion, or erroneous insert caused by data it
submitted. Any data that does not meet the standards required by AHCCCSA shall
not be accepted by AHCCCSA. The Program Contractor is responsible for
identifying any inconsistencies immediately upon receipt of data from AHCCCSA.
If any unreported inconsistencies are subsequently discovered, the Program
Contractor shall correct its records at its own expense.
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AHCCCSA may require the Program Contractor to provide to AHCCCSA original
evidence of service rendered and PCP assignments in a form appropriate for
electronic data exchange. The Program Contractor shall be provided with a
security code for use in all data transmissions. The Program Contractor agrees
that by using its security code, it certifies that any data transmitted is
accurate and truthful, to the best of its knowledge.
54. ENCOUNTER DATA REPORTING
The accurate and timely reporting of encounter data is crucial to the success of
the ALTCS program. AHCCCSA uses encounter data to:
Pay reinsurance benefits
Set fee-for-service and capitation rates
Determine disproportionate share payments to hospitals
Evaluate quality of care through quality indicators
developed with encounter data
The Program Contractor shall submit encounter data to AHCCCSA whenever a
contract service has been performed and must be provided by electronic media.
This requirement is a condition of the HCFA grant award.
Formatting and specific requirements for encounter data are described in AHCCCS
Encounter Reporting User Manual and AHCCCS Technical Interface Guidelines,
copies of which may be found in the Bidders' Library. Data must be organized
into the PMMIS AHCCCSA-supplied formats. The Encounter Record Submission
Standards are included herein as Attachment C.
Service codes have been established for all six alternative residential (HCBS)
settings. The Program Contractor will be required to use these codes in CATS and
with their Encounter reporting effective October 1, 1996. These six settings
(and therefore the service codes) are considered to include Title XIX services
as follows:
Adult Care Home: Personal care and homemaker services.
Supportive Residential Living: Personal care, homemaker and nursing
services
Adult Foster Care: Personal care and homemaker services;
may include nursing services if the
Adult Foster Care sponsor is a
registered nurse.
Level I Behavioral Health Facility: Personal care, homemaker, behavior
management and nursing services.
Level II Behavioral Health Facility: Personal care, homemaker and behavior
management services.
Unclassified Health Care Facility for Personal care, homemaker and nursing
the Treatment of Brain Injured: services.
55. SPECIALTY CONTRACTS
The Director of AHCCCSA may at any time negotiate or contract on behalf of the
Program Contractor and AHCCCSA for specialized hospital and medical services
such as organ transplants. If the Director has contracted for such specialized
services, the Program Contractor may be required to include such services within
its delivery networks and make contractual modifications necessary to carry out
this section. Specialty contracts shall take precedence over all other
contractual arrangements between the Program Contractor and its providers. If
the Program Contractor's specialty contracts are less costly than those of
AHCCCSA, AHCCCSA may allow the Program Contractor to continue using its
specialty contractors.
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56. SANCTIONS
If the Program Contractor violates any provision stated in law, AHCCCS Rules,
AHCCCS policies and procedures, or this contract, AHCCCSA may suspend, refuse to
renew, or terminate this contract or any related subcontracts in accordance with
the terms of this contract and applicable law and regulations, including AHCCCS
Rule R9-28-607. AHCCCSA may, in addition to these remedies, impose sanctions in
accordance with the provisions of this contract, applicable law and regulations.
Written notice will be provided to the Program Contractor specifying the
sanction to be imposed, the grounds for such sanction and either the length of
suspension or the amount of payment to be withheld.
57. TERM OF CONTRACT and OPTION TO RENEW
The term of this contract shall be 10/1/96 through 9/30/97. In addition, AHCCCSA
reserves the sole option to extend the term of the contract, not to exceed a
total contracting period of three years. The terms and conditions of any such
contract extension shall remain the same as the original contract, as amended.
Any contract extension shall be through contract amendment. During the term of
this contract, the total contracting period may be increased through legislative
action from three to five years.
When AHCCCSA issues an amendment to extend the contract, the provisions of such
extension will be deemed to have been accepted 60 days from the date of mailing
by AHCCCSA, even if the extension has not been signed by the Program Contractor,
unless within that time the Program Contractor notifies AHCCCSA in writing that
it refuses to sign the extension or modification. AHCCCSA will then initiate
contract termination proceedings.
58. GRIEVANCE PROCESS AND STANDARDS
The Program Contractor shall have in place a written grievance policy for
members and providers which defines their rights regarding any adverse action by
the Program Contractor. This written policy shall be in accordance with
applicable federal and state law and AHCCCS Rules and policies including, but
not limited to, ALTCS Rules R9-28-802 through 804. Details of the AHCCCS
grievance policy requirements and the Alternative Resolution Process are
included herein as Attachment H. The Program Contractor shall maintain a
complaint log pertaining to its program, services and provision of care.
59. QUARTERLY GRIEVANCE REPORT
A Quarterly Grievance Report shall be submitted to AHCCCSA, Office of Grievance
and Appeals and must be received no later than 45 days after the end of each
quarter.
60. LEGISLATIVE ISSUES
The Arizona Legislature will be considering several bills which will have an
impact on AHCCCSA and Program Contractors. AHCCCSA reserves the right to
incorporate additional services or programs prior to the award of this contract
(through RFP amendment) or subsequent to the awarding of this contract (through
contract amendment or a separate RFP). The proposed 1996 AHCCCS Omnibus Bill
includes the following provisions:
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a. INPATIENT HOSPITAL REIMBURSEMENT - Currently, AHCCCS health plans and program
contractors may negotiate inpatient hospital reimbursement rates or default to
the AHCCCS tiered per diem rate. Since AHCCCS wants to encourage more
competitive rates, the default option will be removed in Maricopa and Pima
counties and health plans and program contractors operating in those two
counties will be required to negotiate inpatient hospital rates directly with at
least one hospital in Maricopa or Pima county, as appropriate.
b. ALTCS PREADMISSION SCREENING PROCESS - This would explicitly allow a
physician to review ALTCS eligibility cases and make a final decision based on
medical judgment.
c. LUNG AND HEART/LUNG TRANSPLANTS - Various technical amendments to the October
1995 legislation which authorized these transplants and an extended eligibility
process will be enacted.
d. SUBMITTAL DATE FOR DISPROPORTIONATE SHARE (DSH) PAYMENT DATA - Currently, DSH
payments are based on data received from the health plans and hospitals as of
July 1, 1995. AHCCCSA is requesting that this date be changed to December 31 to
allow the health plans and hospitals additional time to submit accurate and
complete data.
e. MEMBER FRAUD - Current AHCCCS statutes on member fraud will be amended to
include criminal and civil penalties for anyone who aids and abets fraudulent
activities.
f. CONTRACT STATUTES - Maximum terms for ALTCS and acute care contracts would be
extended to five years from the present four years (for acute) and three years
(for ALTCS). Also, the term "Invitation For Bid" would be replaced by the more
appropriate "Request For Proposal".
g. EXTEND RULE-MAKING EXEMPTION - In 1994, the Legislature authorized a one-year
exemption from rule-making so that AHCCCS could implement a Medicare/Medicaid
dual eligible waiver and an on-reservation managed care pilot program waiver.
Since HCFA has not approved these waivers, AHCCCS will request that the
rule-making exemption be extended to June 30, 1997.
h. EFFECTIVE DATE OF ENROLLMENT - Effective date of Program Contractor
responsibility would be the date it received notification of the new member from
AHCCCSA. Current effective date is two days after the date of notification.
Other AHCCCS-related issues which may be introduced by interested parties will:
- Use tobacco tax money for various reasons. Provide temporary
financial assistance to Gila, Cochise, Pinal, and Santa Cruz
counties and set up a legislative committee to explore permanent
relief.
- Authorize Supported Residential Living Centers as permanent settings
under ALTCS.
- Select two AHCCCS health plans in Maricopa County to provide
Title XIX and general behavioral health and substance abuse
services to AHCCCS eligible persons.
[END OF SECTION D]
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SECTION E - CONTRACT CLAUSES
TABLE OF CONTENTS
[TO BE REVISED FOR FINAL DRAFT]
Advertising And Promotion Of Contract .................................... 36
Americans With Disabilities Act .......................................... 40
Applicable Law .......................................................... 34
Assignment And Delegation ................................................ 35
Audit .................................................................... 38
Authority ................................................................ 34
Changes .................................................................. 39
Compliance With Applicable Laws, Rules And Regulations .................. 35
Conflict Of Interest ..................................................... 40
Contract Interpretation And Amendment .................................... 34
Covenant Against Contingent Fees ......................................... 39
Disclosure Of Confidential Information ................................... 41
Disputes ................................................................. 39
Effective Date ........................................................... 38
General Indemnification .................................................. 35
Gratuities ............................................................... 36
Incorporation By Reference ............................................... 39
Indemnification -- Patent And Copyright .................................. 35
Insurance ................................................................ 38
No Guaranteed Quantities ................................................. 40
Non-Discrimination ....................................................... 38
Non-Exclusive Remedies ................................................... 38
Payments ................................................................. 35
Property Of The State .................................................... 36
Records .................................................................. 34
Relationship Of Parties .................................................. 35
Right Of Offset .......................................................... 37
Right To Assurance ....................................................... 36
Right To Inspect Plant Or Place Of Business .............................. 39
Severability ............................................................. 34
Subcontracts ............................................................. 35
Suspension Or Debarment .................................................. 37
Termination - Availability Of Funds ...................................... 37
Termination For Conflict Of Interest ..................................... 36
Termination For Convenience .............................................. 37
Termination For Default .................................................. 37
Third Party Antitrust Violations ......................................... 36
Transition Activities .................................................... 40
Type Of Contract ......................................................... 40
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SECTION E - CONTRACT CLAUSES
1. APPLICABLE LAW
Arizona Law - The law of Arizona applies to this contract including, where
applicable, the Uniform Commercial Code, as adopted in the State of Arizona.
Implied Contract Terms - Each provision of law and any terms required by law to
be in this contract are a part of this contract as if fully stated in it.
2. AUTHORITY
This contract is issued under the authority of the Contracting Officer who
signed this contract. Changes to the contract, including the addition of work or
materials, the revision of payment terms, or the substitution of work or
materials, directed by an unauthorized state employee or made unilaterally by
the Program Contractor are violations of the contract and of applicable law.
Such changes, including unauthorized written contract amendments, shall be void
and without effect, and the Program Contractor shall not be entitled to any
claim under this contract based on those changes.
3. CONTRACT INTERPRETATION AND AMENDMENT
No Parol Evidence - This contract is intended by the parties as a final and
complete expression of their agreement. No course of prior dealings between the
parties and no usage of the trade shall supplement or explain any term used in
this contract.
No Waiver - Either party's failure to insist on strict performance of any term
or condition of the contract shall not be deemed a waiver of that term or
condition even if the party accepting or acquiescing in the non-conforming
performance knows of the nature of the performance and fails to object to it.
Written Contract Amendments - The contract shall be modified only through a
written contract amendment within the scope of the contract signed by the
procurement officer on behalf of the State.
4. RECORDS
Under ARS Section 35-214 and Section 35-215 the Program Contractor shall retain,
and shall contractually require each subcontractor to retain all data and other
records relating to the acquisition and performance of the contract for a period
of five years after the completion of the contract. All records shall be subject
to inspection and audit by the State at reasonable times. Upon request, the
Program Contractor shall produce a copy of any or all such records.
5. SEVERABILITY
The provisions of this contract are severable to the extent that any provision
or application held to be invalid shall not affect any other provision or
application of the contract which may remain in effect without the invalid
provision or application.
6. RELATIONSHIP OF PARTIES
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The Program Contractor under this contract is an independent contractor. Neither
party to this contract shall be deemed to be the employee or agent of the other
party to the contract.
7. ASSIGNMENT AND DELEGATION
The Program Contractor shall not assign any right nor delegate any duty under
this contract without prior written approval of the Contracting Officer, who
will not unreasonably withhold such approval.
8. GENERAL INDEMNIFICATION
The Program Contractor shall defend, indemnify and hold harmless the State from
any claim, demand, suit, liability, judgment and expense (including attorney's
fees and other costs of litigation) arising out of or relating to injury,
disease, or death of persons or damage to or loss of property resulting from or
in connection with the negligent performance of this contract by the Program
Contractor, its agents, employees, and subcontractors or anyone for whom the
Program Contractor may be responsible. The obligations, indemnities and
liabilities assumed by the Program Contractor under this paragraph shall not
extend to any liability caused by the negligence of the State or its employees.
The Program Contractor's liability shall not be limited by any provisions or
limits of insurance set forth in this contract. The State shall reasonably
notify the Program Contractor of any claim for which it may be liable under this
paragraph.
9. INDEMNIFICATION -- PATENT AND COPYRIGHT
The Program Contractor shall defend, indemnify and hold harmless the State
against any liability including costs and expenses for infringement of any
patent, trademark or copyright arising out of contract performance or use by the
State of materials furnished or work performed under this contract. The State
shall reasonably notify the Program Contractor of any claim for which it may be
liable under this paragraph.
10. SUBCONTRACTS
All subcontracts entered into by the Program Contractor are subject to prior
review and approval by AHCCCSA, Contracts and Purchasing, and shall incorporate
by reference the terms and conditions of this contract. Each subcontract must
contain verbatim all the provisions of Attachment A, Minimum Subcontract
Provisions. In addition, each subcontract must contain the following:
a. Full disclosure of the method and amount of compensation or other
consideration to be received by the subcontractor.
b. Identification of the name and address of the subcontractor.
c Identification of the population, to include patient capacity, to be
covered by the subcontractor.
d. The amount, duration and scope of medical services to be provided, and for
which compensation will be paid.
e. The term of the subcontract including beginning and ending dates, methods
of extension, termination and renegotiation.
f. The specific duties of the subcontractor relating to coordination of
benefits and determination of third-party liability.
g. A description of the subcontractor's patient, medical and cost record
keeping system.
h. Specification that the subcontractor shall cooperate with quality
assurance programs and comply with the utilization control and review
procedures specified in 42 C.F.R. Part 456, as implemented by AHCCCSA.
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i. A provision that the subcontractor agrees to identify Medicare and other
third-party liability coverage and to seek such Medicare or third-party
liability payment before submitting claims to the Contractor/ Program
Contractor.
j. A provision stating that a merger, reorganization or change in ownership
of a subcontractor that is related to or affiliated with the Contractor/
Program Contractor shall require a contract amendment and prior approval
of AHCCCSA.
k. Procedures for enrollment or re-enrollment of the covered population.
l. A provision that the subcontractor shall be fully responsible for all tax
obligations, Worker's Compensation Insurance, and all other applicable
insurance coverage obligations which arise under this subcontract, for
itself and its employees, and that AHCCCSA shall have no responsibility or
liability for any such taxes or insurance coverage.
m. A provision that the subcontractor must obtain any necessary authorization
from the Contractor or AHCCCSA for services provided to eligible and/or
enrolled members.
n. A provision that the subcontractor must comply with encounter reporting
and claims submission requirements as described in the subcontract.
11. COMPLIANCE WITH APPLICABLE LAWS, RULES AND REGULATIONS
The materials and services supplied under this contract shall comply with all
applicable federal, state and local laws, and the Program Contractor shall
maintain all applicable licenses and permits.
12. PAYMENTS
The Program Contractor shall be paid as specified in the contract. Payment must
comply with requirements of ARS Title 35. AHCCCSA reserves the option to make
payments to the Program Contractor by wire or NACHA transfer and will provide
the Program Contractor at least 30 days notice prior to the effective date of
any such change.
13. ADVERTISING AND PROMOTION OF CONTRACT
The Program Contractor shall not advertise or publish information for commercial
benefit concerning this contract without the prior written approval of the
Contracting Officer.
14. PROPERTY OF THE STATE
Any materials, including reports, computer programs and other deliverables,
created under this contract are the sole property of AHCCCSA. The Program
Contractor is not entitled to a patent or copyright on those materials and may
not transfer the patent or copyright to anyone else. The Program Contractor
shall not use or release these materials without the prior written consent of
AHCCCSA.
15. THIRD PARTY ANTITRUST VIOLATIONS
The Program Contractor assigns to the State any claim for overcharges resulting
from antitrust violations to the extent that those violations concern materials
or services supplied by third parties to the Program Contractor toward
fulfillment of this contract.
16. RIGHT TO ASSURANCE
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If AHCCCSA, in good faith, has reason to believe that the Program Contractor
does not intend to perform or continue performing this contract, the procurement
officer may demand in writing that the Program Contractor give a written
assurance of intent to perform. The demand shall be sent to the Program
Contractor by certified mail, return receipt required. Failure by the Program
Contractor to provide written assurance within the number of days specified in
the demand may, at the State's option, be the basis for terminating the
contract.
17. TERMINATION FOR CONFLICT OF INTEREST
AHCCCSA may cancel this contract without penalty or further obligation if any
person significantly involved in initiating, negotiating, securing, drafting or
creating the contract on behalf of AHCCCSA is, or becomes at any time while the
contract or any extension of the contract is in effect, an employee of, or a
consultant to, any other party to this contract with respect to the subject
matter of the contract. The cancellation shall be effective when the Program
Contractor receives written notice of the cancellation unless the notice
specifies a later time.
18. GRATUITIES
AHCCCSA may, by written notice to the Program Contractor, immediately terminate
this contract if it determines that employment or a gratuity was offered or made
by the Program Contractor or a representative of the Program Contractor to any
officer or employee of the State for the purpose of influencing the outcome of
the procurement or securing the contract, an amendment to the contract, or
favorable treatment concerning the contract, including the making of any
determination or decision about contract performance. AHCCCSA, in addition to
any other rights or remedies, shall be entitled to recover exemplary damages in
the amount of three times the value of the gratuity offered by the Program
Contractor.
19. SUSPENSION OR DEBARMENT
AHCCCSA may, by written notice to the Program Contractor, immediately terminate
this contract if it determines that the Program Contractor has been debarred,
suspended or otherwise lawfully prohibited from participating in any public
procurement activity.
20. TERMINATION FOR CONVENIENCE
AHCCCSA reserves the right to terminate the contract in whole or in part at any
time for the convenience of the State without penalty or recourse. The
Contracting Officer shall give written notice by certified mail, return receipt
requested, to the Program Contractor of the termination at least 90 days before
the effective date of the termination. Upon receipt of the written notice, the
Program Contractor shall stop all work and immediately notify all subcontractors
to do the same. In the event of termination under this paragraph, all documents,
data and reports prepared by the Program Contractor under the contract shall
become the property of and be delivered to AHCCCSA. The Program Contractor shall
be entitled to receive just and equitable compensation for work in progress,
work completed and materials accepted before the effective date of the
termination.
21. TERMINATION FOR DEFAULT
AHCCCSA reserves the right to terminate the contract in whole or in part due to
the failure of the Program Contractor to comply with any term or condition of
the contract or to make satisfactory progress in performing the
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contract. The Contracting Officer shall mail written notice of the termination
and the reason(s) for it to the Program Contractor by certified mail, return
receipt requested.
Upon termination under this paragraph, all documents, data, and reports prepared
by the Program Contractor under the contract shall become the property of and be
delivered to AHCCCSA on demand.
AHCCCSA may, upon termination of this contract, procure, on terms and in the
manner that it deems appropriate, materials or services to replace those under
this contract. The Program Contractor shall be liable for any excess costs
incurred by AHCCCSA in re-procuring the materials or services.
22. TERMINATION - AVAILABILITY OF FUNDS
Funds are not presently available for performance under this contract beyond the
current fiscal year. No legal liability on the part of AHCCCSA for any payment
may arise under this contract until funds are made available for performance of
this contract.
23. RIGHT OF OFFSET
AHCCCSA shall be entitled to offset against any amounts due the Program
Contractor any expenses or costs incurred by AHCCCSA concerning the Program
Contractor's non-conforming performance or failure to perform the contract.
24. NON-EXCLUSIVE REMEDIES
The rights and the remedies of AHCCCSA under this contract are not exclusive.
25. AUDIT
At any time during the term of this contract, the Program Contractor's or any
subcontractor's books and records shall be subject to audit by AHCCCSA and,
where applicable, the federal government, to the extent that the books and
records relate to the performance of the contract or subcontracts.
26. NON-DISCRIMINATION
The Program Contractor shall comply with State Executive Order No. 75-5, which
mandates that all persons, regardless of race, color, religion, sex, national
origin or political affiliation, shall have equal access to employment
opportunities, and all other applicable federal and state laws, rules and
regulations, including the Americans with Disabilities Act. The Program
Contractor shall take positive action to ensure that applicants for employment,
employees, and persons to whom it provides service are not discriminated against
due to race, creed, color, religion, sex, national origin or disability.
27. EFFECTIVE DATE
The effective date of this contract shall be the date that the Contracting
Officer signs the award page (page 1) of this contract.
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28. INSURANCE
A certificate of insurance naming the State of Arizona and AHCCCSA as the
"additional insured" must be submitted to AHCCCSA within 10 days of notification
of contract award and prior to commencement of any services under this contract.
This insurance shall be provided by carriers rated as "A+" or higher by the A.M.
Best Rating Service. The following types and levels of insurance coverage are
required for this contract:
a. Commercial General Liability: Provides coverage of at least $1,000,000 for
each occurrence for bodily injury and property damage to others as a result of
accidents on the premises of or as the result of operations of the Program
Contractor.
b. Commercial Automobile Liability: Provides coverage of at least $1,000,000 for
each occurrence for bodily injury and property damage to others resulting from
accidents caused by vehicles operated by the Program Contractor.
c. Workers Compensation: Provides coverage to employees of the Program
Contractor for injuries sustained in the course of their employment. Coverage
must meet the obligations imposed by federal and state statutes and must also
include Employer's Liability minimum coverage of $100,000. Evidence of qualified
self-insured status will also be considered.
d. Professional Liability (if applicable): Provides coverage for alleged
professional misconduct or lack of ordinary skills in the performance of a
professional act of service.
The above coverages may be evidenced by either one of the following:
a. The State of Arizona Certificate of Insurance: This is a form with the
special conditions required by the contract already pre-printed on the form. The
Program Contractor's agent or broker must fill in the pertinent policy
information and ensure the required special conditions are included in the
Program Contractor's policy.
b. The Acord form: This standard insurance industry certificate of insurance
does not contain the pre-printed special conditions required by this contract.
These conditions must be entered on the certificate by the agent or broker and
read as follows:
The State of Arizona and Arizona Health Care Cost Containment System are
hereby added as additional insureds. Coverages afforded under this
Certificate shall be primary and any insurance carried by the State or any
of its agencies, boards, departments or commissions shall be in excess of
that provided by the insured Program Contractor. No policy shall expire,
be canceled or materially changed without 30 days written notice to the
State. This Certificate is not valid unless countersigned by an authorized
representative of the insurance company.
29. DISPUTES
The exclusive manner for the Program Contractor to assert any claim, grievance,
dispute or demand against AHCCCSA shall be in accordance with AHCCCS Rule
R9-28-804(C). Pending the final resolution of any disputes involving this
contract, the Program Contractor shall proceed with performance of this contract
in accordance with AHCCCSA's instructions, unless AHCCCSA specifically, in
writing, requests termination or a temporary suspension of performance.
30. RIGHT TO INSPECT PLANT OR PLACE OF BUSINESS
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AHCCCSA may, at reasonable times, inspect the part of the plant or place of
business of the Program Contractor or subcontractor which is related to the
performance of this contract, in accordance with ARS Section 41-2547.
31. INCORPORATION BY REFERENCE
This solicitation and all attachments and amendments, the Program Contractor's
proposal, best and final offer accepted by AHCCCSA, and any approved
subcontracts are hereby incorporated by reference into the contract.
32. COVENANT AGAINST CONTINGENT FEES
The Program Contractor warrants that no person or agency has been employed or
retained to solicit or secure this contract upon an agreement or understanding
for a commission, percentage, brokerage or contingent fee. For violation of this
warranty, AHCCCSA shall have the right to annul this contract without liability.
33. CHANGES
AHCCCSA may at any time, by written notice to the Program Contractor, make
changes within the general scope of this contract. If any such change causes an
increase or decrease in the cost of, or the time required for, performance of
any part of the work under this contract, the Program Contractor may assert its
right to an adjustment in compensation paid under this contract. The Program
Contractor must assert its right to such adjustment within 30 days from the date
of receipt of the change notice. Any dispute or disagreement caused by such
notice shall constitute a dispute within the meaning of Paragraph 29 (this
Section), and be administered accordingly.
34. TYPE OF CONTRACT
Firm Fixed-Price
35. AMERICANS WITH DISABILITIES ACT
People with disabilities may request special accommodations such as
interpreters, alternative formats or assistance with physical accessibility.
Requests for special accommodations must be made with at least three days prior
notice by calling (602) 417-4577.
36. WARRANTY OF SERVICES
The Program Contractor warrants that all services provided under this contract
will conform to the requirements stated herein. AHCCCSA's acceptance of services
provided by the Program Contractor shall not relieve the Program Contractor from
its obligations under this warranty. In addition to its other remedies, AHCCCSA
may, at the Program Contractor's expense, require prompt correction of any
services failing to meet the Program Contractor's warranty herein. Services
corrected by the Program Contractor shall be subject to all of the provisions of
this contract in the manner and to the same extent as the services originally
furnished.
37. NO GUARANTEED QUANTITIES
AHCCCSA does not guarantee the Program Contractor any minimum or maximum
quantity of services or goods to be provided under this contract.
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38. TRANSITION ACTIVITIES
Upon the expiration of this contract, AHCCCSA anticipates a continued need for
the services described herein. In the event the new contract is awarded to a
different program contractor, the outgoing Program Contractor shall work closely
with the incoming program contractor's personnel and AHCCCSA staff to ensure an
efficient transfer of duties and responsibilities. All transition activities
will be coordinated by AHCCCSA and a transition plan will be developed to
facilitate the transfer. AHCCCSA reserves the right to determine which, if any,
unfinished projects will remain with the outgoing Program Contractor for
completion.
39. CONFLICT OF INTEREST
The Program Contractor shall not undertake any work that represents a potential
conflict of interest, or which is not in the best interest of AHCCCSA or the
State without prior written approval by AHCCCSA. The Program Contractor shall
fully and completely disclose any situation which may present a conflict of
interest. If the Program Contractor is now performing or elects to perform
during the term of this contract any services for any AHCCCS health plan,
provider or Program Contractor or an entity owning or controlling same, the
Program Contractor shall disclose this relationship prior to accepting any
assignment involving such party
40. DISCLOSURE OF CONFIDENTIAL INFORMATION
The Program Contractor shall not, without prior written approval from AHCCCSA,
either during or after the performance of the services required by this
contract, use, other than for such performance, or disclose to any person other
than AHCCCSA personnel with a need to know, any information, data, material, or
exhibits created, developed, produced, or otherwise obtained during the course
of the work required by this contract. This nondisclosure requirement shall also
pertain to any information contained in reports, documents, or other records
furnished to the Program Contractor by AHCCCSA.
[END OF SECTION E]
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SECTION F - LIST OF ATTACHMENTS
Attachment A - Subcontract provisions
Attachment B - Service area minimum network standards
Attachment C - Encounter record submission standards
Attachment D - Management services subcontractor statement
Attachment E - Sample letter of intent
Attachment F - Instructions for preparing capitation disk
Attachment G - Instructions for preparing nursing home network disk
Attachment H - Grievance process and standards
Attachment I - Service area maps
Attachment J - Offeror's checklist
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SECTION G - REPRESENTATIONS AND CERTIFICATIONS
1. CERTIFICATION OF ACCURACY OF INFORMATION PROVIDED
By signing this offer the Offeror certifies, under penalty of law, that the
information provided herein is true, correct and complete to the best of
Offeror's knowledge and belief. Offeror also acknowledges that should
investigation at any time disclose any misrepresentation or falsification, any
subsequent contract may be terminated by AHCCCSA without penalty to or further
obligation by AHCCCSA.
2. CERTIFICATION OF NON-COERCION
By signing this offer the Offeror certifies, under penalty of law, that it has
not made to any provider any requests or inducements not to contract with
another potential program contractor in relation to this solicitation.
3. CERTIFICATION OF COMPLIANCE - ANTI-KICKBACK / LABORATORY TESTING
By signing this offer, the Offeror certifies that it has not engaged and will
not engage in any violation of the Medicare Anti-Kickback or the "Stark I" and
"Stark II" laws governing related-entity and compensation therefrom. If the
Offeror provides laboratory testing, it certifies that it has complied with and
has sent to AHCCCSA simultaneous copies of the information required to be sent
to the Health Care Financing Administration. (See 42 USC Sections 1320a-7b, PL
101-239, PL 101-432, and 42 CFR Section 411.361.)
4. AUTHORIZED SIGNATORY
Authorized Signatory for ______________________________________________________
[OFFEROR'S Name]
______________________________________, ____________________________________
[INDIVIDUAL'S Name] [Title]
is the person authorized to sign this contract on behalf of Offeror.
5. OFFEROR'S MAILING ADDRESS
AHCCCSA should address all notices relative to this offer to the attention of:
________________________________________________________________________
Name Title
________________________________________________________________________
Address Telephone Number
________________________________________________________________________
City State ZIP
6. ORGANIZATION STRUCTURE
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The Offeror must complete and return this questionnaire on organization
structure. Include all items requested in this section. Make sure that each
questionnaire item is completed and that full disclosure is made. When making
attachments to this section, please refer to the question number and the item
heading.
a. ORGANIZATION CHART Attach a copy of the Offeror's staff organization chart,
setting forth lines of authority, responsibility and communication which will
pertain to this proposal. Provide an overall organizational chart and separate
organizational charts for each functional area which includes the number of
current or proposed full-time employees in each area.
b. IF OTHER THAN A GOVERNMENT AGENCY, WHEN WAS YOUR ORGANIZATION FORMED?
___________________
c. LICENSE/CERTIFICATION Attach a list of all licenses and certifications (e.g.
federal HMO status or State certifications) your organization maintains. Use a
separate sheet of paper listing the license requirements and the renewal dates.
Have any licenses in accordance with ARS Section 20-1065 et. seq., been denied,
revoked or suspended within the past 10 years? Yes _____ No _____ If yes, please
explain on a separate sheet.
d. CIVIL RIGHTS COMPLIANCE DATA Has any federal or state agency ever made a
finding of noncompliance with any civil rights requirements with respect to your
program? Yes _____ No_____ If yes, please explain on a separate sheet.
e. HANDICAPPED ASSURANCE Does your organization provide assurance that no
qualified handicapped person will be denied benefits of or excluded from
participation in a program or activity because the Offeror's facilities
(including subcontractors) are inaccessible to or unusable by handicapped
persons? (Note: Check local zoning ordinances for handicapped requirements).
Yes____ No____ If yes, describe on a separate sheet how such assurance is
provided. If no, describe how your organization is taking affirmative steps to
provide assurance.
f. PRIOR CONVICTIONS List on a separate sheet all felony convictions within the
past 15 years of any key personnel (i.e., Administrator, financial officers,
major stockholders or those with controlling interest, etc.). Failure to make
full and complete disclosure shall result in the rejection of your proposal.
g. FEDERAL GOVERNMENT SUSPENSION/EXCLUSION Has Offeror been suspended or
excluded from any federal government programs for any reason? Yes_____ No_____
If yes, please explain on a separate sheet.
7. FINANCIAL PLANNING
a. ORGANIZATIONAL STRUCTURE - The Offeror must describe the entity that is
requesting to contract with AHCCCSA. An entity is defined as any unit, existing
or to be formed, for which financial statements could be prepared in accordance
with generally accepted accounting principles. Offeror's description of the
entity shall include, at a minimum, the following:
The date the entity was or will be formed and its legal status as an
entity (i.e., Individual, Partnership, Corporation). Offeror's description
should clearly identify the entity's relationship to any other
organization.
The name of accounting firm or individual who performed the audit, if
entity is currently audited. Attach a copy of the most recent audited
financial statements. If entity has not been audited within the last two
years, or has never been audited, please attach a copy of the most recent
annual unaudited financial statements.
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<PAGE> 50
Explanation of how the initial capitalization and performance bond
requirements, as described in Section D of this solicitation, will be met.
Description of the principal allocation techniques used or proposed to be
used for allocating indirect costs (including administrative costs)
reflected in the entity's financial statements.
A list of the types of liability insurance covering your entity. Include
the amount of coverage and the name and address of the carrier.
A description of any suits, judgments, tax deficiencies, claims or any
other contingencies pending against the Offeror. Indicate the assessed and
expected financial impact for each item.
The date and type of each bankruptcy if the Offeror or its owner(s) has
ever filed bankruptcy
b. RECEIVED BUT UNPAID CLAIMS (RBUCS) AND INCURRED BUT NOT RECEIVED (IBNRS)
Describe the method to be used for evaluating the claims liability for claims
received by the Offeror but not yet adjudicated. These claims are more commonly
referred to by AHCCCSA as Received But Unpaid Claims (RBUCs).
Describe the method to be used for evaluating the claims liability for IBNR
claims. This description should address the frequency that projections are
performed and major data sources used in the IBNR calculation. The description
should also include how the Offeror will validate the accuracy of the IBNR
amounts.
The Offeror shall provide a copy of their IBNR procedures and a summary of their
IBNR practices. These procedures and practices must adequately support Offeror's
response to the above IBNR descriptions.
c. CLAIMS PROCESSING SYSTEM - Describe in detail how you will assure encounter
data is submitted to AHCCCSA within the standards established in Attachment C.
Describe your claims processing system. Offeror's description shall include a
description of:
- Security and access controls to the processing system, both physical
and software
- Claim processor edit overrides available and the reporting and
monitoring of the use of the overrides, including authorization
procedures and procedures for the review of the reported over-rides.
- Use of prior authorizations including authority to make changes to
prior authorizations
- Audit trails produced for claims adjustments.
- Timelines for claims payments
- Post-payment review of processed claims
- Medical claims review
- Remittance advice
d. FINANCIAL PROJECTIONS - Offeror must submit prospective financial statements
for each of the three years ending September 30, 1997, 1998, and 1999.
Additionally, current program contractors responding to this solicitation must
also submit prospective financial statements for the year ending September 30,
1996. The prospective financial statements shall include all applicable
information on the Balance Sheet, the Statement of Revenue and Expenses and
Changes in Plan Equity.
Fields that are not completed on the financial projections will be assumed to be
zero. The financial projections must be consistent with the service areas the
Offeror has requested and the capitation rates bid by the Offeror for the
requested areas. Assumptions used in preparing the financial projections should
be clearly stated.
e. WAS AN ACTUARIAL FIRM USED TO ASSIST IN DEVELOPING CAPITATION RATES? Yes_____
No_____
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If yes, what is name of actuary and actuarial
firm?__________________________________________
f. DID A FIRM OR ORGANIZATION PROVIDE THE OFFEROR WITH ANY ASSISTANCE IN MAKING
THIS OFFER (TO INCLUDE DEVELOPING CAPITATION RATES OR PROVIDING ANY OTHER
TECHNICAL ASSISTANCE)? Yes_____ No_____ If yes, what is the name of this firm or
organization?
________________________________________________________________________________
Name
________________________________________________________________________________
Address City State
g. HAS THE OFFEROR CONTRACTED OR ARRANGED FOR MANAGEMENT INFORMATION SYSTEMS,
SOFTWARE OR HARDWARE, FOR THE TERM OF THE CONTRACT? Yes_____ No_____ If yes, is
the Management Information System being obtained from a vendor? Yes _____
No_____ If yes, please provide on a separate sheet the vendor's name, the
vendor's background with AHCCCSA, the vendor's background with other HMOs, and
the vendor's background with other Medicaid programs.
8. FINANCIAL DISCLOSURE STATEMENT
Offeror must provide the following information as required by 42 CFR 455.103.
This Financial Disclosure Statement shall be prepared as of 3/31/96. However,
continuing offerors who have filed the required Financial Disclosure Statement
within the last 12 months need not complete this section if no significant
changes have occurred since the last filing.
LIST THE NAME AND ADDRESS OF EACH PERSON WITH AN OWNERSHIP OR CONTROLLING
INTEREST, AS DEFINED BY 42 CFR 455.101, IN THE ENTITY SUBMITTING THIS OFFER:
Percent of
Name Address Ownership or Control
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
LIST THE NAME AND ADDRESS OF EACH PERSON WITH AN OWNERSHIP OR CONTROL INTEREST
IN ANY SUBCONTRACTOR IN WHICH THE DISCLOSING ENTITY HAS DIRECT OR INDIRECT
OWNERSHIP OF 5% OR MORE:
Percent of
Name Address Ownership or Control
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Names of above persons who are related to one another as spouse, parent, child
or sibling:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
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LIST THE NAME OF ANY OTHER DISCLOSING ENTITY IN WHICH A PERSON WITH AN OWNERSHIP
OR CONTROL INTEREST IN THE DISCLOSING ENTITY ALSO HAS AN OWNERSHIP OR CONTROL
INTEREST:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
LIST THE OWNERSHIP OF ANY SUBCONTRACTOR WITH WHOM THE OFFEROR HAS HAD BUSINESS
TRANSACTIONS TOTALING MORE THAN $25,000 DURING THE 12-MONTH PERIOD ENDING ON THE
DATE OF THE REQUEST:
Describe Ownership Type of Business Dollar Amount
of Subcontractors Transaction with Provider of Transaction
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
LIST ANY SIGNIFICANT BUSINESS TRANSACTIONS, AS DEFINED IN 42 CFR 455.101,
BETWEEN THE OFFEROR AND ANY WHOLLY-OWNED SUPPLIER OR BETWEEN THE OFFEROR AND ANY
SUBCONTRACTOR DURING THE FIVE-YEAR PERIOD ENDING ON THE DATE OF THE OFFER:
Describe Ownership Type of Business Dollar Amount
of Subcontractors Transaction with Provider of Transaction
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
LIST THE NAME OF ANY PERSON WHO HAS OWNERSHIP OR CONTROL INTEREST IN THE
OFFEROR, OR IS AN AGENT OR MANAGING EMPLOYEE OF THE OFFEROR AND HAS BEEN
CONVICTED OF A CRIMINAL OFFENSE RELATED TO THAT PERSON'S INVOLVEMENT IN ANY
PROGRAM UNDER MEDICARE, MEDICAID OR THE TITLE XX SERVICES PROGRAM SINCE THE
INCEPTION OF THOSE PROGRAMS:
Name Address Title
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
LIST NAME AND ADDRESS OF EACH CREDITOR WHOSE LOANS OR MORTGAGES EXCEED 5% OF
TOTAL OFFEROR EQUITY AND ARE SECURED BY ASSETS OF THE OFFEROR'S COMPANY.
Description Amount
Name Address of Debt of Security
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
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<PAGE> 53
9. RELATED PARTY TRANSACTIONS OMC]
LIST THE NAMES AND ADDRESSES OF THE BOARD OF DIRECTORS OF THE OFFEROR.
Name/Title Address
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
LIST NAMES AND TITLES OF THE 10 HIGHEST COMPENSATED MANAGEMENT PERSONNEL
INCLUDING BUT NOT LIMITED TO THE CHIEF EXECUTIVE OFFICER, THE CHIEF FINANCIAL
OFFICER, BOARD CHAIRMAN, BOARD SECRETARY, AND BOARD TREASURER:
Name Title
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
DESCRIBE TRANSACTIONS BETWEEN THE OFFEROR AND ANY RELATED PARTY IN WHICH A
TRANSACTION OR SERIES OF TRANSACTIONS DURING ANY ONE FISCAL YEAR EXCEEDS THE
LESSER OF $10,000 OR 2% OF THE TOTAL OPERATING EXPENSES OF THE DISCLOSING
ENTITY. LIST PROPERTY, GOODS, SERVICES AND FACILITIES IN DETAIL NOTING THE
DOLLAR AMOUNTS OR OTHER CONSIDERATION FOR EACH TRANSACTION AND THE DATE THEREOF.
INCLUDE A JUSTIFICATION AS TO (1) THE REASONABLENESS OF THE TRANSACTION, (2) ITS
POTENTIAL ADVERSE IMPACT ON THE FISCAL SOUNDNESS OF THE DISCLOSING ENTITY, AND
(3) THAT THE TRANSACTION IS WITHOUT CONFLICT OF INTEREST:
a) THE SALE, EXCHANGE OR LEASING OF ANY PROPERTY:
Description of Name of Related Party Dollar Amount for
Transaction and Relationship Reporting Period
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Justification:
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<PAGE> 54
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
b) THE FURNISHING OF GOODS, SERVICES OR FACILITIES FOR CONSIDERATION:
Description of Name of Related Party Dollar Amount for
Transaction and Relationship Reporting Period
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Justification:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
c) DESCRIBE ALL TRANSACTIONS BETWEEN OFFEROR AND ANY RELATED PARTY WHICH
INCLUDES THE LENDING OF MONEY, EXTENSIONS OF CREDIT OR ANY INVESTMENT IN A
RELATED PARTY. THIS TYPE OF TRANSACTION REQUIRES REVIEW AND APPROVAL IN ADVANCE
BY THE OFFICE OF THE DIRECTOR:
Description of Name of Related Party Dollar Amount for
Transaction and Relationship Reporting Period
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Justification:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
d) LIST THE NAME AND ADDRESS OF ANY INDIVIDUAL WHO OWNS OR CONTROLS MORE THAN
10% OF STOCK OR THAT HAS A CONTROLLING INTEREST (I.E.FORMULATES, DETERMINES OR
VETOES BUSINESS POLICY DECISIONS):
Has Controlling
Owner Or Interest?
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<PAGE> 55
Name Address Controller Yes / No
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
10. OFFEROR'S ADMINISTRATIVE FUNCTIONS SUBCONTRACTORS
Offeror must identify any organizational or administrative functions (e.g.
claims processing, marketing, automated data processing, accounting) or key
personnel (e.g. administrator, medical director, chief financial officer, etc.)
which are subcontracted.
Subcontractor's Name:___________________________________________________________
Address:________________________________________________________________________
Method Of Payment:______________________________________________________________
Function Performed:_____________________________________________________________
Estimated Value Of Contract: 10/1/96 - 9/30/97 $___________________
10/1/97 - 9/30/98 $___________________
10/1/98 - 9/30/99 $___________________
Subcontractor's Name:___________________________________________________________
Address:________________________________________________________________________
Method Of Payment:______________________________________________________________
Function Performed:_____________________________________________________________
Estimated Value Of Contract: 10/1/96 - 9/30/97 $___________________
10/1/97 - 9/30/98 $___________________
10/1/98 - 9/30/99 $___________________
Subcontractor's Name:___________________________________________________________
Address:________________________________________________________________________
Method Of Payment:______________________________________________________________
Function Performed:_____________________________________________________________
Estimated Value Of Contract: 10/1/96 - 9/30/97 $____________________
10/1/97 - 9/30/98 $____________________
10/1/98 - 9/30/99 $____________________
Subcontractor's Name:___________________________________________________________
Address:________________________________________________________________________
Method Of Payment:______________________________________________________________
Function Performed:_____________________________________________________________
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Estimated Value Of Contract: 10/1/96 - 9/30/97 $_____________________
10/1/97 - 9/30/98 $_____________________
10/1/98 - 9/30/99 $_____________________
11. OFFEROR'S KEY PERSONNEL
Indicate the names of the persons filling the following positions and the date
(month/year) they began, or will begin, their staff assignment. In addition, the
Offeror must attach detailed professional resumes for all key personnel to
include, at a minimum, the following:
Position: Name: Starting Date: # of AHCCCS
hours per
week
Administrator
Medical Director
Financial Officer
Quality Mgt. Coordinator
Case Management Coordinator
Claims Administrator
Behavioral Health Coordinator
Grievance Coordinator
[END OF SECTION G]
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SECTION H - INSTRUCTIONS TO OFFERORS
TABLE OF CONTENTS
1. Proposal Content and Format..............................................59
2. AHCCCSA Bidders' Library.................................................59
3. Proprietary Information..................................................60
4. Prospective Offerors' Inquiries..........................................60
5. Prospective Offerors' Conference.........................................60
6. Federal Deadline for Signing Contract....................................61
7. Withdrawal of Proposal...................................................61
8. Amendments to RFP........................................................61
9. General Matters..........................................................61
10. Provider Network and Network Management..................................61
11. Capitation Rate................................ERROR! BOOKMARK NOT DEFINED.
12. Program Operations.......................................................63
13. Organization.............................................................64
14. Certificate of Insurance.................................................65
15. Data Management..........................................................65
16. Amendments...............................................................65
17. Submission of Initial Proposal On Most Favorable Terms...................66
18. Proposal Opening.........................................................66
19. Proposal Discussions.....................................................66
20. Best and Final Offers....................................................66
21. Award of Contract........................................................66
22. RFP Milestone Dates......................................................67
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SECTION H - INSTRUCTIONS TO OFFERORS
Note: This RFP document does not describe the entire ALTCS program in
complete detail. The Offeror, therefore, is encouraged to make use of the
Bidders' Library and review the material incorporated by reference
throughout the document. See Paragraph 2 below.
CONTINUING OFFERORS ONLY: For items below followed by an asterisk [*], a
continuing ALTCS offeror must submit its proposal for that item only if its most
recent operational/ financial review revealed deficiencies and the offeror's
subsequent corrective action plan was not approved by AHCCCSA. The continuing
offeror must also submit its proposal for that item if there have been
significant changes since the last operational/ financial review.
If the continuing offeror is deferring to its most recent operational/financial
review to meet a requirement shown with an asterisk, it must be indicated by
entering "PER REVIEW" in the "Offeror's Page #" column of the Offeror's
Checklist. If the continuing offeror is proposing to expand into a new service
area, it must submit the asterisked items for the new service area.
1. PROPOSAL CONTENT AND FORMAT
The Offeror's proposal should present a detailed approach and plan for
addressing each element identified and described in this RFP. The information
must be presented in the order prescribed in Paragraphs 9 through 15 and again
in the Offerors' Checklist (Attachment J). Proposals that merely paraphrase
elements of this RFP or use such phrases as "will comply" or "standard
techniques will be employed" may be deemed unresponsive. AHCCCSA will not
provide any reimbursement for the cost of developing or submitting a proposal in
response to this RFP. One original and five copies of each proposal shall be
submitted in the format outlined below. Proposals received after the time and
date indicated on the front page of this solicitation will not be considered.
All proposals shall be organized as outlined in the checklist, forms and
computer disks provided in this solicitation. The checklist will serve as the
table of contents and the notes at the beginning of the checklist (Attachment J)
give specific instructions for new and continuing offerors. The Offeror must
indicate on the checklist the specific page numbers where material may be found
on the individual items. All pages of the Offeror's proposal must be numbered
consecutively, including attachments, appendices, exhibits, etc. The proposal
must be submitted in three-ring loose-leaf binders with the "spine" of each
binder clearly labeled to identify the Offeror, the contents of the binder, the
inclusive page numbers of that binder, and the number of the binder within the
series (e.g. "Vol. 2 of 4"). The binder containing the capitation and provider
network computer disks must be clearly identified on the outside of the binder.
Sealed proposals must be received at AHCCCSA no later than 3:00 pm, June 14,
1996.
Erasures, interlineations or other modifications in the proposal shall be
initialed in ink by the person authorized to sign the offer. AHCCCSA shall not
reimburse the Offeror the cost of proposal preparation.
2. AHCCCSA BIDDERS' LIBRARY
The Bidders' Library contains reference material on AHCCCS and ALTCS policies
and performance requirements to assist the Offeror in preparing a thorough and
realistic response to this solicitation. References are made throughout this
solicitation to materials in the Bidders' Library and all such materials are
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<PAGE> 59
incorporated into the contract by reference. The Bidders' Library is located at
701 E. Jefferson, Phoenix, AZ. Please contact Mark Renshaw at (602) 417-4577 for
further information and appointment times. The following documents are available
for viewing or copying in the Bidders' Library:
ALTCS Eligibility Policy and Procedure Manual
AHCCCS Medical Policy Manual
AHCCCS Encounter Reporting User Manual
ALTCS Uniform Accounting and Reporting System and Guide for Audits
of ALTCS Contractors and Providers
AHCCCS Technical Interface Guidelines
Statement of Requirements for ALTCS Quality Management Program
Code of Federal Regulations (CFR), Titles 42 and 45 Arizona Revised
Statutes
ALTCS Rules
AHCCCS Rules
AHCCCS Fee-for-Service Capped Fee Schedule
AHCCCS Policy for Prevention, Detection and Reporting of Fraud and
Abuse
AHCCCS Reinsurance Manual
HCBS Cap Report
Long-Term Care Placement Report
Enrollment Report (last two years)
Transplantation rates
3. PROPRIETARY INFORMATION
All proposals shall become the property of AHCCCSA. The Offeror may designate
certain information to be proprietary in nature by printing the word
"proprietary" on top of each page for which nondisclosure is requested. Final
determinations of nondisclosure rest with AHCCCSA; however, all portions of the
Offeror's proposal, including those which are proprietary, may be provided to
the HCFA and its evaluation contractor.
4. PROSPECTIVE OFFERORS' INQUIRIES
Any questions related to this solicitation must be directed to Mark Renshaw,
AHCCCS Contracts and Purchasing, 701 E. Jefferson, Phoenix, AZ 85034 All
questions submitted in writing to AHCCCSA, Contracts and Purchasing, by April
19, 1996 will be combined and answered in a single RFP amendment shortly
thereafter. The Offeror shall not contact or ask questions of other AHCCCSA
staff unless authorized to do so by the Contracting Officer. Cite page, section
and paragraph number when submitting questions
5. PROSPECTIVE OFFERORS' CONFERENCE
A Prospective Offerors' Conference will be held on Monday, April 15, 1996 from
1-3 p.m. at the 701 E. Jefferson, 3rd Floor Gold Room. The purpose of this
conference will be to clarify the contents of this solicitation, answer
questions from prospective offerors, and offer general guidance on the required
format of all proposals. Any doubt regarding the contents or requirements of
this solicitation or any apparent omission or discrepancy should be presented at
or before this conference. AHCCCSA will then determine the appropriate action
necessary and issue a written amendment to the solicitation, if appropriate.
6. FEDERAL DEADLINE FOR SIGNING CONTRACT
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The federal Health Care Financing Administration (HCFA) has imposed strict
deadlines for finalization of contracts in order to qualify for federal
financial participation. This contract, completed and signed by both parties,
must be available for submission to HCFA prior to the beginning date of the
contract term (Oct. 1, 1996), but in no case later than November 1, 1996. All
public entity offerors must ensure that the approval of this contract is placed
on appropriate agendas well in advance to ensure compliance with this deadline.
Any withholding of federal funds caused by the Offeror's failure to comply with
this requirement shall be borne in full by the Offeror.
7. WITHDRAWAL OF PROPOSAL
At any time prior to the proposal due date and time, the Offeror (or designated
representative) may withdraw its proposal. Telegraphic or mailgram withdrawals
will not be considered.
8. AMENDMENTS TO RFP
Amendments may be issued subsequent to the issue date of this solicitation.
Receipt of solicitation amendments must be acknowledged by signing and returning
the signature page of the amendment to AHCCCSA.
[PARAGRAPHS 9 THROUGH 15 PERTAIN TO THE PROPOSAL REQUIREMENTS AS THEY APPEAR IN
ATTACHMENT J, OFFEROR'S CHECKLIST:]
9. GENERAL MATTERS
Complete and submit the Offeror's signature page (cover page of this document).
Complete and submit the Offeror's Checklist.
Review and understand the Certification of Non-coercion.
10. NETWORK
Provider Network - The Offeror shall have in place an adequate network of
providers capable of meeting all contract requirements. Attachment B lists the
minimum network requirements by service area. The Offeror shall provide in its
proposal information concerning its entire provider network for all service
areas whether the proposal is for a continuing service area or an expansion of
service areas. Submit both the nursing facility network disk and hard copy. A
hard copy roster of the acute care, HCBS and behavioral health providers shall
be submitted in the format listed below. Signed letters of intent or contract
signature pages must accompany the provider listings as evidence of an agreement
between the Offeror and provider. Attachment E, Sample Letter of Intent, is the
only acceptable format for these letters. AHCCCSA may verify any or all
submitted letters of intent or contracts.
Nursing Facility Network - The nursing facility network disk screens contain the
names of the nursing facilities listed alphabetically by county. See Attachment
G and the network disk for detailed instructions.
Acute care, HCBS and Behavioral Health - The Offeror shall submit a roster by
county of acute care, HCBS and behavioral health providers for Contract Year
96-97. In addition to the roster, signed letters of intent or contract signature
pages must be submitted in the same order as the names listed on the provider
roster. The roster shall appear in the same order and use the same headings as
the Sample Letter of Intent provider listing (Attachment E). For example, start
with Acute Care Hospital which is #2 on the listed provider types in the Sample
Letter of Intent and list all the hospitals for which letters of intent or
contracts have been obtained. This should be followed by
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Psychiatric Hospital which is #3 on the listed provider types in the Sample
Letter of Intent. Continue the provider listing through Hospice Service
Providers. Include the following information in the roster listing: provider
name, address including street, city, state, and zip code and telephone number.
Network Maps (Maricopa And Pima Counties Only) - The Offeror must demonstrate
the ability to provide Primary Care Provider (PCP) and pharmacy services in
metropolitan Phoenix and Tucson according to certain maximum travel distances.
Attachment I to this solicitation consists of two maps (Phoenix and Tucson) each
of which shows a geographical boundary. The Offeror's network must be such that
a member residing within the boundary area would not have to travel more than
five miles to see a PCP or pharmacy. A member residing outside the boundary area
(but within the total area shown on the map) must not have to travel more than
10 miles to see such providers. (See Mapping Instructions which follow.)
Mapping Instructions: The Offeror must use the maps provided (Attachment I) to
indicate the location of each PCP and pharmacy in its proposed network for
metropolitan Phoenix and Tucson. The Offeror should use color coded dots, red
for PCP's and green for pharmacies. The Offeror may place one red dot in the zip
code with a number indicating the number of proposed subcontracts for PCP's
within that zip code. Similarly, the Offeror may place a green dot in the
particular zip code with a number indicating the number of pharmacies proposed
for that zip code area. Since the color on dots is not distinguishable when
photocopied, the Offeror should place colored dots on not only the original but
also on all five required copies, or supply colored copies.
Network Development - The Program Contractor must develop and maintain an
adequate provider network to provide all covered services. Where there is a
deficiency in the provider network, identify the deficiency and submit your plan
for correcting it. Submit a description of your current Home and Community Based
Services program, as well as your plan for further developing these services.
Address, at a minimum, the following areas:
Attendant Care
Personal Care
Homemaker
Adult Day Health
Home Health Agency Services, including nursing and home health aide
Group Respite as an alternative to Adult Day Health
Environmental modifications
Home-delivered meals
Submit a separate description of your proposals for providing alternative
residential settings to include, at a minimum:
Adult Foster Care
Adult Care Homes (pilot program)
Supportive Residential Living (pilot program)
Traumatic Brain Injury facilities
Behavioral Health levels I and II
Network Management - Submit a narrative description, or copies of your policies
and procedures, indicating how you will meet the network management requirements
specified in Section D, Paragraphs 24 through 28. The description must describe
in detail the internal monitoring process pertaining to frequency, problem
identification, corrective action plan, follow-up, sanctions and cause for
provider termination.
Provider manual - Submit one manual in a separate binder labeled "Provider
Manual".
61
<PAGE> 62
11. CAPITATION RATE
Capitation is a fixed per member monthly payment to the Program Contractor for
the provision of covered services to members. It is an actuarially sound amount
to cover expected utilization and costs in a risk-sharing managed care
environment. In addition, AHCCCSA offers reinsurance programs to protect the
Program Contractor from unusual and unforeseen expenses.
The Offeror must demonstrate that the capitation rates proposed are actuarially
sound. That is, the Offeror, if awarded a contract, should be able to keep
utilization at or below its proposed levels and to subcontract for unit costs
that average at or below the amounts shown on its Capitation Rate Calculation
Sheet disk. The Offeror may require assistance from an actuary to develop some
of the fundamental assumptions for meeting the criteria defined above.
To facilitate the preparation of its capitation proposals, AHCCCSA will provide
the offeror with a copy of the Data Supplement Book, to be available April 15 or
shortly thereafter. This book should not be used as the sole source of
information in preparing the capitation proposal. The Offeror is solely
responsible for research, preparation and documentation of its capitation
proposal.
The Offeror must submit its capitation proposal using the AHCCCSA capitation bid
disk. Attachment F to this RFP contains detailed instructions for using the
computer disk program.
12. PROGRAM OPERATIONS
Medical Director - Submit the position description or a copy of the contract.
Case Management Structure Plan - A new offeror, or a continuing offeror bidding
on a new service area, must describe how it will meet ALTCS case management
requirements. (See Section D, Paragraph 9, Case Management.) A continuing
offeror must submit this case management plan if the 1994-96 case management
services review indicated deficiencies and the subsequent corrective action plan
was not approved by AHCCCSA. A continuing offeror must also submit its case
management plan if there have been significant management or organizational
changes since the last services review or plan submittal.
The description shall include the number of case managers, how case management
assignments are made and how protocols are communicated. Describe the monitoring
process to ensure compliance with protocols of case management ratios, data
entry, member contact timelines, member record content, placement decisions
(including any preference for particular procedures), how case managers will
coordinate with primary care physicians and prior authorization staff, how
out-of-county clients will be managed and member transition to AHCCCS acute care
health plans.
Quality Management/ Utilization Management - A new offeror, or a continuing
offeror bidding on a new service area, must submit a quality management plan
addressing the requirements specified in the AHCCCS Medical Policy Manual. (Also
see Section D, Paragraph 11, Quality Management/ Utilization Management.) This
plan should include the Offeror's utilization management plan. Attach
utilization management policies and procedures for (1) prior authorization and
referral requirements, (2) clinical standards used, (3) restrictions on settings
for care, and (4) the qualifications of individuals performing utilization
management activities.
A continuing offeror must submit the quality management plan if the 1994-96 case
management services review indicated deficiencies and the subsequent corrective
action plan was not approved by AHCCCSA. A continuing offeror must also submit
its quality management plan if there have been significant management or
organizational changes since the last services review or plan submittal.
62
<PAGE> 63
Grievance and Appeals - The Offeror must submit specific information describing
how it will meet the requirements outlined in Attachment H, Grievance Process
and Standards.
Member Transition and Program Contractor Changes policy - Submit relevant
policies and procedures.
Member Handbook and Communications - Submit a copy of the current or proposed
member handbook.
Behavioral Health Services - Submit the behavioral health services plan that
includes, but is not limited to, referral process, treatment planning and
coordination, staff and provider training in the identification of and screening
for behavioral health needs, quality and utilization management.
13. ORGANIZATION
Section G - Complete all questionnaire items and submit all materials required
in Section G, including authorized signatory, functional organization chart,
resumes of key personnel (submit position description if vacant), licenses,
certifications, description of organizational entity, description of claims
processing, RBUC/ IBNR method, financial projections, financial disclosure
statements, administrative functions/ management/ MIS subcontractor statements
and related party transactions.
Financial Viability Standards - Calculate and submit the financial viability and
performance measures based on your financial projections.
Performance Bond or Bond Substitute - Submit your plan for meeting this
requirement including the type of bond to be posted, source of funding and
timeline for meeting the requirement.
Patient Trust Account Policy and Procedure - Submit a copy of your policy for
monitoring these accounts.
TPL/ COB Procedures - Submit a copy of your policy that addresses third party
liability requirements.
Share of Cost Collection Policy - Submit copy of policy that describes the
collection of the member's share of cost.
Fraud and Abuse - Submit a copy of your policy pertaining to the prevention and
detection of fraud and abuse.
Model Subcontracts - Submit copies of the following model subcontracts:
a. Contracts between related parties
b. Subcontracts for full or partial risk, or withholds
c. Contracts for management information systems or data
management firms
d. Primary care physicians
e. Attendant Care and Home Health agencies
f. Behavioral health providers
g. Nursing facilities
h. Alternative residential care facilities (described in Section
D, Paragraph 1, Covered Services)
i. Dental services
14. CERTIFICATE OF INSURANCE
The Offeror shall submit a properly completed Certificate of Insurance in
accordance with the requirements of Section E, Paragraph 28, Insurance.
63
<PAGE> 64
15. DATA MANAGEMENT
The Offeror shall submit a description of how it will meet the data management
requirements specified in Section D, Paragraph 52, Data Management. If not
currently able to meet requirements, submit an appropriate timeline for
start-up.
16. AMENDMENTS
The Offeror shall sign and submit with its offer all amendments to this
solicitation.
17. SUBMISSION OF INITIAL PROPOSAL ON MOST FAVORABLE TERMS
AHCCCSA reserves the right to award a contract without negotiation based solely
on the price and terms of the proposal as initially submitted. The Offeror is
therefore advised to submit its best offer initially.
18. PROPOSAL OPENING
Proposals will be opened publicly immediately following the proposal due date
and time. The name of each offeror will be read publicly and recorded, but no
other information contained in the proposals will be disclosed. Proposals will
not be available for public inspection until after contract award.
19. PROPOSAL DISCUSSIONS
Discussions may be conducted with a responsible offeror who submits a proposal
determined to be reasonably susceptible of contract award. As used here,
"responsible offeror" means an offeror that has the capability to perform the
contract requirements and also the integrity and reliability to assure good
faith performance. In conducting discussions, there will be no disclosure of any
information derived from competing proposals. AHCCCSA will have sole discretion
in selecting proposal discussion items and such discussions may include
interviews or be in writing. At the end of discussions, the offeror may be
permitted the opportunity to revise its proposal for the purpose of obtaining
its best and final offer.
20. BEST AND FINAL OFFERS
If in the best interest of the State, AHCCCSA will issue a written request for a
Best and Final Offer (BFO) setting forth the date, time and place for its
submission. The purpose of the request for a BFO is to allow the Offeror an
opportunity to resubmit bids for rate components not previously accepted by
AHCCCSA. In addition, AHCCCSA will disclose to the Offeror which of its bid rate
components are acceptable (within or below the actuarial rate range), and which
are not acceptable (above the actuarial rate range).
The BFO must be submitted on the computer disk provided by AHCCCSA. The Offeror
whose final bid rate components fall below the bottom of the actuarial rate
range will have its rates increased to the bottom of the component rate range.
The Offeror whose final bid rate components are above the actuarial rate range
will be offered a rate in the bottom half of the component rate range. If the
Offeror does not submit a notice of withdrawal or a BFO, its immediate previous
offer will be considered its best and final offer. The Offeror will not be
allowed to adjust upward a previously accepted component rate bid.
64
<PAGE> 65
21. AWARD OF CONTRACT
Award will be made to the offeror whose proposal is determined to be the most
advantageous to AHCCCSA based on the evaluation factors set forth in Section I
of this RFP. Final capitation rates are subject to approval by HCFA.
Notwithstanding any other provision of this solicitation, AHCCCSA expressly
reserves the right to:
a. Waive any immaterial mistake or informality;
b. Reject any or all proposals, or portions thereof; and/or
c. Reissue a Request for Proposals
A response to this RFP is an offer to contract with AHCCCSA based upon the
terms, conditions, scope of work and specifications of the RFP. Proposals do not
become contracts unless and until they are accepted by the contracting officer.
A contract is formed when the AHCCCSA Contracting Officer provides written
notice of award to the successful offeror(s). The final contract consists of the
terms and conditions of the RFP, amendments to the RFP, the Offeror's last BFO,
and subsequent contract modifications, if any.
22. RFP MILESTONE DATES
The following is the anticipated schedule of events regarding the solicitation
process:
Activity Date
Solicitation issued 4/1/96
Offerors' Conference 4/8/96
RFP-related questions due (if any) 4/19/96
Technical Assistance Conference 5/6/96
Proposals due 6/14/96
Awards made 7/15/96
Contract term begins 10/1/96
[END OF SECTION H]
65
<PAGE> 66
SECTION I - EVALUATION FACTORS SELECTION PROCESS
AHCCCSA has developed a scoring process which is designed to evaluate fairly an
offeror's ability to provide cost-effective, high quality contract services in a
managed care setting. The following factors, weighted as shown, will be
evaluated.
Provider Network and Management 30%
Program 30%
Capitation 25%
Organization 15%
Provider Network and Capitation will be scored by county. Organization and
Program will be scored in the aggregate for all counties bid by the Offeror.
Contracts will be awarded to qualified Offerors whose proposals are deemed to be
most advantageous to the State in accordance with [Section H, Paragraph 21.]
AHCCCSA will consider its experience with continuing ALTCS Offerors and
contracted health plans in evaluating their proposals in the areas of Provider
Network, Program and Organization. The results of the most recent Operational
and Financial Reviews performed by AHCCCSA through April 1996 will be used in
the evaluation process. AHCCCSA may also conduct New Offeror Reviews.
AHCCCSA reserves the right to waive immaterial defects or omissions in this
solicitation or submitted proposals.
ALL OF THE COMPONENTS LISTED BELOW WILL BE EVALUATED AGAINST CORRESPONDING
STATUTES, AHCCCSA RULES, REGULATIONS, POLICIES AND THE REQUIREMENTS CONTAINED IN
THIS RFP. THE OFFEROR'S CHECKLIST (ATTACHMENT J) CONTAINS RFP REFERENCES FOR
EACH OF THESE ITEMS:
PROVIDER NETWORK DEVELOPMENT AND MANAGEMENT
The provider network will be evaluated and scored with reference to the
Offeror's network development and network management. "Network development" is
defined as the process of negotiating contractual relationships with a
sufficient number of providers able to competently perform defined covered
services within a given area in accordance with AHCCCS standards (e.g.
appointment times).
1. Nursing facility network
AHCCCSA will use the automated Nursing Facility Network Program to evaluate and
score the nursing facility network. Within the program, the Offeror must
indicate the nursing facilities for which it has signed letters of intent or
contracts for Contract Year 96-97. The Offeror must submit the signed letters of
intent and/or the contract signature pages for Contract Year 96-97 as part of
its proposal.
Extra consideration will be given for letters of intent or contracts that
specify payment rates, share of cost collection agreements, and certain types of
risk relationships. The share of cost collection agreement will be evaluated
based on delineation of responsibility of both parties in the collection of the
members' share of cost. Mere delegation of this responsibility to the provider
will not result in any extra credit or consideration in the scoring process. The
agreement must demonstrate due diligence on the part of both parties. The
Offeror will receive extra consideration for entering risk-sharing agreements
with its nursing homes. To receive extra consideration, the risk agreement must
align the incentives of the Offeror and the nursing home in placing the member
at the appropriate level of care, including moving the member to an HCBS setting
if appropriate. The risk agreements must not encourage underutilization or
violate any federal or state regulations.
66
<PAGE> 67
2. Acute, HCBS, behavioral health network
3. HCBS development plan
4. Provider network deficiency plan - The Offeror's plan will be evaluated to
determine if the Offeror has identified network deficiencies and has
established an action plan to address the deficiencies.
5. Network management policies and procedures
6. Provider Manual
CAPITATION RATE
The Offeror must submit its capitation rate bid by county. The components of
this rate bid that will be evaluated and scored are:
1. Nursing facility
2. HCBS
3. Acute care
3. Administration
4. Risk, contingencies and profit
The components will be weighted for scoring based upon their relative importance
to the overall program. The lowest bid for each component will receive the
maximum allowable points. However, if a bid is below the actuarial rate range,
the bid will be evaluated as if it is at the bottom of the acruarial rate range.
No additional points will be given for bids below the actuarial rate range.
Conversely, the highest bid (within or above the actuarial rate range) for each
component will receive the least number of points.
PROGRAM OPERATIONS
1. The Medical Director's job description and/or contract
2. Case management plan, policies and procedures
3. Quality Management/Utilization Management plans and policies
4. Grievance policies
5. Member transition policy which includes program contractor changes
6. Member handbook and communications policies and procedures
7. Behavioral health services plan and policies
ORGANIZATION
1. Functional organization chart and resumes of key personnel
2. Claims and encounter processing system
3. RBUC/ IBNR methods
4. Financial projections
5. Financial viability standards based on the financial projections
6. Performance bond or bond substitute
7. Administrative cost allocation
8. Patient Trust Account policy and procedure - Evaluation will consider
whether the Offeror has an active role in monitoring patient trust
accounts.
9. TPL/COB policies and procedures - Evaluation will consider the Offeror's
cost avoidance and cost recovery methods.
67
<PAGE> 68
10. Share of Cost collection policy - Evaluation will consider whether the
Offeror's and provider's responsibility in the collection of the member
share of cost is clearly specified.
11. Fraud and abuse policy
12. Model subcontracts
[END OF SECTION I]
68
<PAGE> 1
EXHIBIT (10.1)(a)(1)
ARIZONA HEALTH COST CONTAINMENT SYSTEM ADMINISTRATION
DIVISION OF BUSINESS AND FINANCE
CONTRACT AMENDMENT
Page 1 of 1
- --------------------------------------------------------------------------------
AMENDMENT NUMBER: CONTRACT NUMBER: EFFECTIVE DATE OF AMENDMENT: PROGRAM:
1 YH6-0012-06 10/1/96 ALTCS
- --------------------------------------------------------------------------------
CONTRACTOR'S NAME AND ADDRESS:
James Burns, CEO
VENTANA HEALTH SYSTEMS
2510 W. DUNLAP, STE 100
PHOENIX, AZ 85021
- --------------------------------------------------------------------------------
PURPOSE OF AMENDMENT: To set capitation rates for Contract Year 96-97
- --------------------------------------------------------------------------------
THE CONTRACT REFERENCED ABOVE IS AMENDED AS FOLLOWS:
The capitation rates (per member per month) effective 10/1/96 are as follows:
<TABLE>
<CAPTION>
County Long-term care Vent. Vent. Acute Care only
Dependent Dependent
(Institutional) (HCBS)
<S> <C> <C> <C> <C>
Apache 1,672.41 11,743.64 6,312.01 455.36
Gila 2,050.14 11,743.64 6,312.01 299.60
Greenlee 2,153.03 11,743.64 6,312.01 376.22
LaPaz 1,901.53 11,743.64 6,312.01 363.73
Mohave 1,778.26 11,743.64 6,312.01 319.89
Navajo 1,812.29 11,743.64 6,312.01 334.79
Santa Cruz 1,957.35 11,743.64 6,312.01 336.17
</TABLE>
NOTE: Please sign, date and return both originals to:
Mark Renshaw
AHCCCS Contracts and Purchasing
701 E. Jefferson
Phoenix, AZ 85034
- --------------------------------------------------------------------------------
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL CONTRACT
REMAIN UNCHANGED AND IN FULL EFFECT.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIGNATURE OF AUTHORIZED REPRESENTATIVE: SIGNATURE OF AHCCCSA CONTRACTING OFFICER:
<S> <C>
James Burns Michael Veit
TYPED NAME: TYPED NAME:
JAMES BURNS MICHAEL VEIT
TITLE: TITLE: CONTRACTS & PURCHASING
CEO ADMINISTRATOR
DATE: DATE:
July 26, 1996 Jul 30 1996
</TABLE>
<PAGE> 1
EXHIBIT (10.1)(a)(2)
ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
DIVISION OF BUSINESS AND FINANCE
SOLICITATION AMENDMENT
<TABLE>
<CAPTION>
====================================================================================================================
AMENDMENT NUMBER: SOLICITATION NUMBER EFFECTIVE DATE OF AMENDMENT: PROGRAM:
<S> <C> <C> <C> <C>
1 YH6-0012 October 1, 1996 OMC/ LTC
====================================================================================================================
</TABLE>
OFFEROR'S NAME AND ADDRESS:
Ventana Health Systems, Inc
2510 W. Dunlap Avenue, Suite #300
Phoenix, Arizona 85021
- --------------------------------------------------------------------------------
PURPOSE OF AMENDMENT: (1) To clarify which behavioral health and Traumatic Brain
Injury costs are covered under reinsurance; (2) to amend the instructions for
preparing the nursing home roster (Attachment G) to delete all references to a
nursing home network diskette, which will not be used; (3) to change the date of
the Technical Assistance Conference.
- --------------------------------------------------------------------------------
THE SOLICITATION REFERENCED ABOVE IS AMENDED AS FOLLOWS:
(1) Page 2 of this amendment contains a revision of Section D,
Paragraph 43, Reinsurance. The changes are indicated as either deleted
text (shown like this) or added text (shown like this). The purpose
of the revision is to clarify that the only behavioral health/TBI
costs which qualify for reinsurance are those identified as part of
the institutional or HCBS setting, and which have been authorized in
advance by AHCCCSA. No other ALTCS covered services (except for
acute inpatient hospitalizations) qualify for reinsurance
reimbursement.
(2) Attachment G is replaced in its entirety by Attachment G (First
Revision), attached hereto. There will be no nursing facility computer
disk issued and offerors will use instead the county-by-county rosters
included in the new Attachment G. All references to use or preparation
of the nursing facility network disk are hereby deleted.
(3) The Technical Assistance Conference, if necessary, originally
scheduled for Monday, May 6, has been rescheduled for Friday, May 10
at 3 pm in the Arizona Room (701 E. Jefferson).
NOTE TO OFFERORS:
Please enter name and address above, complete signature block below and send a
copy of this page only to:
Mark Renshaw
AHCCCSA, Contracts and Purchasing
701 E. Jefferson
Phoenix, AZ 85034
================================================================================
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL
SOLICITATION REMAIN UNCHANGED AND IN FULL EFFECT.
================================================================================
SIGNATURE OF AUTHORIZED REPRESENTATIVE/SIGNATURE OF AHCCCSA CONTRACTING OFFICER:
James A. Burns
TYPED NAME: TYPED NAME: MICHAEL VEIT
James A. Burns
================================================================================
TITLE: TITLE: CONTRACTS & PURCHASING
Chief Executive Officer ADMINISTRATOR
================================================================================
DATE: DATE:
5-28-96
================================================================================
43. REINSURANCE
<PAGE> 2
Reinsurance is a stop-loss program provided by AHCCCSA to the Program Contractor
for the partial reimbursement of covered inpatient facility medical services
incurred for a member beyond an annual deductible. AHCCCSA is self-insured for
the reinsurance program which has an initial deductible level and a subsequent
coinsurance percentage. For dates of service after 10/1/96 (under regular
reinsurance), the Program Contractor will be reimbursed at 75% of allowable
charges over the following deductibles:
<TABLE>
<CAPTION>
<S> <C> <C>
Urban county, with Medicare Part A $12,000
Urban county, without Medicare $20,000
Rural county, with Medicare Part A $ 5,000
Rural county, without Medicare $ 9,000
Behavioral Health/ Traumatic Brain Injury 0
=======================================================
</TABLE>
Regular reinsurance covers acute inpatient hospitalizations (i.e. anything
billed on a UB92). Effective 10/1/96, however, members considered by the AHCCCS
Office of the Medical Director (OMD) to be high-cost behavioral health or
Traumatic Brain Injured (TBI) will also be covered under regular reinsurance.
Placement into an institutional or HCBS setting for these members must be
approved in advance by OMD for the Program Contractor to qualify for reinsurance
reimbursement. Behavioral Health/ TBI reinsurance will cover the institutional
or HCBS setting only. Acute care services and all other ALTCS services are not
covered by reinsurance for this population. The Program Contractor will be
reimbursed at 75% of allowable charges with no deductible.
Services to members identified as being catastrophically eligible in accordance
with OMD policies will be covered under a special catastrophic program instead
of the regular reinsurance program. Catastrophic reinsurance coverage for
transplants is limited to 85% of the AHCCCS contract amount for the transplant
services rendered, or 85% of the Contractor-paid amount, whichever is lower.
Catastrophic reinsurance for hemophiliacs is covered at 85% of the
Contractor-paid amount. The AHCCCS contracted transplantation rates are
available in the Bidders' Library.
AHCCCSA uses inpatient encounter data to determine regular reinsurance benefits.
Reimbursement for regular reinsurance benefits will be made to the Program
Contractor monthly. AHCCCSA will also provide for a reconciliation of
reinsurance payments in the case where encounters used in the calculation of
reinsurance benefits are subsequently adjusted or voided.
Encounter data will not be used to determine catastrophic reinsurance benefits.
However, this does not relieve the Program Contractor of the responsibility for
submitting encounters for catastrophic reinsurance services. The Program
Contractor must submit catastrophic reinsurance claims in accordance with the
AHCCCS Reinsurance Policy/Procedure Manual. All catastrophic reinsurance claims
shall be subject to medical review by AHCCCSA or its designee.
Medical review on regular reinsurance cases will be determined based on
statistically valid random sampling. The AHCCCS Office of the Medical Director
will generate the sampling and will notify the Program Contractor of
documentation needed for the retrospective medical review process to occur at
the Program Contractor's offices. The results of the medical review sampling
will be extrapolated to the Program Contractor's entire regular reinsurance
reimbursement population. A partial recoupment of reinsurance reimbursements
made to the Program Contractor may occur based on the results of the medical
review sampling.
<PAGE> 1
EXHIBIT (10.1)(a)(3)
ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
DIVISION OF BUSINESS AND FINANCE
SOLICITATION AMENDMENT
<TABLE>
<CAPTION>
===================================================================================================================
AMENDMENT NUMBER: SOLICITATION NUMBER: EFFECTIVE DATE OF AMENDMENT: PROGRAM:
<S> <C> <C> <C> <C>
2 YH6-0012 October 1, 1996 OMC/ LTC
===================================================================================================================
</TABLE>
OFFEROR'S NAME AND ADDRESS:
Ventana Health Systems, Inc
2510 W. Dunlap Avenue, Suite #300
Phoenix, AZ 85021
- --------------------------------------------------------------------------------
PURPOSE OF AMENDMENT: (1) To answer questions from prospective offerors
pertaining to the ALTCS RFP; (2) to make certain changes to the RFP text based
on these questions.
- --------------------------------------------------------------------------------
THE SOLICITATION REFERENCED ABOVE IS AMENDED AS FOLLOWS:
This amendment has two purposes. The first is to make actual changes
to the text of the RFP. The second is to answer questions from
offerors in order to clarify existing text. The actual changes to the
text are described on pages 2-3 of this amendment and are followed by
the 30-page "ALTCS RFP Questions and Answers". Attached also are
revised Attachments B (Minimum Network Standards), C (Encounter
Submission Standards) and E (Sample Letter of Intent).
NOTE TO OFFERORS:
Please enter name and address above. A copy of this signature page only must be
submitted with your proposal.
- --------------------------------------------------------------------------------
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL
SOLICITATION REMAIN UNCHANGED AND IN FULL EFFECT.
- --------------------------------------------------------------------------------
SIGNATURE OF AUTHORIZED REPRESENTATIVE:SIGNATURE OF AHCCCSA CONTRACTING OFFICER:
James A. Burns
- --------------------------------------------------------------------------------
TYPED NAME: TYPED NAME: MICHAEL VEIT
James A. Burns
- --------------------------------------------------------------------------------
TITLE: TITLE: CONTRACTS & PURCHASING
Chief Executive Officer ADMINISTRATOR
- --------------------------------------------------------------------------------
DATE: DATE: MAY 6, 1996
5-28-96
- --------------------------------------------------------------------------------
1
<PAGE> 2
CHANGES TO THE RFP TEXT:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
RFP RFP
PAGE PARA. OLD TEXT: NEW TEXT: PURPOSE OF CHANGE:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15 D.9 The case manager shall make initial The case manager shall make To clarify that the five and ten
contact with the member within five initial contact with the member day periods referred to here are
days of enrollment, initial on-site within five working days of working days, not calendar
contact with the member within 10 enrollment, initial on-site contact days.
days of enrollment with the member within 10
working days of enrollment.
- ----------------------------------------------------------------------------------------------------------------------------------
19 D.14 [Program Contractor name] will make [Program Contractor name] will To make the RFP consistent
a final decision within 45 days of make a final decision within 30 with AHCCCS Rules and
getting your written grievance. days of getting your written or oral clarify that the member may file
grievance. a grievance orally as well as in
writing and that the Program
Contractor must make a final
decision on the grievance within
30 days, not 45.
- ----------------------------------------------------------------------------------------------------------------------------------
19 D.15 The effective date of enrollments The effective date of enrollment To correct an error in the RFP
and disenrollments with the Program with the Program Contractor is regarding the disenrollment
Contractor is two days after the date two days after notification to the effective date.
the Program Contractor receives Program Contractor.
notification. Disenrollment is effective the end
of the month of discontinuance.
- ----------------------------------------------------------------------------------------------------------------------------------
24 D.28 For BEHAVIORAL HEALTH SERVICES, the For BEHAVIORAL HEALTH SERVICES, To change appointment
Program Contractor shall be able to the Program Contractor shall be standards for behavioral health
provide appointments as follows: able to provide appointments as services.
a. Emergency appointments within follows:
24 hours of request a. Emergency appointments
b. Non-emergency appointments within 24 hours of referral.
within 7 days of request b. Behavioral Health Screening
within seven days of referral
for HCBS members.
c. Non-emergency appointments
for nursing home residents:
within 30 days of referral.
d. Non-emergency appointments
for HCBS members: within 30
days of behavioral health
screening.
- ----------------------------------------------------------------------------------------------------------------------------------
24 D.29 The Program Contractor is The Program Contractor is To delete the requirement of
responsible for reporting all cases of responsible for reporting all cases reporting "inappropriate
suspected fraud and abuse or of suspected fraud and abuse by practices" by subcontractors,
inappropriate practices by subcontractors, members or members or employees.
subcontractors, members or employees.
employees.
- ----------------------------------------------------------------------------------------------------------------------------------
28 D.37a "Current ratio" is defined as
</TABLE>
4
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C> <C>
"Current assets divided by current "Current assets divided by current "current assets" consistent with
liabilities" liabilities. Current assets include that used in the acute care
any long-term investments that can program.
be converted to cash within 24
hours without significant penalty
(i.e., greater than 20%).
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CHANGES TO THE RFP TEXT (CONT'D):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
28 D.37b "Equity per member" is defined as "Equity per member" is defined as To make the definition of "equity
"Equity, less on-balance sheet "Equity, divided by the number of per member" consistent with that
performance bond, divided by the members at the end of the period." used in the acute care program.
number of members at the end of the
period."
- ----------------------------------------------------------------------------------------------------------------------------------
Atch All Partial care services are required as Partial care services are required as To correct an error in the
B "County-wide coverage" "Facility Location". See revised original RFP.
Attachment B included herein.
- ----------------------------------------------------------------------------------------------------------------------------------
Atch 2 (No reference) AHCCCSA reserves the right to To clarify that AHCCCSA may
C change these sanction amounts during change sanction amounts should
the term of the contract. circumstances warrant.
- ----------------------------------------------------------------------------------------------------------------------------------
Atch 3 Current language makes no sanction See revised Attachment C included Attachment C has been revised to
C exceptions for AHCCCS errors herein. clarify the program contractor's
sanction liability.
- ----------------------------------------------------------------------------------------------------------------------------------
Atch (No reference.) See revised Attachment E, Letter of All offerors must use the revised
E Intent, enclosed herein. Letter of Intent which adds the
entry "Summary of Terms Attached?
Yes _____ No_____". If yes is
checked, the offeror must attach
documentation that addresses rates
, share of cost collection and/or
risk arrangements. The offeror may
add this documentation for Letters
of Intent that have already been
completed prior to this amendment
decision.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 4
ALTCS RFP - QUESTIONS AND ANSWERS
NOTE: Below the "Page #" in the left-hand column is the paragraph reference.
"D.7", for example, means "Section D, Paragraph 7" of the RFP. "Def" refers to
Section C, Definitions.
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1 APIPA Q: Will the final contract document contain the RFP with a signature and rate page on top (like the
current acute care contracts) or a separate written contract document that incorporates the RFP?
A: The RFP document, when signed on the front page by both parties, becomes the contract, just as in
the acute care contracts. Rates will be entered in Section B (page 2) of the RFP.
3 APIPA Q: What is meant by the term "recipient practices" in this definition of "abuse (by provider)"? Is
Def "recipient" referring to provider actions, member actions, or both?
A: This definition, taken verbatim from the Code of Federal Regulations, refers to actions taken by both
providers and members, or "recipients". The term to be defined, then, should not have been limited to
"abuse (by provider)", but rather "abuse".
3 APIPA Q: Is an Adult Care Home required to coordinate necessary ALTCS HCBS services as required in the
Def definition of Adult Foster Care below?
A: Refer to the AHCCCS Medical Policy Manual, Chapter 1200, Section 1230.
3 APIPA Q: Is an Adult Foster Care home required to provide personal care and/or custodial care services as
Def required in the definition of Adult Care Home above?
A: Refer to the AHCCCS Medical Policy Manual, Chapter 1200, Section 1230.
3 APIPA Q: What is the definition of "custodial care services"?
Def A: This term is not included in the definition of Adult Foster Care.
3 APIPA Q: Is the definition of an "adult" to mean an individual 21 years of age or older for this type of
Def facility? (Definitions: Adult Foster Care)
A: Age 18 and over is considered an adult.
3 APIPA Q: What are the minimum certification requirements for "attendants" providing Attendant Care
Def services to members?
A: Refer to the AHCCCS Medical Policy Manual, Chapter 1200, Section 1240 and Chapter 1500,
Section 1540.
3 APIPA Q: Will it be the program contractors' responsibility to "credential" Attendant Care providers for
Def necessary certifications and experience?
A: Yes. Refer to the AHCCCS Medical Policy Manual, Chapter 1200, Section 1240 and Chapter
1500, Section 1540.
3 APIPA Q: Please define "companionship" and indicate to what extent it is a covered service? (Definitions:
Def Attendant Care)
A: Refer to the AHCCCS Medical Policy Manual, Chapter 1200, Section 1240 and Chapter 1500,
Section 1540.
4 APIPA Q: What is the definition of and/or required specifications to be a "contractor"? Is the term intended
Def to be synonymous with "Program Contractor" (not defined)?
A: We don't understand the purpose of your question. Please re-state it with reference to a real or
likely misunderstanding of a solicitation provision.
4 APIPA Q: Please clarify that the definition of a "program contractor" is defined by the second sentence of the
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def definition provided for the term "offeror".
A: Your interpretation is correct; however, a program contractor may also be created by legislative
mandate.
4 APIPA Q: Given that program contractors are required to initiate services within the timeframes outlined in
Def this Request for Proposal, is it reasonable to require program contractors to have all third party
benefits identified and contracted for purposes of cost avoidance prior to rendering services?
Please comment and provide additional clarification. (Definitions: Cost Avoidance)
A: Yes, if possible; it is not the intent of this provision to prevent or delay the delivery of services.
4 APIPA Q: Will AHCCCSA add "or one of its subcontractors" after "Program Contractor" in the second line?
Def (Definitions: Cost Avoidance)
A: We do not believe it is necessary. Our contract is with program contractors; it is their
responsibility.
4 APIPA Q: In this definition, as presented, encounters submitted by providers for services rendered but denied
Def payment by a program contractor for various administrative reasons in the normal course of claims
processing would not be reported to AHCCCSA. Even if an encounter is denied, would not
AHCCCSA want to receive information that a covered services was provided but denied for
administrative reasons (i.e., a record do the occurrence of an encounter event), in order to more
appropriately reflect utilization another databases for analysis and rate setting purposes, regardless
of an encounter's payment status? (Definitions: Encounter)
A: The definition of "encounter" includes all
data of an encounter whether or not a
financial liability was included. The
definition states "It includes all services
for which the program contractor incurred
any financial liability." If there is
financial liability associated with the
event, it must be reported as an encounter.
This language does not preclude the program
contractor from reporting encounters of a
non-covered service, no financial liability,
alternative health care, covered by third
party, etc. In fact, we encourage reporting
these encounters for our use in quality
management, utilization, quality indicators,
rate setting, capitation and additional
purposes.
4 APIPA Q: Please clarify that the "rules" as referred to in this definition are referenced in A.A.C. R9-28-3xx et
Def seq.? (Definitions: Enrollment)
A: These are addressed in A.A.C. Article 4, R9-28-402, R9-28-405.
4 APIPA Q: What is the definition of and requirements for a "registered provider"? Who performs the
Def registration process and how is this information made available to program contractors?
(Definitions: FFS)
A: An AHCCCS registered provider is an entity (individual or organization) that has an active
AHCCCS provider ID and provides AHCCCS covered services within the scope of practice as
defined by federal, state and local law and regulations and AHCCCS policy for the provider type.
If a provider's ID number is inactive, AHCCCS will not pay FFS claims or accept encounters for
services that provider may render to AHCCCS members. A provider receives an AHCCCS
provider ID number by submitting a completed AHCCCS provider registration application, other
applicable required forms, and signed Provider Participation Agreement. The provider must meet
all minimum requirements for the provider type including licensure and/or certification. The
AHCCCS Provider Registration Unit performs the provider registration process and provides a
monthly tape to the health plans and program contractors that contains information on AHCCCS
registered providers.
4 APIPA Q: Please clarify that Home Delivered Meals would only be available to members receiving HCBS
Def services in their own homes (i.e. not institutionalized or not residing in an HCBS approved
alternative residential setting).
A: Refer to the AHCCCS Medical Policy Manual, Chapter 1200, Section 1240.
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4 APIPA Q: Please clarify that Homemaker Services, as defined here, may be performed through Attendant
Def Care services described above. If not, please provide detail as to the distinctions in the services to
be provided by these two (2) provider types.
A: Refer to the AHCCCS Medical Policy Manual, Chapter 1200, Section 1240, and Chapter 1500,
Section 1540.
5 MMCS Q: In the past, MMCS has allowed members to use their Medicare benefits with any Medicare
Def approved hospice. Does this definition of Hospice now restrict the member's choice in only using a
program contractor's approved network for hospice services?
A: This definition only applies to situations where the hospice service is covered under Medicaid.
This does not prevent a member from electing to use his or her Medicare hospice benefit.
6 APIPA Q: What is the definition of an "AHCCCS DMS"? (Definitions: PAS)
Def A: AHCCCS DMS means Arizona Health Care Cost Containment System, the Division of Member
Services.
6 APIPA Q: Is the term "member", as used in this definition of PAS, to refer to an individual initially applying
Def for ALTCS program benefits (i.e. is performed as part of an initial application for ALTCS benefits
in accordance with the terms of the last paragraph on page 9)?
A: "Member" refers, in this circumstance, to "applicant or member". The PAS is used to determine
initial (applicant) and ongoing (members) medical eligibility as specified in section D., pages 9 and
10.
7 APIPA Q: What is the definition of a "Primary Caregiver?" (Definitions: Respite Care)
Def A: "Primary caregivers" refers to individuals who are the member's usual caregivers. This generally
refers to non-paid family members and significant others involved in the member's care.
7 APIPA Q: What is the definition of the term "Fiscal Agent"? Is it meant to be synonymous with the term
Def "Agent" as previously defined? (Definitions: Subcontractor)
A: "Fiscal agent" refers to an agent authorized to commit or obligate funds on behalf of another.
7 APIPA Q: What is the definition of the term "Supportive Living Services"? (Definitions: Supportive
Def Residential Living Center)
A: Refer to the AHCCCS Medical Policy Manual, Chapter 1200, Section 1230.
9 APIPA Q: Please clarify the combination of conditions that would satisfy the word "either" in the second
Intro. sentence. Would not pregnant individuals be first referred to apply for SOBRA benefits
administered under the Acute Care Program?
A: It is true that most AHCCCS eligible pregnant women would be covered under the acute care
program. However, if a pregnant woman is determined to be at risk of institutionalization as
determined by the PAS and meets all other ALTCS eligibility criteria, she could be found eligible
for the ALTCS program and receive her ALTCS coverage through the program contractor. One of
the Title XIX eligibility requirements is for an individual to be categorically related to the federal
program; either as an aged individual (age 65), a disabled individual (which includes blindness), a
dependent child (under age 18 or age 18 and a full time student expecting to graduate by age 19), a
parent of a dependent child, or pregnant. These requirements apply both to the acute and long
term care programs.
9 MMCS Q: Has the ALTCS definition of who we serve changed (e.g. pregnant)?
Intro. A: See answer above.
9 APIPA Q: How are the circumstances of age and the conditions listed associated with "financial eligibility"?
Intro. Please clarify that these circumstances represent separate eligibility requirements used in
combination with the financial thresholds to determine eligibility for ALTCS Program benefits.
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A: The ALTCS Financial Eligibility decision includes financial (income, resources) as well as non-
financial eligibility requirements such as
age 65 or older, disabled, blind, under 18
or pregnant, U.S. citizen, Arizona resident,
having a social security number and
assigning rights to third party payment
sources. All of these requirements must be
met; in addition, financial eligibility
criteria and medical eligibility criteria
must be met. See Chapter 1600 of the ALTCS
Eligibility Policy and Procedures Manual.
9 APIPA Q: In and /or under what circumstances would AHCCCSA not perform an annual PAS evaluation? Or
Intro. is this meant to refer to a PASARR?
A: Annual PAS reassessments are not completed in certain circumstances. These are discussed in
A.A.C. R9-28-305, Reassessments.
10 MMCS Q: Is 1996 expected to have a 13.8% growth?
Intro. A: After further research on ALTCS historical enrollment data, AHCCCS has determined that the
projected growth of the ALTCS EPD population is between 6-8% during the state fiscal year
ending 6/30/96.
10 APIPA Q: What is the status of AHCCCSA's application to HCFA for the removal of the HCBS placements
Intro. cap? Please confirm, if possible, the statement made at the Offeror's Conference that the CY 97
statewide HCBS cap may be set at 45%, up 5%
from the current year. What HCBS rate cap
should offerors use in preparing their bid
responses?
A: AHCCCSA has requested to have the HCBS cap
eliminated; this request is still pending.
At the Offeror's Conference, AHCCCSA staff
indicated that, in the past, when requests
to eliminate the cap have been made, HCFA
has increased the cap 5%. If this occurs,
then the new cap would be 45%. Offerors
should use the HCBS percentage set for each
county.
10 APIPA Q: The RFP states that the State has requested federal approval for removing the percentage cap
Intro. entirely on HCBS placements. If this cap is removed, what impact will this decision have on the
pre-determined HCBS placement distribution percentage noted on the capitation disk?
A: None
10 TEMM Q: Does AHCCCSA view the growth and expansion of HCBS services as unlimited? What
Intro. consideration has AHCCCSA given to HCBS reaching its maximum potential within given
geographical areas? What consideration has AHCCCSA given to the limited resources in rural
counties in establishing the HCBS percentages?
A: AHCCCSA does not view the growth and
expansion of services as unlimited. However,
AHCCCSA believes that due to expanding
network, alternative settings and the
realignment of financial incentives, HCBS
placement will experience growth. AHCCCSA
will continue to monitor growth trends by
geographic area to determine when HCBS
placement may be reaching maximum potential.
AHCCCSA recognized urban and rural
differences when applying the percentage
add-on to the HCBS placement distribution
for capitation purposes.
11 APIPA Q: Is the term "Private Duty Nursing" to incorporate service availability of 24 hours per day, 7 days
D.1 per week? If yes, is this required in all cases, or can a program contractor establish parameters in
each case based on need?
A: Yes, if services are cost effective. Refer to the AHCCCS Medical Policy Manual, Chapter 1200,
Section 1240 and Chapter 1500, Section 1520.
11 CHS Q: Long-Term Care - HCBS Alternative Residential Settings: AHCCCS Rule R9-28-202 does not
D.1 specifically refer to a Traumatic Brain Injury Treatment Facility. Can AHCCCSA clarify the
exact facilities and locations referred to?
If this is a "treatment facility," is it not
an Institutional Setting, such as a
Rehabilitation Institute?
A: These are health care facilities with an unclassified license for the treatment of people with head
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injuries. "Unclassified" is a catch-all term
for any health care facility that does not
fit into one specific ADHS licensure type
(e.g., nursing care institution, adult care
home). There are two known facilities in the
Phoenix metropolitan area operated by
NovaCare. We are not aware of any program
contractors using these settings.
12 PHS Q: What are the quality management requirements of AHCCCSA for behavioral health services?
D.2 A: Quality Management for program contractors is defined in Chapter 1000 of the AHCCCS Medical
Policy Manual.
12 APIPA Q: Are members allowed to self-refer for behavioral health services? If so, is there a limitation as to
D.2 how many times a member may self-refer (and for types of services, if applicable) for behavioral
health services in a twelve (12) month period?
A: Yes, members are allowed to self refer;
there are no limits on Title XIX services.
Should a member make repeated self-referrals
that are not medically necessary, the case
manager and behavioral health coordinator
should make every attempt to educate the
member. There should be clear tracking and
documentation in such situations.
12 APIPA Q: Do all behavioral health services, regardless of referral source, require coordination through the
D.2 member's ALTCS Case Manager?
A: The case manager is responsible for knowing of and coordinating all services received. The
program contractor must establish a system that includes case manager notification of any
behavioral health service.
12 APIPA Q: Does AHCCCSA have available a copy of the standardized, initial HCBS members' behavioral
D.2 heath screening tool to be used by program contractors? If so, will such a copy be available for
review by offerors in the Bidders Library? Can a program contractor modify the tool to capture
additional information, as warranted?
A: There is no such screening tool. Program contractors must develop and use their own assessment
tools at the initial assessments and reassessments.
12 APIPA Q: A behavioral health screen for HCBS members is required within seven days of referral. Does this
D.2 refer to the referral for HCBS services or the referral specifically for behavioral health services?
A: A behavioral health screen for HCBS members
is required within seven days of referral
for behavioral health services. A behavioral
health screen within seven days is not
required for members in nursing home
facilities as the member is in a safe
environment. The referral generated from
that source, i.e. the PCP or other staff,
indicates that the member has already been
screened. Determination that services are
needed is evidenced by the referral. For
nursing home referrals, services must begin
within thirty days.
13 APIPA Q: Is the log only for calls from members seeking information in the event of an emergency?
D.6 A: The log is for members seeking emergency services.
14 CHS Q: Please clarify the difference between "medically necessary" institutional care and Respite Care.
D.8 Currently, in the CATS coding for an HCBS member placed temporarily in a nursing home would
be the respite code. Please clarify the period of institutionalization. The ALTCS Policy referring to
Transitional Members states that the period of institutionalization may not exceed "90 days per
admission", whereas the RFP states "90 days."
A: Respite Care is for providing rest and
relief for family members caring for the
member who normally resides at home. An
ALTCS-T member per the PAS no longer meets
the criteria for the institutional level of
care. The nursing facility (NF) revenue code
for Respite Care is not to be used for
ALTCS-T members unless it is for the purpose
of respite. When an ALTCS-T member's
condition changes and requires medically
necessary NF services, the appropriate NF
revenue code should be used. The 90 days is
per admission as stated in the policy.
14-16 MMCS Q: For a continuing offeror, will ALTCS grant a short transition period (e.g. 60 days) to meet the
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D.9 mandated caseload sizes?
A: Offerors were made aware of this requirement more than five months before the beginning of
Contract Year 96-97, which gives the continuing offeror adequate notice to meet this requirement
14-16 APIPA Q: Who will be performing the program contractor's annual case management ratio review? What
D.9 tools and measurement criteria will be used in performing this review?
A: Each contract year AHCCCSA staff reviews the
appropriateness of the current case
management ratios. Input from program
contractors, data from other states, and
overall case management performance are
given consideration when determining if
adjustments are warranted.
14-16 APIPA Q: Given that membership levels and service placements (levels of care and settings) may change
D.9 monthly, would AHCCCSA approve changes in case management ratios by program contractors
monthly to better serve members' needs,
based on the information included in the
Monthly Roster report?
A: No.
14-16 APIPA Q: What is the definition of "case management" (not included in Section C - Definitions)?
D.9 A: Refer to the AHCCCS Medical Policy Manual, Chapter 1600.
14-16 APIPA Q: If an Adult Care Home is considered to be an approved HCBS alternative residential setting
D.9 (Section D definition), please provide information to justify a required service review every 30
days as opposed to 90 days for HCBS service
settings. If the 30 days service review
timeframe is appropriate for Adult Care Home
placed members, how is the 60 day
differential factored into the case
management caseload sizes listed above? Is
the 30 day service review timeframe also
required for other defined approved HCBS
alternative residential settings?
A: The legislation for the pilot program requires on-site visits every 30 days by the case manager.
14-16 APIPA Q: Within what timeframe is a Case Manager required to obtain the initial behavioral health
D.9 professional's consultation for a member requiring behavioral health services, in order to
coordinate behavioral health services delivery?
A: The case manager would not delay the
delivery of any necessary behavioral health
services if a behavioral health professional
was not available for consultation at the
time the service was identified and needed.
Initial consultation should occur within at
least 5 working days; however, consultation
should occur sooner if the situation were
urgent.
14-16 APIPA Q: What are the penalties AHCCCSA may impose if services are initiated between the 14 and 30 day
D.9 service initiation standards? On its face this appears to be a contradiction - is it AHCCCSA's
intent that services for potentially complex
cases be initiated within 4 calendar days of
the initial on-site contact, if it occurs on
the 10th calendar day from enrollment
(within standard)? For example, for on-site
contacts that occur on a Friday preceding a
Monday holiday, is it AHCCCSA's intent that
a program contractor would only have one (1)
calendar day to coordinate and initiate
services?
A: There will be no penalties. Future awards
and contract renewals will evaluate program
contractors against the two week standard.
This is to encourage program contractors to
see members and determine needs before the
10 days. Any cases that have complex needs
may require services to be initiated
expeditiously so that hospitalization and
other high cost services can be prevented.
14-16 APIPA Q: How will the CATS 5% acceptable data error rate be monitored? What are the potential penalties
D.9 if the error rate is exceeded?
A: This standard does not apply to program contractors who enter data directly on the CATS.
14-16 APIPA Q: For current program contractors who are on-line with CATS, does AHCCCSA anticipate any
D.9 system changes, interface modification or other requirements to CATS for CY97?
A: The Technical Interface Guidelines were distributed to all current program contractors and are
available in the bidders library.
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14-16 APIPA Q: In reference to program contractors transmitting to CATS in lieu of using an on-line terminal will
D.9 program contractors be required to continue using the on-line terminal or can they opt to develop
some other data capture process and submit
on tape? If so, what are the advantages
and/or disadvantages of doing this?
A: The program contractor should retain one terminal or PC with dial-in access to facilitate
processing or reviewing of data exceptions encountered while processing the file transmission.
Data exceptions are identified on an exception report that is created at the time the program
contractor interface process attempts to apply the service plan and placement data to the ALTCS
database. Maricopa County and DES/DDD benefit from the program contractor interface because
it eliminated the need to enter the case management information twice, once for the CMP service
plan and once for their internal use. Maricopa County and DES/DDD have an electronic link
between the AHCCCS system and their systems. They receive their exception reports
electronically immediately following the processing of their data transmissions. Therefore, they
are able to identify and resolve data exceptions the day after their transmissions are processed. The
primary disadvantage for the program contractor is the requirement that they develop a new
application or modify existing applications to create the file for input to the program contractor
interface. Additionally, program contractors need to consider how they will handle data
exceptions that will result from the processing of their transmission file.
14-16 CHS Q: Please define AHCCCSA's method of establishing the program contractor's rate, per member per
D.9 month, for Case Management. CHS has been unable to access the underlying calculations on the
disk which was provided by AHCCCS.
A: Assumption for HCBS mix, case load, salary,
benefits and travel have been included in a
calculation model which is available on the
capitation bid disk (press F-1 when on the
case management amount).
14-16 CHS Q: The paragraph describing case manager initial contact with the members states that, "the case
D.9 manager shall make initial contact with the member within five days of enrollment, initial on-site
contact with the member within 10 days of
enrollment,...." Because the definition of
"days" by the RFP in "calendar days, unless
otherwise specified, "this conflicts with
Chapter 1600 of the AHCCCS Manual which
allows for "working days." If the intention
is indeed "calendar days" , this will be
even more problematic since there will be no
more prospective notice of enrollment.
A: The language should read "five working days" and "10 working days".
14-16 CHS Q: Late Placement Report: What mechanism will be used for evaluating the reason as to whether the
D.9 explanation for the non-placement of a client is valid? What type of notice will the program
contractor receive prior to retroactive adjustment, and what time frames will apply?
A: AHCCCS will use its judgment in determining whether the explanation for non-placement of a
client is valid. As examples, a valid reason
might be a client who is uncooperative; an
invalid reason might be a lengthy wait
caused by an inadequate provider network.
The program contractor will receive a late
placement list quarterly and will have two
weeks to respond to the notice. Retroactive
adjustments will depend on the circumstances
of each case.
14-16 TEMM Q: Will AHCCCS revise the AHCCCS Medical Policy Manual, Chapter 1200, 1500, 1600 and
D.9 Appendix F to reflect the "AHCCCSA performance standard of two weeks" to initiate services
during the term of this contract? If future
awards and contract renewals are evaluated
against "AHCCCSA's performance standard", at
what point in time is this standard to
begin?
A: The appropriate policy manual sections will be revised. The standard is to begin October 1, 1996
and will be evaluated by the case management review process and other methods that are
appropriate.
14-16 PINAL Q: Page 16, Paragraph 2, states: "timely entry of data related to placement history cost effectiveness
D.9 studies and service plans into the Client Assessment and Tracking System (CATS). "Timely" shall
mean within 14 days of the event which gave rise to the transaction (e.g. service approval by the
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case manager, placement change)." AHCCCS
Medical Policy Manual, Chapter 1600 ALTCS
Case Management, Policy 1620, Case
Management Responsibilities, Page 1620-21.H.
states "The case manager is responsible to
update information in the CATS (CA160,
CA161, and CA165) within five working days
of the reassessment." Please clarify which
time line AHCCCSA requires of program
contractors.?
A: The RFP statement is correct. The policy manual will be revised.
14-16 PINAL Q: Page 14, AHCCCSA has increased allowable caseload sizes effective October 1, 1996. Can you
D.9 describe what methodology AHCCCSA used to determine these caseload sizes? Were
methodologies currently in use considered,
such as the methodology described in the
Spring 1996 issue of the Journal of Case
Management, Volume 5, Number 1, "A Method to
Determine Case Manager Caseloads in
Long-Term Care", by Cynthia Zelff Massie?
A: AHCCCS surveyed several state Medicaid
agencies about their case management ratios
for nursing facility and HCBS members. A
review of literature related to case
management ratios was also performed. At the
operational reviews, AHCCCSA received
feedback on caseload sizes from case
managers during that portion of the review.
AHCCCSA also reviewed data from case
management service reviews regarding
timeliness, quality of care issues and unmet
needs by placement type.
16 APIPA Q: How and with what frequency will AHCCCSA monitor and review PASARR screening to
D.10 determine potential FFP recoupments?
A: AHCCCSA monitors the PASARR program
annually. HCFA also monitors the PASARR
program annually. FFP withholding could
occur if inappropriate admission without the
proper PASARR screening is identified during
either of these reviews. Cases for
withholding can also be referred by the
Division of Developmental Disabilities and
Arizona Department of Health Services.
16 PHS Q: (a) What is the status of the current ALTCS quality indicator project? (b) In regard to the listed
D.11 quality indicators, what will be the program contractor's responsibilities and the time frames
required? (c) What are the indicator descriptions for activities of daily living and fractures related
to falls?
A: (a) The Office of the Medical Director is currently in the process of revising timelines for the
Quality Indicators and other Quality Management projects. (b & c). Refer to the June 1995 draft of
the ALTCS E/PD Clinical Quality Indicators for PC responsibilities and descriptions of the
indicators.
16 APIPA Q: For the current quality indicators listed in this paragraph, what are the applicable compliance
D.11 standards or benchmarks for each that will be required to be maintained by program contractors?
A: See above response.
17 MMCS Q: Why was the due date for the quarterly Behavioral Health Utilization Report moved from 60 days
D.12 after the end of the quarter to 30 days after the end of the quarter? Does AHCCCS realize that this
will negatively impact the accuracy of the
reports because not all claims are received
and processed within this timeframe?
A: The requirements for this report are being developed. Reporting deadlines may be changed and
will be determined at a later date.
17 PHS Q: Why is the provider affiliation tape listed as part of the QM/UM reporting requirements?
D.12 A: AHCCCS administrative decision.
17 APIPA Q: Isn't AHCCCS under court order to require notice for more than just prior authorization denials?
D.13 If yes, please describe the additional requirements, the status of the litigation, the applicability of
the case to ALTCS program contractors and
whether bid and/or capitation rate
adjustments will be allowed or awarded based
on notice requirements in addition to those
specifically listed in the RFP.
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A: Program contractors are required to comply
with 42 CFR 431.200 et seq. The cases
presently in litigation involve
notifications pertaining to eligibility
actions and to terminations, suspensions or
reductions in services related to prior
authorization decisions. AHCCCSA is
currently in the process of responding to
the court on these issues and will keep
program contractors apprised of these
developments.
18 APIPA Q: How will AHCCCSA monitor program contractors' successful implementation of the second
D.14 language requirement for member communications? What standards and/or criteria will be
applied?
A: It is up to the program contractor to have
knowledge of their members' needs regarding
second language printing requirements.
During review of member material and the
operational and financial reviews, AHCCCSA
will ask the program contractor how it
determines the need for material to be
presented in a second language.
18 TEMM Q: Will the "14 days before the change goes into effect" notification requirement be waived by
D.14 AHCCCS if the program contractor is not notified by AHCCCS of program or service changes
within 30 days before the change goes into effect?
A: Except for unusual circumstances, such as
emergency legislation, AHCCCSA may waive the
14 day notification requirement if AHCCCSA
has failed to notify the program contractors
of a program or service change in a timely
fashion. AHCCCSA will impose an appropriate
notification date for these situations.
18 TEMM Q: The statement "[Program Contractor name] will make a final decision within 45 days of getting
D.14 your written grievance" contradicts R9-28-802.B.4, which states "a final decision shall be rendered
by the program contractor on all grievances
within 30 days of filling" and
R9-28-802.B.2, which states "all grievances
shall be filed orally or in writing."?
Please clarify.
A: The Rule citations addressed in your
question are correct. All grievances must be
adjudicated within 30 days of filing, unless
the grievant agrees to an extension. Member
grievances may be filed orally or in
writing. The sentence is changed to read
"[Program Contractor name] will make a final
decision within 30 days of getting your
written or oral grievance."
20 PHS Q: Where is the documentation to be kept related to whether or not the adult member has executed
D.19 advance directives? What is the definition of an adult member?
A: The member's case record from the applicable institution should contain this information. An adult
member is anyone 18 and older.
20 MMCS Q: How does AHCCCS define concurrent review activities?
D.20 A: Any activities performed by concurrent
review staff that are necessary to determine
the appropriateness of stay in an inpatient
hospital setting.
20 MMCS Q: Since JCAHO mandates hospitals to perform discharge planning, can this function be delegated?
D.20 A: Yes, but the program contractor is ultimately responsible for those activities. Discharge planning
can be delegated to hospital staff; however,
any delegated activities must be monitored
to assure appropriate D/C planning. The
program contractor must assure that the CM
or other designated staff are involved with
the discharge planning process.
20 MMCS Q: May a program contractor subcontract UR/concurrent review functions?
D.20 A: Yes; however, it cannot be to an entity
that would have a conflict of interest,
(e.g., hospital). There must be a process in
place to monitor any of these delegated
activities.
20 MMCS Q: For which populations is the program contractor responsible for concurrent review (i.e., ALTCS
D.20 members without Medicare and/or TPL, all ALTCS members regardless of primary payer)?
A: The program contractor is responsible for concurrent review of any member for whom the program
contractor has the primary payment responsibility. When there is another primary payer, the case
manager or other designated staff need to be involved to ensure a safe and appropriate discharge
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plan.
22 CHS Q: Please clarify whether the Provider Manual must be sent to out-of-network providers. Many times
D.23 an out-of-network provider only provides a service one time, and the provider would not even be
interested in receiving the provider Manual.
A: The Provider Manual must be sent to all contracted providers only.
23 PHS Q: "The proposed network shall be sufficient to provide covered services within designated time and
D.24 distance limits." Where are these limits defined?
A: The distance limits pertain to Pima and Maricopa counties only. This requirement is stated on
page 62, in the last sentence of the second paragraph under "Network Maps". Appointment
standards are stated in Section D, Paragraph 28.
23 APIPA Q: For an offeror's proposed network, what are the designated time and distance limits, by county, for
D.24 the provision of covered services as referred to at the end of the first paragraph?
A: See above response.
23 APIPA Q: Please confirm that monthly provider network changes will be required to be submitted to
D.25 AHCCCSA in addition to the quarterly network tape changes submitted, as referenced in
paragraph 12, page 17 (provider affiliation
tape). If so, what medium (tape, hard copy)
will be required for these monthly
submissions? Also when will the monthly
provider network changes report submission
be due at AHCCCSA (not listed in paragraph
12, page 17)?
A: The reporting mechanism for the monthly
submission will be discussed at a future
program contractor meeting in order to
obtain program contractor input on this
report. The format, medium and submission
due dates will be established during this
discussion. The provider affiliation tape
will continue to be submitted quarterly.
23 CHS Q: Previous reporting requirements for network changes were required quarterly. If there are no
D.25 additional additions or deletions to the network within a month, is a report required, or is this
report required only if there are additions/deletions?
A: See above response.
23 PHS Q: We currently submit a listing of the provider network on the quarterly provider affiliation network
D.25 report. Is the monthly report a change of policy and if so, what is the reporting mechanism?
A: See above response.
24 CHS Q: Please clarify why the program contractor must require a copy of the Provider Participation
D.26 Agreement, since AHCCCS maintains copies of all of these agreements at the time that they assign
a Provider number, and any subcontractor
that the program contractor uses must have a
Provider Number. The program contractor may
not be aware if the provider is an AHCCCS
Fee-for-Service provider or not.
A: It is the program contractor's
responsibility to ensure all subcontractors
have a current AHCCCS Provider ID number.
The second sentence of Section 26 is deleted
and replaced with the sentence "The program
contractor shall retain a copy of each
subcontractors' AHCCCSA Provider
Participation Agreement."
24 MMCS Q: This clause states that "The program contractor shall develop and maintain a provider network
D.27 sufficient to provide all ALTCS covered services and approved settings..." Does this mean that
each program contractor must provide and/or
have a contract for all approved settings
regardless of level of need and/or cost?
A: The program contractor shall develop and
maintain a provider network sufficient to
provide all ALTCS covered services and
settings. The program contractor shall make
every effort to contract for all approved
settings and services. This paragraph also
requires the program contractor to report
the circumstances making it unable to
correct the network deficiency.
24 MMCS Q: How does the requirement that all non-emergency behavioral health appointments be provided
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D.28 within 7 days reconcile with the requirement
on page 12, #2 , that states that the
behavioral health screening for HCBS members
must be performed within seven days of
referral. Does the standard also apply to
nursing facility residents? Does the
screening satisfy the requirement for an
appointment? Does the requirement that
treatment begin within 30 days of the
referral continue to apply?
A: Page 24, Paragraph 28, Appointment Standards, behavioral health services, b. Non-emergency
appointments is incorrect. It should read:
For BEHAVIORAL HEALTH SERVICES, the Program Contractor shall be able to provide
appointments as follows:
a. Emergency appointments within 24 hours of referral.
b. Behavioral Health Screening within seven days of referral for HCBS members.
c. Non-emergency appointments for nursing home residents: within 30 days of
referral.
d. Non-emergency appointments for HCBS members: within 30 days of
behavioral health screening.
The screening does NOT satisfy the
requirement for an appointment UNLESS an
additional service is provided by a
behavioral health professional. For example
if a psychiatrist does the screening and
determines that medication is required and
provides a prescription at that time, then
the first service has been delivered.
24 CHS Q: Behavioral Health Services, b. Non-emergency appointments. It is unreasonable to have a higher
D.28 standard for non-emergency behavioral health service appointments than for non-emergent
Primary Care or Specialty appointments.
There is not a wealth of Behavioral Health
providers, such as psychiatrists or
counselors, particularly in the rural areas,
and their schedules are as busy as other
specialists or primary care providers?
A: See above response.
24 APIPA Q: What are the appointment standards for pregnant members?
D.28 A: Refer to the AHCCCS Medical Policy Manual, Chapter 400, Section 410.
24 APIPA Q: What is the legal basis to require the reporting of "inappropriate practices by subcontractors,
D.29 members or employees?" This far exceeds any statutory or regulatory authority that we are
familiar with and violates the spirit of a
rational approach to the appropriate
responsibilities toward fraud and abuse
between AHCCCSA and its contractors. The
problems raised by this wording include what
is or is not an appropriate practice that
must be reported, how do program contractors
train employees on the requirement, how can
program contractors comply with this
requirement which will mandate that each
provider, member and employee be viewed with
suspicion, and yet still respond to the
needs of each with a customer service
orientation. Please give serious
consideration to deleting this phrase or
replacing it with "a pattern of
inappropriate practices by a subcontractor,
member or employee that would likely
constitute fraud or abuse."
A: The phrase "or inappropriate practices" is hereby deleted. The amended sentence will read: "The
Program Contractor is responsible for reporting all cases of suspected fraud and abuse by
subcontractors, members, or employees."
24 TEMM Q: Since AHCCCSA requires the program contractor to forward copies in advance of the review of
D.30 requested policies, procedures, job descriptions, contracts, records, logs and other material and
requires program contractor personnel to be
available at all times during the review,
can AHCCCSA (except in the cases noted in
the RFP) give the program contractor more
advanced notice than two weeks?
A: AHCCCSA may request specific documents to be forwarded prior to the review. In most cases,
AHCCCSA asks for very few documents to be forwarded in advance and asks only that these
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documents be available during the review.
The requested items are documents that the
program contractors should have developed.
AHCCCSA will give at least two weeks notice.
When there are problems with scheduling,
AHCCCSA will work with the program
contractors to try to reschedule.
24 TEMM Q: What scoring methodology is applied to the review finding if they are used in subsequent bid
D.30 proposals?
A: The results of the Operational and Financial
Reviews are evaluated to assess the program
contractors' compliance with AHCCCSA
contract requirements, policies, rules and
regulations as contained on the review
report.
26 APIPA Q: What will be the RFP response evaluation weight given to an offeror's Operational and Financial
D.31 Readiness Review (OFRR) when these reviews may not be performed for all offerors (both new
and continuing)? How is this possible
scoring weight built into the evaluation
criteria and scoring formula delineated in
Section I - Evaluation Factors Selection
Process?
A: The Operational and Financial Readiness
Reviews may be conducted to assess a new
program contractor. A new program contractor
is considered to be an offeror who is
bidding on ALTCS for the first time or a
continuing offeror who is bidding on a
county where they currently are not the
program contractor. Therefore, it is not
necessary to perform readiness reviews on
all offerors. The purpose of the readiness
review is to determine whether the new
program contractor is ready to provide
services by October 1, 1996. The readiness
review is not factored into the RFP scoring.
26 APIPA Q: If OFRRs are to be performed, please confirm that they would occur in the timeframe between the
D.31 response submission date (6/14/96) and the planned contracts award date (7/15/96).
A: If the Operational and Financial Readiness
Reviews are performed, they will occur
between 6/17/96 and 9/30/96. Although
AHCCCSA reserves the right to conduct the
reviews of new offerors before the contract
award, the readiness reviews are usually
conducted after award.
26 APIPA Q: Please define "AHCCCSA's satisfaction" with regards to new offerors. What criteria and
D.31 standards will be used and required to be met to measure such "satisfaction"? To what extent will
AHCCCSA require demonstrated abilities to satisfy AHCCCSA versus commitments or promises?
A: AHCCCSA uses an evaluation tool similar to the Operational and Financial Review tool to assess
the offeror's ability to operate as a
program contractor. The evaluation includes
a review of the provider network, provider
network management processes, program
operations such as staffing, case management
procedures, claims processing, behavioral
health program, etc. During this review
AHCCCSA will verify that all actions
proposed to be done (in the offeror's
proposal) have in fact been done.
26 APIPA Q: 33. c. Please confirm that the reporting to AHCCCSA on "a regular basis" will follow the terms
D.33 outlined in paragraph 34 following.
A: Yes, regular basis refers to the reporting
guidelines identified in the Reporting Guide
for Long-Term Care Program Contractors with
the Arizona Long Term Care System effective
10/1/96.
26 APIPA Q: 33 f. Please define the term "other institutional" as used in this requirement.
D.33 A: For example, Arizona State Hospital.
27 APIPA Q: Can AHCCCSA define or provide examples of a reorganization that applies here?
D.34 A: Your question does not correspond to this RFP citation.
27 APIPA Q: What types of substitute security will be acceptable? What criteria will be used to evaluate
D.35 whether a bond substitute is sufficient?
A: Performance bond guidelines (effective March
1, 1995) were distributed to all acute care
and long term care contractors. The
guidelines clearly identify acceptable
substitute securities. A copy of the
guidelines is available in the Bidder's
Library.
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28 APIPA Q: Please clarify that the "month of November" referred to means "November 1996"?
D.36 A: "month of November" refers to November 1996.
28 APIPA Q: In reference to the phrase "or as determined by AHCCCSA" in the first sentence, by what other
D.36 criteria will AHCCCSA use to reasonably determine the performance bond amount?
A: At this time, AHCCCS uses the November
capitation payment as the basis to determine
the initial amount of the performance bond
for all contractors. However, AHCCCS
reserves the right to modify this
requirement at any time during the term of
the contract.
28 YCLTC Q: Can a Resolution of the Yavapai County Board of Supervisor Pledging to Provide Financial
D.36 Backing as an ALTCS Program Contractor, passed and adopted on June 14, 1993, meet the
requirements for Performance Bond Substitute?
A: If the resolution passed and adopted June
14, 1993 has no expiration or is not tied to
a particular contract or contract cycle, and
it is the intention of the County to
continue to pledge and provide financial
backing, the resolution can be used to meet
the performance bond requirement.
28 APIPA Q: Under what circumstances may AHCCCSA "deem appropriate" to change financial viability
D.37 criteria and performance measures? Would all changes be consistently applied to all program
contractors?
A: There are many factors which could cause a
change in the viability standards. For
example, equity per member generally
represents approximately one month of
capitation. This standard could change if
capitation rates were significantly
increased or decreased. Changes in viability
factors would be consistently applied if
appropriate. At the current time, the
standards are consistent for all
contractors. However, depending on the
change it may be appropriate to recognize
factors such as urban/rural differences or
program size.
28 APIPA Q: 37. a. Current Ratio: Will AHCCCSA consider changing the definition of this ratio to make it
D.37 consistent with the Acute definition which allows contractors to include as current assets any long
term investments that can be converted to cash within 24 hours without significant penalty (i.e.
greater than 20%)?
A: Yes, both definitions are identical. "Current assets" include any long-term investments that can be
converted to cash within 24 hours without significant penalty (i.e. greater than 20%).
2 APIPA Q: 37. b. Equity Per Member: Will AHCCCSA consider changing the definition of this measure to
D.37 make it consistent with the current measure and the Acute measure which does not require
contractors to reduce the equity amount by the balance of the on-balance sheet performance bond?
A: Both definitions are identical. AHCCCSA will continue to take performance bonds into account
when considering approval for distributions of equity.
28 PINAL Q: Equity per member is defined by AHCCCS as "equity, less on-balance sheet performance bond,
D.37 divided by the number of members at the end of the period." Did the definition of equity per
member change since the last contract period?
A: See above response.
28 APIPA Q: 37. c. Total Administrative Cost Percentage: I) This measure has remained the same since the
D.37 prior RFP, yet AHCCCSA continues to increase the administrative requirement of program
contractors (i.e. program contractors must
establish a process for collecting the share
of costs from HCBS members). Will AHCCCSA
consider increasing this percentage in light
of the current program requirements? II) In
addition, will AHCCCSA please clarify the
proper expense classification of case
management costs. Are case management costs
to be classified as administrative or
program expenses?
A: The administrative standard will remain 8 %.
As identified in the Reporting Guide for
Long-Term Care Program Contractors with the
Arizona Long Term Care System effective
October 1, 1996, case management costs are
considered administrative expenses.
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28 APIPA Q: 37. d. Please define/delineate the expenses includable in the term "Total Administrative Expenses".
D.37
A: As identified in the Reporting Guide for
Long-Term Care Program Contractors with the
Arizona Long Term Care System effective
October 1, 1996, administrative expenses are
identified as Compensation, Case Management,
Data Processing, Management Fees, Insurance,
Interest Expense, Occupancy
(Rent/Utilities), Depreciation and Other.
Others may include but are not limited to
legal fees, audit fees, bank fees and other
expenses associated with the overall
management and operation of the Program Contractor.
28 PINAL Q: According to AHCCCS, what is the definition of performance bond, and what purpose does it
D.37 serve?
A: Please refer to page 27 paragraph 35 of this solicitation for performance bond definition and
purpose. You may also refer to Performance Bond Guidelines available in the Bidder's Library.
28 PINAL Q: What is the purpose for the additional $2,000 equity per member above the performance bond
D.37 requirement of 110% of the December 1994 capitation payment?
A: Equity per member is used to provide
additional financial assurances. As stated
on page 28 paragraph 36, initial performance
bond amounts shall be based on capitation
payments expected to be paid in the month of
November or as determined by AHCCCSA. This
has been clarified to indicate November
1996.
28 PINAL Q: Do these requirements reflect what is stated in ARS 36-2952 which states that "...If there are any
D.37 unexpected monies remaining in the fund at the end of any fiscal year, the county shall carry over
such monies to the next fiscal year to be
used only to provide services pursuant to
this article or to pay all or any part of
the county's share of the total nonfederal
part of the actual costs of the Arizona
Long-Term Care System?
A: Yes.
28 PINAL Q: Although we realize the wisdom in maintaining a reasonable amount of member equity, how is
D.37 reasonable member equity determined?
A: Equity per member is calculated as approximately one month's capitation per member.
28 PINAL Q: Total Administrative Cost Percentage as defined by AHCCCS is "total administrative expenses,
D.37 excluding income taxes, divided by total revenue". The standard is set at "no more than 8%." In
previous years, AHCCCS has determined
administrative costs according to the
percent of HCBS clients served. ALTCS
programs serving a higher percent of HCBS
clients were given a higher capitation rate
in the administrative line item to cover
additional expenses. If this will continue
to be the practice for determining
acceptable administrative expenses, it seems
that uniformly applying the 8% standard
might be misleading. For example, programs
capitated at 8 percent due to a higher HCBS
mix who spend 8 percent on administrative
costs will not appear as favorable in this
areas as programs capitated at 7 percent,
but who are also spending 8 percent on
administrative costs. When evaluating
financial viability criteria for the total
administrative cost percentage, how will
AHCCCS adjust for these differences?
A: Offerors will be evaluated on their ability to meet the standard.
28 APIPA Q: For organizations with multiple lines of AHCCCS business, will it be necessary for indirect cost
D.38 allocation methodologies to be approved in advance by AHCCCS' Office of Managed Care prior
to the contract start date?
A: Yes.
28 APIPA Q: Upon receipt by AHCCCS' Office of Managed Care, what are the approval turnaround timeframes
D.38 and requirements to be met? What information should be included in such a request?
A: Approval for distributions, advances or loaning of equity funds requires approval from the Director
of AHCCCS which is generally accomplished within two weeks from the date of receipt of the
request. Information to include in the request will vary depending on the type of request. For
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example, requests for a loan would require
at minimum the amount, the reason for the
loan, terms and interest rates. If the
program contractor is unclear what to
include in a particular request, it should
contact the AHCCCS Office of Managed Care
prior to submitting the request for approval
.
28 APIPA Q: Is prior approval needed for a distribution of profits or equity in excess of requirements to a
D.38 program contractor's owners? If so, what criteria will be used?
A: Yes, prior approval is required for all distributions of equity or profit. Criteria may include, but
not be limited to, amount of total equity, existence of outstanding loans and compliance with other
viability standards.
29 MMCS Q: Is the HCBS cap expected to increase by the same % each subsequent year of the contract?
D.40 A: HCBS percentage will be reevaluated each subsequent year of the contract, and may not increase
at the same ratio or "by the same amount."
29 APIPA Q: Under what circumstances, when a program contractor exceeds its contracted (assumed) HCBS
D.40 percentage, will a program contractor be reimbursed amounts, rather than having amounts
recouped?
A: Never. Based on the recoupment/reimbursement schedule on page 29 of the RFP, a program
contractor would not be reimbursed when it exceeds the assumed HCBS mix. Reimbursement
only occurs when the program contractor's mix is below the assumed mix per the schedule on page
29 of the RFP.
29 CHS Q: Please define AHCCCSA's method of assigning the HCBS percentage to the program contractors.
D.40 Can the reconciliation be accomplished every six months, and can it be done within thirty days of
the end of the period?
A: HCBS percentage was calculated on a county
specific basis using actual placement year
to date as of January 1996. A percentage to
accommodate growth trends and alternative
settings was added. Reconciliation's will be
completed at the end of the contract period
when CATS data is considered to be complete.
29 TEMM Q: Please define AHCCCSA's methodology for calculating the assumed ratio "mix" of HCBS
D.40 member months.
A: See above response.
29 APIPA Q: Program contractors are not allowed to enter into hospital reimbursement arrangements that when,
D.41 in the aggregate, the subcontracted rates exceed what would have been paid had the AHCCCS Fee
For Service Hospital Reimbursement rate been
used. In light of the fact that AHCCCSA's
Fee for Service Hospital Reimbursement rates
will not be made available until after the
RFP submission deadline, how will the State
address the potential situation that a
prospective bidder has unknowingly
subcontracted with a hospital or nursing
facility a reimbursement package that in the
aggregate exceeds the AHCCCS Fee For Service
Hospital reimbursement rate and this
subcontract was included as part of the
program contractor's RFP response?
A: Program contractors may not reimburse a
hospital more, in the aggregate, than what
AHCCCS would pay, in the aggregate, under
the hospital tiered per diem system. The
inpatient hospital rates will be adjusted
effective 10/1/96 for inflation and length
of stay, as was done 10/1/95. These new
rates will not be available prior to the
proposal due date of 6/14/96. Therefore,
offerors should use caution in developing
their contracts with hospitals.
29 APIPA Q: What is anticipated at the time this question is answered regarding AHCCCSA's "disentanglement"
D.41 legislation? How will this section change in response? Will bidders be allowed a bid or program
change in response to the likely impact of
the legislation? Please view this question
generally and in light of a Program
contractor in a rural county that uses a
Maricopa or Pima County hospital for
tertiary services.
A: SB 1283 (AHCCCS Omnibus) which addresses disentanglement legislation is effective 10/1/97.
Implementation of this legislation will be handled through a contract amendment if necessary.
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29 TEMM Q: Are hospital contracts which reimburse the hospital at the tiered per diems for inpatient services
D.41 and AHCCCS specific cost-to-charge ratio required to be submitted to the AHCCCSA, Office of
Managed Care? If hospital contracts are
approved by AHCCCSA, Contracts and
Purchasing, in compliance with Section E,
Paragraph 10, Subcontracts, are they also
required to be submitted to the Office of
Managed Care?
A: All contracts should be submitted to the AHCCCSA, Contracts and Purchasing Office.
30 APIPA Q: Based on the language contained in this paragraph and the verbal answer provided at the Offerors
D.42 Conference, please confirm that the Ventilator Dependent member capitation rates are not open or
subject to the bidding process under this solicitation.
A: Ventilator Dependent rates have been set by AHCCCSA and are not open or subject to the bidding
process under this solicitation.
30 APIPA Q: Please define the term "approved ALTCS institutional settings" as referred to in this paragraph.
D.42 A: Refer to Chapter 1200 of the AHCCCS Medical Policy Manual.
30 APIPA Q: Please confirm that the cost for a Ventilator Dependent member's annual pulmonologist evaluation
D.42 is to be borne by the program contractor.
A: That is correct.
30 CHS Q: The Ventilator Dependent Reimbursement capitation rates do not appear to include any allocation
D.42 for risk, when assessed against actual costs for services for non-Medicare covered clients. For
example, in reviewing costs for our previous
institutional vent-dependent client, the
costs for institutional, acute, and
administration were at $12,000. Our current
HCBS vent-dependent client has a secondary
insurance, but the costs, would be
approximately $6,000 if there were no
secondary insurance. As a small plan, there
are not enough vent-dependent clients to
"spread" the risk. If no adjustment is
possible, can AHCCCSA allow plans to receive
reinsurance after some monthly deductible
for services that are not normally covered
by reinsurance?
A: To determine capitation rates for ventilator
dependent clients, AHCCCS reviewed current
rates paid, surveyed all existing
contractors and reviewed past encounter
analyses. AHCCCS is currently conducting an
additional encounter study to verify rates
established. At this time, AHCCCS is not
considering a reinsurance program for
ventilator dependent clients.
30 CHS Q: Can the reconciliation be accomplished every month, and can it be done within thirty days of the
D.42 end of the period?
A: The ventilator dependent reconciliation for placement will be conducted on a quarterly basis.
30 TEMM Q: The first sentence indicates "the Program Contractor will be paid on a capitated basis for ventilator
D.42 dependent members, however R9-28-710.D stipulates "Program contractors shall be paid on a fee-
for-service basis for approved services
rendered to ventilator dependent
individuals." Please clarify.
A: AHCCCSA will request a rule change to allow
for the capitation of ventilator dependent
members in all counties; however, the RFP
provision takes effect 10/1/96 regardless of
the status of the rule change request.
30 TEMM Q: Placement data is required to be entered in CATS by the program contractor for each member.
D.42 Since the placement data is available to AHCCCSA on ventilator dependent clients, why are all
ventilator dependent clients reimbursed at
the Home and Community Based Services
capitation rate instead of the actual
placement capitation rate? If AHCCCSA cannot
reimburse the program contractor on the
actual placement of the ventilator dependent
client, can the reconciliation of capitation
rake place on a monthly versus a quarterly
basis due to the potential impact on the
program contractor?.
A: The AHCCCS system is not currently programmed to accept two rates (HCBS and Institutional)
for ventilator dependent clients. AHCCCSA will continue to reconcile for placement of ventilator
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dependent clients on a quarterly basis.
30 PINAL Q: According to the capitation rates set by AHCCCS, the average HCBS costs for ventilator
D.42 dependent members should be $5,000 per month, and for institutional members, $12,000 per
month. During the 1995-96 contract year, Pinal County Long-Term Care served two ventilator
dependent members at an average cost of $1,594 per day, or $48,458 per month during their status
as ventilator dependent members. Additionally, $90,000 was reimbursed through reinsurance for
acute care expenses incurred during the thirty days prior to achieving ventilator dependent status.
Given the difference between our actual costs of $48,458 per monthly and the $12,000 per month
for institutional ventilator dependent clients given in the ALTCS RFP, we have the following
questions: How did AHCCCS determine the monthly capitation rates for ventilator dependent
members?. Will these members be reinsurable? Does the monthly amount include all services, or
only certain categories of service as determined by AHCCCS?
A: To determine ventilator dependent capitation rates, AHCCCS reviewed current rates paid,
surveyed all existing contractors and reviewed past encounter analysis. AHCCCSA is currently
conducting an additional encounter study to verify the rates established. Ventilator Dependent
clients are eligible for regular acute inpatient hospitalization reinsurance. For more information on
reinsurance coverage please refer to the AHCCCS Reinsurance Policy/Procedure Manual. The
rates established by AHCCCSA for ventilator dependent clients include all services.
30-31 PHS Q: What will be the procedure and time frames for approval of services and reinsurance for behavioral
D.43 health/TBI clients?
A: AHCCCS staff is currently developing the policy and procedures for this process.
30-31 APIPA Q: (1) When will AHCCCSA determine the deductible for Behavioral Health/Traumatic Brain Injury
D.43 (BH/TBI)?
(2) If the deductible is determined after the bids are due, will bidders be allowed to adjust their
rates accordingly? Please specify what services are and are not included under the BH/TBI category.
(3) What criteria will the OMD use to (One) approve or deny services in this category; and (Two)
determine what is or is not subject to reinsurance?
(4) What is the timeframe in which the OMD will respond?
(5) Also, will retrospective approval be given? In as many instances, whether behavioral health
services are "high cost" is not known until after treatment has been initiated.
(6) Is the AHCCCSA suggesting here that a program contractor as the OMD for authorization at
the onset of any behavioral health or traumatic brain injury service to preserve a claim for
reinsurance?
(7) What steps will AHCCCSA take here to avoid the confusion and inconsistencies that were
experienced with the sick newborn deferred liability system?
A: (1) There is no deductible - please see Amendment #1.
(2) N/A; see above.
(3-5) AHCCCSA is in the process of developing a policy that will address these issues. The policy
will be available on or before 5/20/96.
(6) This reinsurance is related to placement only. OMD should be notified of placement of
members in high cost settings.
(7) The policy that is being developed will contain detailed information in order to avoid any
confusion.
30-31 APIPA Q: Please define the term "catastrophically eligible" (not defined in Section C - Definitions). What
D.43 are the Office of the Medical Director Manual cites for the special catastrophic program?
A: Catastrophic coverage is defined in R9-22-101, Rules, Definition, "catastrophic coverage
limitation" and R9-22-503, Reinsurance, J-1.2.3. Catastrophic coverage is defined in the
AHCCCSA Reinsurance Policy and Procedure Manual. Currently, major organ transplants and
hemophilia are considered catastrophic.
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30-31 APIPA Q: What will be the frequency and duration of the retrospective medical review process for regular
D.43 HCBS reinsurance cases?
A: Quarterly audits or until claims are submitted in the system. In the event a Program Contractor has
no claims submitted for the contract year, a site visit will be scheduled to review the program.
30-31 APIPA Q: What formula and associated variables will be used in extrapolating the sample results to the
D.43 program contractor's regular ALTCS reinsurance reimbursable population?
A: A random sample (25%) of claims meeting the reinsurance threshold. A case is opened for a
member with the first hospitalization and would continue for any additional hospitalizations that
member would have. If a case is initiated during one quarter (continue hospitalization), but the
member is not discharged until the second or third quarter, all medical documentation and claims
for that hospitalization are reviewed.
30-31 APIPA Q: Will the extrapolation of the sampling results and possible partial reimbursement be applied only
D.43 to the test period under review?
A: See pages 2-16, Chapter 2, Section 9 of the AHCCCSA Reinsurance Policy/Procedure Manual.
30-31 APIPA Q: Will identified recoupable amounts be effected through a monthly capitation payment adjustment
D.43 or another means?
A: Amounts will be recouped through adjustments to capitation payments.
30-31 MMCS Q: (1) What is the process by which program contractors must obtain prior authorization for
D.43 potentially high cost behavioral health/TBI individuals?
(2) Will the process accommodate placements that must be done on an emergency basis?
(3) Please explain how the following will be handled: A member is receiving behavioral health
services at a level that is not expected to reach the reinsurance threshold. A change in condition
occurs and the member requires additional services that will likely reach the threshold. The
program contractor requests and receives approval from AHCCCS to include the individual in the
reinsurance program.
(4) Will the costs incurred prior to the approval be considered "allowable" for the purposed of
reinsurance?
(5) Will all cost be included in the reinsurance rate, in other words, are all behavioral health costs
for services and settings counted including Level I, Level II, facilities for persons with TBI, all
behavioral health procedure codes, medications, IMD, specialized behavioral health nursing
facility units, adult care home for persons with TBI, crisis services, etc.?
(6) Will reinsurance for BH/TBI be based on encounter data or will there be some other reporting
mechanism?
(7) Will periodic approval be required in order to maintain a person in the BH/TBI reinsurance
program after initial approval has been granted?
(8) What is the intent of AHCCCS by requiring prior authorization for reinsurance for expensive
services or settings?
(9) When AHCCCS reviews a request for inclusion in the reinsurance program, what criteria will
be used in the decision-making process?
(10) In other words, will AHCCCS utilize purely financial criteria or will it use clinical criteria?
A: (1) This will be covered in the TBI policy that will be released on or before 5/20/96.
(2) Yes, OMD will accommodate these placements that must be done on an emergency basis.
(3-5) This will be covered in the TBI policy.
(6) It is anticipated that the data will be reported manually similar to the catastrophic reinsurance
method. The policy will detail the submission requirements.
(7) This will be covered in the TBI policy.
(8) The purpose of prior authorization is to reduce risk that may be incurred as this service has the
potential for being high cost.
(9) This will be covered in the TBI policy.
(10) This will be covered in the TBI policy .
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31-32 APIPA Q: Does AHCCCSA mean "deny authorization and/or reimbursement for a service" when the RFP
D.44 states "deny a service?" What is the legal authority for denying authorization for a medically
necessary covered service because of the existence of other coverage? On page 32, first full
paragraph, what if the their party insurer refused to divulge or respond in a timely manner on
whether the service is covered? In the paragraph just above Cost Recoveries, is it correct to
assume that the obligation to transport for third party benefits extends only to trips for ALTCS
covered services?
A: "May deny a service" is an option which may be used in order to coordinate benefits. The
program contractor may deny the provision of services, including the payment. Authorization
means that a service is necessary. Services cannot be denied if it jeopardizes the member's health.
AHCCCS is the payer of last resort pursuant to ARS 36-2903.G. Provision of transportation to
coordinate benefits applies to all covered services.
31-32 APIPA Q: Please identify AHCCCSA's authorized representative for third party collections?
D.44 A: Health Management Systems, Inc., and its corporate affiliate, HHL Financial Services, Inc.
31-32 APIPA Q: Please provide detail, on a pro-forma or model, basis of an acceptable third party collections
D.44 subcontract with AHCCCSA's authorized representative.
A: This is available in Bidder's Library.
31-32 APIPA Q: Under what circumstances and frequency will a program contractor be required to report case level
D.44 detail of third party collections and cost avoidance (i.e. as per the terms of paragraph 34)? Does
AHCCCSA have any specific reporting format to be used?
A: Specific reporting requirements are to be determined.
33 APIPA Q: Will AHCCCSA notify program contractors of any new Medicare services which are not covered
D.45 by AHCCCSA?
A: As AHCCCSA becomes aware of new Medicare services not covered by ALTCS, Program
Contractors will be notified.
33 APIPA Q: Please provide a listing of all Medicare TEFRA Risk HMO's in Arizona by county, if available.
D.45 A: We regret we don't have this information available.
33 CHS Q: Please define the difference in scope or limitation of inpatient psychiatric services, psychological
D.45 services, inpatient and outpatient occupational coverage, or respite services for QMB eligible
persons versus Medicaid services, or refer to the specific citation which describes those services.
A: For information on the scope of inpatient psychiatric services, refer to Section 1812(c) and (e),
1861(c) and (f), and additional information contained in Part A Coverage--Inpatient Psychiatric
Hospital Services. Copies of these documents labeled as items #2, #3, #5 and #13 are in the binder
labeled "Medicare/Social Security Act" in the Bidder's Library. For information on psychological
services, refer to Section 1832(a)(2)(B)(iii), 1861(b)(4) and additional information contained in
Part B Benefits--Psychiatrists and Psychologists, Part B Benefits--Qualified Psychologist and
Clinical Social Worker Services, and Inpatient Hospital Coverage--Psychologist and Physical
Therapists. Copies of these documents labeled as items #1, #3, #8, #9 and #11 are in the binder
labeled "Medicare Social Security Act" in the Bidder's Library. For Information on inpatient and
outpatient occupational coverage, refer to Section 1832(a)(2)(C), 1861(g) and (p), 1833(g) and
additional information contained in Inpatient Hospital Coverage--Psychologist and Physical
Therapist, Inpatient Hospital Coverage--Coverage Issues-Occupational Therapy, and Part A
Coverage--Other Diagnostic and Therapeutic Items or Services. Copies of these documents labeled
as items #1, #4, #6, #7, #11, #12 and #14 are in the binder labeled "Medicare/Social Security Act"
in the Bidder's Library. The document, Part B Benefits--Mental Health Services and (and Partial
Hospitalization Coverage) which provides information on psychiatric services, psychological
services and occupational therapy services are labeled as item #10 are in the binder labeled
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"Medicare/Social Security Act" in the Bidder's Library. The sole reference we located regarding
respite is provided under Respite Care in the section on Hospice Services. A copy of this
information is labeled as item #15, and is in the binder labeled Medicare/Social Security Act" in
the Bidder's Library.
33 PHS Q: What does inpatient and outpatient occupational coverage mean?
D.45 A: See above response.
33 PINAL Q: Paragraph 5, states: "If a dual eligible is enrolled with a Medicare TEFRA Risk HMO, Medicare
D.45 will not reimburse the Program Contractor for Medicare covered services provided by the Program
Contractor. Therefore the Program Contractor shall refer the member to the Medicare TEFRA risk
HMO for all Medicare Covered services and shall not be responsible for the payment of any
Medicare copayments, deductibles or premiums assessed by the Medicare TEFRA Risk HMO. The
Program Contractor shall be responsible for any Medicaid covered services not provided by the
Medicare TEFRA Risk HMO." Currently program contractors are responsible for deductibles and
Co-Pays. Please explain this shift in policy and who is responsible for the deductibles and co-pays.
PCLTC's concerns that the TEFRA Risk HMO and its providers will not provide services if they
don't received the co-payment.
A: AHCCCS is requesting clarification from HCFA at this time regarding deductible and co-pays. As
soon as there is a definitive ruling on this issue, AHCCCS will notify all offerors.
33 APIPA Q: Please confirm the verbal statement made at the Offerors Conference that the last sentence of the
D.46 first paragraph, "The Program Contractor must establish a process for collecting the share of cost
from HCBS members." , refers only to those HCBS members residing in alternative residential
settings.
A: The sentence quoted generally refers to those HCBS members residing in alternate residential
settings. However, if an HCBS member has an "income only trust" and therefore actually has
more income than the $1,410.00 income maximum, he or she may have a share of cost.
Example: Mrs. Brown has monthly income of $1,800 per month. Allowable deductions include
$1,410 personal needs allowance if in her own home, $50 medical insurance premium
$ 1800
- 1410 monthly income deductions
- 50
-------
$ 340 share of cost
If this member resided in an alternative residential setting, the Share of cost would be:
$ 70.50 personal needs allowance
700.00 room and board charge
50.00 medical insurance
--------
$820.50 deductions
$1800.00 monthly income
- 820.50
--------
$ 979.50 share of cost
33 APIPA Q: Are program contractors to consider the "actual share of cost assignment" to be the amount as
D.46 shown as the share of cost by member per the monthly Member Roster report?
A: Yes.
33 APIPA Q: Will the potential recoupment of amounts identified from the annual share of cost reconciliation be
D.46 accomplished through a capitation payment adjustment?
A: Share of cost recoupment will be made through deductions to capitation payments.
33 APIPA Q: How often will AHCCCSA change/adjust a member's assumed share of cost during a (12) month
D.46 period, or is the assumed share of cost an average per member per month by county?
A: The share of cost on the capitation rate calculation sheets (CRCS) will be reviewed annually.
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33 APIPA Q: Will AHCCCSA please provide the details, formula, etc. of its share of cost reconciliation
D.46 procedure? What date will be utilized?
A: The reconciliation is completed by county and compares actual Share of Cost assignments (dollars)
for the contract year divided by total member months (not including ventilator dependent) for the
contract year. This amount is compared to the Share of Cost assumption used in the capitation rate
and will result in either a recoupment or refund of the difference. As indicated in the RFP, the
reconciliation will occur at the end of the contract year, or more frequently if deemed necessary by
AHCCCSA.
33 APIPA Q: How will AHCCCSA be providing the HCBS share of cost information to program contractors?
D.46 Will the HCBS share of cost be provided on the daily member roster the same as the current share
of cost information, with a separate action code define the change or update?
A: The share of cost for HCBS members will be included on the ALTCS Member Roster as is
currently being done for institutionalized members. The possible need for any specific coding
different from what is in place will be considered.
33 APIPA Q: Will the share of cost be adjusted if a member is HCBS and then, due to medical necessity,
D.46 becomes institutionalized during the month, or vice versa? How will a program contractor receive
the changes related to this potential share of cost adjustment?
A: Yes, changes in the member's living arrangement (placement) may cause a change in the
member's share of cost. Anytime a change in the member's circumstances requires an adjustment
to the member's share of cost, this change is done prospectively and is reflected on the program
contractor's Member Roster.
33 APIPA Q: Is it correct to presume that the implementation of any HCBS share of cost will occur monthly and
D.46 that is may also change monthly as it presently does for institutionalized members?
A: Yes, share of cost is always assessed for a monthly amount, and changes in the member's
circumstances may require a change in the member's share of cost. Generally, these are changes in
the member's placement, member's income, or in the share of cost allowable deductions.
Elements affecting the share of cost are discussed in more detail in the ALTCS Eligibility Policy
and Procedures Manual, Chapter 1600.
33 TEMM Q: Please define AHCCCSA's methodology for calculating the assumed deduction for share of cost
D.46 A: Actual Share of Cost (SOC) assignments for the period 10/95 through 1/96 were divided by total
member months for the same time period. A cost of living adjustment was also applied.
33 MMCS Q: Program contractors must establish process for collecting SOC from HCBS members - Are we
D.46 correct I assuming you are speaking about alternative residential settings R&B only?
A: Yes.
34 APIPA Q: The definition of "Management Services Subcontractor" on page 5 extends the requirement for
D.47 approval to a contract for "any administrative service" needed to fulfill the program contractor's
obligations. We can understand the need to know of and approve all of this information as it
related to securing a contract through this bid process. However, such a requirement could
become burdensome for both AHCCCSA and Program contractors after contracts are awarded.
would AHCCCSA consider limiting the approval requirement to contracts above a threshold
amount, say $5,000 annually, or to contracts directly related to management of the program
contractor or some specific requirement(s) under Section D of the RFP?
A: All management services contracts as defined in the RFP must be submitted to AHCCCSA for
approval.
34 APIPA Q: What types of financial sanctions may be imposed by AHCCCSA resulting from implementation
D.47 of this paragraph?
A: Sanctions are determined on a case-by-case basis. See p.36, paragraph 56 of the RFP.
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34 PINAL Q: "All management services subcontractors are required to have an annual financial audit. A copy of
D.48 this audit shall be submitted to AHCCCSA, Office of Managed Care, within 120 days after the
subcontractor's fiscal year." What exactly is AHCCCS requiring in this section? Does AHCCCS
require an independent audit performed by an independent accountant not affiliated with the
program contractor? Will AHCCCS accept compiled or reviewed financial statements?
Furthermore, are there standards specific to AHCCCS that must be included in the audit? Must
every management service subcontractor have an audit or are there income criteria that would
determine who must have the audit conducted?
A: AHCCCSA is requiring a certified financial audit. The audit may be conducted by the same firm
that completes the offeror's financial audit, but should not be an employee of the offeror.
AHCCCSA will not accept compiled or reviewed financial statements. If services billed by the
management services subcontractor are less than $50,000 annually, AHCCCSA will waive the
requirement for an audit.
35 APIPA Q: Will AHCCCSA consider adding the words "or agreed to by the Administration and Program
D.51 Contractor" at the end of the sentence?
A: No.
35 APIPA Q: Please describe the data exchange penalties referred to in this paragraph?
D.53 A: At this time, the only penalties related to the data exchange requirements include those for data
validation studies and pended encounters. However, as indicated in Section D, Paragraph 56 of the
RFP, AHCCCS may sanction Program Contractors for any non-compliance with data exchange
requirements.
`
35 APIPA Q: Please define the term "contract services". Is the term to be synonymous with "encounters" or
D.54 more all encompassing such as "covered services"?
A: At this time, the only penalties related to the data exchange requirements are for data validation
studies and pended encounters. However, as indicated in the RFP, AHCCCS may sanction
Program Contractors for any non-compliance with data exchange requirements.
36 APIPA Q: In those cases where AHCCCSA will require program contractors to use a specialty contractor,
D.55 will AHCCCSA commit to program contractor input in advance into the need for and selection of
a specialty contractor? Is cost the only basis upon which a program contractor does not have to
sue a mandated specialty contractor?
A: This section now pertains solely to organ transplants. In the future it may include other situations.
As long as the services that the Program Contractor are able to contract for are equivalent, cost
would be the predominant consideration. Quality of care concerns and past performance by a
provider would also be considered.
36 APIPA Q: Are sanctions determined on a case-by-case basis per occurrence, or does AHCCCSA have
D.56 specified sanctions for specific types of contract "non-compliance" with delineated AHCCCSA
standards? If so, please identify such sanctions and their frequency of applications, amounts
imposed, etc.
A: Sanctions are determined on a case-by-case basis.
37 APIPA Q: With regards to the second paragraph, a contract clause that makes failure to timely sign a contract
D.57 as grounds for termination is inconsistent with AHCCCSA's stated historical and continuing
contracting philosophy of collaboration, partnership and fairness. This is especially true when
there is no obligation on AHCCCSA to discuss proposed modifications upon renewal with a
program contractor. Consequently, we strongly suggest removal of this section in its entirety. At a
minimum, we suggest deletion of the words "or modification" from the second paragraph and the
addition of a sentence that says the Administration and a program contractor may mutually agree to
extend a contract while formal contract extensions and the terms thereof are being discussed.
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A: In law and in public policy, the state always reserves the right to unilaterally amend or terminate its
contracts for any reason and the contractor has the related right to present a claim for appropriate
compensation. In most situations, however, AHCCCSA solicits contractor input and agreement
before amending any contract.
37 APIPA Q: Based on this paragraph, is it AHCCCSA's intent that any amendments to this contract are to be
D.57 accepted by program contractor without any potential prior negotiation to reach mutually
acceptable concurrence of the times and expectations to be included?
A: See above response.
37 APIPA Q: In the last paragraph beginning "Other AHCCCS related issues ... will ...", please explain the
D.60 potential use of tobacco tax monies for various reasons. Would the use of these Moines be
restricted to specific disease states, transplants, rate codes or have any qualifying restrictions?
Would these monies be provided based on membership levels in the counties of Cochise, Gila,
Pinal and Santa Cruz? Would these monies be provided in addition to the capitation rate and how
much would a program contractor receive such monies? Is there a potential for other counties to
be considered for relief, related to tobacco tax monies funding?
A: When the RFP was prepared, AHCCCS did not know whether any new tobacco tax legislation
would be passed by the legislature. The legislative session ended April 20 and the legislature
passed HB. 2508, a new premium sharing program funded with tobacco tax monies that will
impact the AHCCCS acute care program. It is not available to ALTCS eligible persons. The
premium sharing program will be designed by a special legislative committee for non-AHCCCS,
uninsured residents of the United States and Arizona who have income up to 300% of the federal
poverty level. Individuals who choose to enroll in the premium sharing program must pay a still-
undetermined amount to contribute to the cost of the premiums. It is envisioned that services for
this new population will be provided by AHCCCS acute care health plans. If the legislative
committee decides to proceed with the cost sharing program and it is implemented on October 1,
acute care contract amendments will be issued.
In SB 1060, the legislature provided $1 million in financial relief to four counties (Gila, Pinal,
Santa Cruz and Pinal) in a direct appropriation to assist them with their contributions to the
ALTCS program. Money is not available to AHCCCS or the program contractors.
37 APIPA Q: 60. h. Effective Date of Enrollment:
D.60h (1) will AHCCCSA provide prospective bidders with the historical cost experience of new
members up until they became the responsibility of the program contractors?
(2) Assuming the Legislature does not address the proposed change to the effective date of
enrollment prior to the RFP submission deadline, will AHCCCSA provide guidance as to how
prospective bidders should address this situation in their capitation proposals? For example,
should prospective bidders build their capitation proposal under the assumption that the effective
date for program contractors for new members will be the date of notification or two days after the
date of notification.
(3) Assuming the Legislature does change the effective date of enrollment for program contractors
to the date of notification subsequent to the RFP submission deadline and prospective bidders were
instructed to prepare their bids assuming the effective date of enrollment for Program contractors
would continue to be two days after the date of notification, what is the AHCCCSA's plan for
incorporating this change into the bid process? Will prospective bidders be allowed to adjust their
previously submitted bids?
A: Offerors should develop their capitation proposals under the assumption that the effective date for
program contractors will continue to be two days after the date of notification.
40 APIPA Q: Will AHCCCSA consider requiring both parties to sign to modify the contract by amendment?
E.3 A: Since the state reserves the right to unilaterally amend the contract, signing by both parties is not
required.
41 APIPA Q: Will AHCCCSA concur adding "or as otherwise provided under this Agreement" to the end of this
E.7 clause?
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A: Since no "otherwise provided" provision appears in the RFP, adding the terminology you're
recommending would serve no purpose.
41 APIPA Q: Please delete "or anyone for whom the Program Contractor may be responsible." This clause is
E.8 overly broad, vague and unnecessary given the list of those from who AHCCCSA is protected by
the other terms in the indemnification.
A: If the program contractor is "responsible" for a person's performance under this contract, that
person's performance should certainly come under the purview of the general indemnification
clause. We do not agree that it is overly broad, vague or unnecessary.
41 APIPA Q: For clarification add "by Program Contractor" between "performed" and "under."
E.9 A: Your recommended revision would distort the meaning of this paragraph. Work performed by
subcontractors is also included within the meaning of "work performed".
41 APIPA Q: 10. g. What is meant by a "description" of a subcontractor's patient, medical and cost
E.10 recordkeeping systems, in terms of level of detail?
A: The description must be sufficient to allow AHCCCSA to determine whether it is adequate to meet
federal, state and contract requirements.
41 APIPA Q: 10. j. Is it to be assumed that a related party is one that receives $25,000 or more in payments for
E.10 services provided in a (12) month period, as per 42 CFR 455.100 et seq.?
A: The "$25,000 or more in payments" provision is unrelated to the definition of a "related party."
Please see Section C, Definitions.
42 APIPA Q: Please define the term "NACHA".
E.12 A: NACHA" stands for "National Automated Clearing House Association". A NACHA transfer is a
wire transfer routed through an administrative service (NACHA) to the payee's bank.
44 APIPA Q: Will AHCCCSA provide an opportunity to cure a default? If so, will it commit to one in the
E.21 contract?
A: The purpose of this paragraph is only to define a right reserved to the state, not to describe a
process precedent to the exercise of that right.
44 APIPA Q: Will AHCCCSA consider making this provision to the program contractor, as well?
E.24 A: Yes.
44 APIPA Q: Will AHCCCSA provide advance written notice of its intent to offset?
E.25 A: Yes.
46 APIPA Q: Please clarify that this is a monthly, capitated payment contract based on an amount per member
E.34 per month payment mechanism, rather than a "Firm Fixed Price" contract, as presently stated per
this paragraph.?
A: The term "firm, fixed-price" used in this paragraph is correct. A firm, fixed-price contract is one
in which the compensation is stated and agreed to by the parties ("firm") and the price or prices
stated are not subject to automatic adjustment (e.g. indexing, escalation, COL increases) during the
term of the contract ("fixed-price"). All of our capitated contracts are firm, fixed-price contracts.
46 APIPA Q: Will AHCCCSA commit to requiring itself to request correction in writing?
E.36 A: The manner of requiring correction of services will depend on the circumstances of each case.
47 APIPA Q: Please add that the requirements of this paragraph do not apply to summary data as described in
E.40 ALTCS Rule 9-28-514.
A: That is correct. The restrictions upon disclosure of information do not apply to summary data and
other reports which do not identify individuals by name.
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49 APIPA Q: The Offerors Mailing Address is not included on the Section J checklist. For Section J purposes,
G.5 where in an offerors response would AHCCCSA prefer to have this item located (e.g. Part I -
General Matters)?
A: The Offerors Mailing Address is included in Section G. The completion of Section G is a
required submission on the Offeror's Checklist under "V. Organization".
50 APIPA Q: 7. d. Financial Projections:
G.7 (1) Will AHCCCSA please provide an acceptable reporting format for the required financial
projections?
(2) Can the required financial projections be prepared on a combined service area basis or are
separate projections be prepared on a combined service area basis or are separate projections
required for each service area bid?
A: AHCCCS will not provide a format for financial projections. Financial projections should include
a balance sheet, statement of revenues and expenses, and changes in plan equity as defined by the
Reporting Guide for Long-Term Care Program Contractors with the Arizona Long Term Care
System effective October 1, 1996, available in the Bidder's Library. Financial statements may be
prepared on a combined service area basis.
52 APIPA Q: For the purpose of submitting an appropriate Financial Disclosure Statement, is a change in
G.8 corporate form, as opposed to an operational reorganization which occurred between the most
recent fiscal year end date and 3/31/96, be considered a "significant change" requiring preparation
of a 3/31/96 Financial Disclosure Statement for a continuing offeror?
A: A change of this nature would be considered significant. The offeror should prepare a 3/31/96
Financial Disclosure Statement.
54 APIPA Q: If a continuing offeror has filed a "Related Party Transactions" form with its most recent annual
G.9 Financial Disclosure Statement, is it necessary to prepare and resubmit this information, or may the
information be considered communicated as through the instructions for paragraph e.8 above?
A: If a continuing offeror has filed a financial disclosure statement including related party transactions
within the last twelve months and has not undergone significant changes, a new related party
transaction form need not be submitted. However, if the offeror has undergone a significant
change and is submitting a disclosure statement for the period ended 3/31/96, a related party
transaction form for the same time period should be submitted.
54 APIPA Q: How far back in the past should bidders report related party transaction under this paragraph?
G.9 A: Twelve months; same requirement in G8, Financial Disclosure Statement.
60 MMCS Q: Is 4-19-96 the last possible date for questions or just for questions to be answered in the
H.4 amendment?
A: Just for questions to be answered in the amendment. After that date, written questions will be
answered individually. A question that results in any change or significant clarification to the
solicitation will be communicated to all prospective offerors by an amendment to the RFP.
61-63 APIPA Q: Please confirm, clarify and provide examples of the subcontracting risk arrangements AHCCCSA
H.10 would like included, as discussed verbally at the Offerors Conference.
A: An example of a risk arrangement contract between a program contractor and a nursing facility
that would qualify for extra consideration follows: Program contractor provides a financial
incentive to the nursing facility to identify members to the program contractor's case manager that
can be stepped down from the current level of care or discharged from the facility into an HCBS
setting.
61-63 APIPA Q: Please confirm that a Letter of Intent will have an equal evaluation weight as to a signed contract
H.10 in the network scoring process, as discussed at the Offerors Conference.
A: The letter of intent will have the same weight as a signed contract in the network scoring process.
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61-63 APIPA Q: Please confirm that only one copy of an offerors Provider Manual is required to be submitted to
H.10 satisfy the instructions of this RFP. (i.e. that one original and five copies are required; however,
only one Provider Manual is requested).
A: Only one copy of the offeror's Provider Manual is required.
63 APIPA Q: Please confirm from the Offerors Conference that hard copies of an offerors CRCS by county are
H.11 to be included in the submitted copies, in addition to the one (1) capitation bid disk.
A: Offerors are required to submit hard copies of their capitation bid by county. Please see
Attachment F, Page F-1, last sentence of the first paragraph.
63 APIPA Q: What is meant by "clinical standards used" and "restrictions on settings for care"?
H.12 A: "Clinical standards used" refers to the clinical standards that would be used for establishing
utilization management policies and procedures. "Restrictions on settings for care" refers to the
need to identify in utilization management policies and procedures any restriction of services based
upon settings for care.
66 YCLTC Q: For counties that have first right of refusal and no competitive bids, why must they go through Best
H.20 and Final Offer process? Why not offer the mid-point rate and avoid the costly negotiation
process?
A: Best and Final Offers (BFO's) are at the sole discretion of the AHCCCSA. As indicated in this
solicitation, BFO's are an opportunity for the offeror to resubmit rate components not previously
accepted by AHCCCSA. If the offeror has made an acceptable bid on all components, or is
willing to accept the components set at the lower half of the actuarial rate range, the offeror need
not submit a BFO if one is offered.
67 VHS Q: On Paragraph 1, entitled "Nursing facility network," the second sub-paragraph states that "Extra
consideration will be given for letters of intent that specify payment rates, share cost collection
agreements, and certain types of risk relationships." It is not clear how respondents to the RFP
should document these "extra consideration" items since the Sample Letter of Intent (Attachment E
of the RFP) contains language specifying that no alterations to the Letter of Intent are permitted.
A: Your suggestion has been adopted for use and has been incorporated in the revised Attachment E,
Letter of Intent, included herein. All offerors shall submit the revised Letter of Intent which
includes the entry "Summary of Terms Attached? Yes _____ No_____". If yes is checked, the
offeror must attach documentation that addresses rates, share of cost collection and/or risk
arrangements. The offeror may add this documentation for Letters of Intent that have already been
completed prior to this amendment decision.
67 PINAL Q: The offeror must submit the signed letters of intent and/or the contract signature pages for Contract
Year 96-97 as part of its proposal. PCLTC has many contracts which only need to be renewed for
1996-97, do we need the letters of intent for renewable contracts?
A: Yes.
67 TEMM Q: Please clarify the statement "extra consideration....given for letters of intent or contracts that
specify payment rates, share of cost collection agreements, and certain types of risk relationships."
What does "extra consideration" mean? Please provide examples.
A: "Extra consideration" refers to the points awarded in the scoring process. For example, a letter of
intent or contract for nursing facilities with specific payment rates, share of cost collection
agreements, and risk arrangements will be awarded more points.
Atch B PHS Q: Why are partial care services required county wide versus facility location?
A: This was an error and has been corrected. Please see the revised Attachment B in this amendment.
Atch B MMCS Q: (1) Partial Care: Please explain why AHCCCS has determined partial care to be county-wide vs.
facility location?
</TABLE>
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<PAGE> 30
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<S> <C> <C> <C>
(2) Behavior Management: Can the fact that the program contractor provides county-wide personal care,
also satisfy the requirement of providing county-wide behavioral management (behavior management =
personal care)?
(3) How will county-wide coverage be scored?
(4) Pharmacy: Gila Bend - There are no pharmacies in Gila Bend to my knowledge.
A: (1) Partial Care should be listed as "Facility Location" on all applicable pages of Attachment B.
(2) No. While behavioral management and personal care are essentially the same services, the services
providers are not. You must have the capability of providing behavior management, with providers that
meet the qualifications for behavior management providers, in approved service settings (including
home) county-wide.
(3) The offeror must indicate if the service is county wide. If the service cannot be established
county wide, the Program Contractor must explain as described on page 62, "Network Development"
(4) There is no pharmacy in Gila Bend, so this requirement is deleted. Nevertheless, the offeror must
have a pharmacy system capable of providing medication to outlying areas of the service area.
Atch B APIPA Q: Attachment B refers to a network disk. Please confirm that the network disk requirement has been
deleted and that the paper roster referenced on page 62 (Section H) is the only network requirement,
along with the amended Attachment G. Will AHCCCSA also be modifying the Section J checklist to
reflect this change?
Atch B A: The network disk requirement has been deleted. A completed paper roster for the nursing facility
network, revised Attachment G and the roster described on page 62, "Acute care, HCBS and Behavioral
Health" are the required submission for the provider network. Attachment J, Offeror's Checklist,
has been revised to reflect this change and is included in this amendment.
Atch C CHS Q: In some cases, pends can be a result of AHCCCS systems limitations. In those instances, the
program contractors work with AHCCCS staff to try to correct the pended encounter. There should
be no sanctions in these instances, as long as the program contractor has made every effort to try to
correct the pended encounter. Please clarify if additional language can be inserted to this effect?
Atch C A: See revised Attachment C, included herein.
Atch F PHS Q: What is the formula used to calculate the PMPM cost from the Annualized Units per 1,000
--------------------------
member x Unit Cost?
------
A: PMPM is calculated as follows: Annualized Units multiplied by Unit Cost divided by 12,000 =
PMPM.
Atch F PHS Q: How was the HCBS percentage derived and how will this percentage be determined in subsequent
years?
A: HCBS percentage was calculated on a county-specific basis using year-to-date information as of
January 1996. A percentage to accommodate growth trends and alternative settings was added.
HCBS percentage in the subsequent contract years will be reevaluated and revised accordingly.
Atch F APIPA Q: In the main worksheet of the bidding section of the capitation disk, AHCCCSA provided the
following, pre-determined factors:
-- HCBS and Institutional Placement Distribution Percentages
-- Case Management Per Member Per Month (PMPM)
-- Patient Share of Cost (PSOC) PMPM
-- Vent Dependent Capitation PMPM (Home and Institutional)
Would AHCCCSA please define how these factors were calculated? What assumptions, variables, were
used in calculating these factors?
Atch F A: HCBS and Institutional Percentage: This percentage was calculated on a county specific basis
using actual placements year to date as of January 1996. A percentage to accommodate growth
trends and alternative settings was added.
</TABLE>
32
<PAGE> 31
<TABLE>
<S> <C> <C> <C>
Case Management PMPM: Assumptions for HCBS mix, case load, salary, benefits and travel have been
included in a calculation model which is available on the capitation bid disk (press F-1 when on the
case management amount).
Ventilator Dependent: To determine capitation rate for ventilator dependent clients AHCCCS reviewed
current rates paid, surveyed all existing contractors and reviewed past encounter analysis. AHCCCSA is
currently conducting an additional encounter study to verify the rates established.
Atch F APIPA Q: Do the HCBS placement distribution percentages noted on the capitation disk represent the federal
cap? If not, what are the federal cap percentages for HCBS placements and would AHCCCSA please
explain the rationale for setting the HCBS placement distribution percentages at rates different
from the federal cap percentages?
A: The HCBS placement distribution does not represent the federal cap. The federal cap is currently 40%
with a request to lift the cap entirely. AHCCCSA did not set the HCBS placement at the federal cap as
it would be difficult for the majority of contractors to achieve. There is no requirement from HCFA
to establish capitation rates at the federal cap.
Atch F YCLTC Q: Is the "surgical services" line item required or can data be included in Specialists and Primary Care
Physician line items?
A: Offerors should use the designated line items whenever possible.
Atch F YCLTC Q: In the Acute & HCBS worksheets, can projections be net of Medicare/TPL and then eliminate the
need for Medicare/TPL projections (i.e., Line 18 Acute).
A: Acute and HCBS costs should be reported gross of Medicare/TPL.
Atch F YCLTC Q: Under "Case Management Assumptions", why were projections used for HCBS mix but not for
total number? We have seen a 4% increase in the last two months and anticipate growth that would
allow for at least one additional case management position over assumption level, as well as
increasing supervision from .9 to full-time. If this can be demonstrated at time of Best & Final
Offer, will we be able to adjust Case Management line item?
Atch F A: For purposes of the capitation bid disk, AHCCCSA will not revise the enrollment amount used in
the case management calculation.
Atch TEMM Q: Please provide examples of the types of agreements between nursing facilities and program
G contractors which would qualify for "extra credit or consideration in the scoring process."
A: Two examples of an agreement between a nursing facility and a program contractor related to the
collection of share of cost that would qualify for extra consideration follows:
Example #1: Program contractor has delegated the share of cost collection function to the nursing
facility. After unsuccessful attempts by the facility to collect the share of cost from the member,
the program contractor agrees to send written notification to the member. The notification is
expected to reasonably increase the probability of the collection of the member share of cost.
Example # 2: The program contractor has retained the share of cost collection function. After
unsuccessful attempts to collect share of cost from the member, the nursing facility agrees to
perform specified procedures that are expected to increase the probability of the collection of the
member share of cost.
Atch I PINAL Q: Paragraph one states, The Offeror must submit the signed letters of intent and/or the contract
signature pages for Contract Year 96-97 as part of its proposal. PCLTC has many contracts which
only need to be renewed for 1996-97, do we need the letters of intent for renewable contracts?
Atch I A: Yes.
Atch J PHS Q: On the Check List (Page J-2), V. Organization-Financial Disclosure Statement does not have an *.
However, on page 52 #8, it states "continuing offers who have filed the required financial
disclosure statements within the last 12 months need to complete this section if no significant
</TABLE>
33
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
changes have occurred since the last filing. Is the disclosure statement required?
A: If the offeror has filed a financial disclosure statement within the last 12 months and has not had a
significant change, the offeror is not required to complete a financial disclosure statement as of
3/31/96.
APIPA Q: Will there be unique numeric plan ID numbers assigned to each county for the ALTCS members, or would
existing plan ID numbers be utilized if a program contractor is a continuing offeror with existing
ALTCS members?
A: Existing plan ID numbers will be used if a program contractor is a continuing offeror with existing
ALTCS members.
YCLTC Q: Could following RFP FORMS be provided on disk to facilitate completion by using word processors?
Section G - Representation and Certifications; Attachment D - Management Services Subcontractor
Statement; Attachment G - Nursing Facility Network Roster; Attachment J - Offeror's Checklist.
A: Subject to availability of staff, AHCCCSA will provide this or any other available text on disk (Word
6.0 for Windows) at a charge of $25. per disk. AHCCCSA makes no warranties of compatibility regarding
any material provided on disk. All such requests may be submitted to Mark Renshaw, Contracts and
Purchasing, and must be received by COB May 10, 1996.
Amdt APIPA Q: Will AHCCCSA please clarify the reinsurance program for Behavioral Health/Traumatic Brain #1 Injury
(BH/TBI) members?
A: This will be covered in the TBI policy.
APIPA Q: Are the acute costs incurred for BH/TBI members covered under regular reinsurance?
A: Acute care costs that would normally occur under regular reinsurance would be covered.
APIPA Q: How are prospective bidders to factor in BH/TBI reinsurance (non-acute) for institutionalized BH/TBI
members on the capitation disk? The capitation disk as presented does not include an area to address
reinsurance on the institutional worksheet, only on the HCBS worksheet.
A: There is no reinsurance for institutional services. BH/TBI costs should be included on the HCBS
worksheet.
TEMM Q: Please clarify "acute care services and all other ALTCS services are not covered by reinsurance for
this population."
A: Members with behavioral health/TBI qualify for reinsurance reimbursement under the regular
reinsurance program for acute inpatient
TEMM Q: Do acute inpatient hospitalizations for the behavioral health/TBI qualify for reinsurance
reimbursement?
A: Acute care costs that would normally occur under regular reinsurance would be covered.
</TABLE>
34
<PAGE> 1
EXHIBIT (10.1)(a)(4)
ARIZONA HEALTH CARE COST CONTAINMENT SYSTEM ADMINISTRATION
DIVISION OF BUSINESS AND FINANCE
SOLICITATION AMENDMENT Page 1 of 2
================================================================================
<TABLE>
<CAPTION>
AMENDMENT NUMBER: SOLICITATION NUMBER: EFFECTIVE DATE OF AMENDMENT: PROGRAM:
<S> <C> <C> <C>
3 YH6-0012 October 1, 1996 OMC/LTC
==================================================================================
</TABLE>
OFFEROR'S NAME AND ADDRESS:
Ventana Health Systems, Inc
2510 W. Dunlap Avenue, Suite #300
Phoenix, Arizona 85021
================================================================================
PURPOSE OF AMENDMENT: To make various changes to the solicitation and to advise
offerors regarding new policy.
================================================================================
THE SOLICITATION REFERENCED ABOVE IS AMENDED AS FOLLOWS:
(1) Section D, Paragraph 43, Reinsurance, of the RFP, refers to policies under
development regarding high-cost behavioral health and traumatic brain-injured
members. These draft policies have been approved by the Office of the Medical
Director and are incorporated by reference into the RFP. A copy of the policies
are enclosed with this amendment.
- --------------------------------------------------------------------------------
(2) Section D, Paragraph 54, Encounter Data Reporting, includes an incomplete
list of services for "Level I Behavioral Health Facility" and "Level II
Behavioral Health Facility". The complete list of services is as follows:
<TABLE>
<S> <C>
Level I Behavioral Health Facility: Personal care, homemaker, behavior management, partial care
and nursing services.
Level II Behavioral Health Facility: Personal care, homemaker, behavior management, partial care
and nursing services.
</TABLE>
- --------------------------------------------------------------------------------
(3) Section D, Paragraph 57, Term of Contract and Option to Renew, second
sentence, is changed from "three years" to "five years" as a result of recent
legislation which extends the maximum total contracting period for ALTCS
contracts.
- --------------------------------------------------------------------------------
(4) An addendum to Attachment F (Instructions for Preparing the Capitation Disk)
to reflect the new Behavioral Health/TBI policy is included as page 2 of this
amendment.
- --------------------------------------------------------------------------------
(5) Amendment #2, page 25 contains the following question which was answered
incorrectly. The correct answer is as follows:
APIPA Q: Please define the term "contract services". Is the
term to be synonymous with "encounters" or more all
encompassing such as "covered services"?
A: The term "contract services" is synonymous with
"covered services".
- --------------------------------------------------------------------------------
(6) Attachment J, Offeror's Checklist, was added to the RFP for the convenience
of offerors. If a requirement is stated anywhere in the RFP text, this statement
takes precedence over an apparent omission of that requirement in the Offeror's
Checklist.
================================================================================
EXCEPT AS PROVIDED FOR HEREIN, ALL TERMS AND CONDITIONS OF THE ORIGINAL
SOLICITATION REMAIN UNCHANGED AND IN FULL EFFECT.
================================================================================
<TABLE>
<S> <C>
SIGNATURE OF AUTHORIZED REPRESENTATIVE: SIGNATURE OF AHCCCSA CONTRACTING OFFICER:
James A. Burns
======================================= ========================================
TYPED NAME: TYPED NAME: MICHAEL VEIT
James A. Burns
======================================= ========================================
TITLE:
Chief Executive Officer TITLE: CONTRACTS & PURCHASING
ADMINISTRATOR
======================================= ========================================
DATE:
5-28-96 DATE:
======================================= ========================================
</TABLE>
<PAGE> 2
Page 2 of 2
ADDENDUM TO ATTACHMENT F (INSTRUCTIONS FOR PREPARING THE CAPITATION DISK):
TBI/BH EXPENSES AND REINSURANCE
As indicated in the new AHCCCS policy included with this amendment (AMPM,
Chapter 1200, Policy # 1250), program contractors are provided reinsurance
coverage for specific services and settings for Traumatic Brain Injured and
high-cost behavioral health (TBI/BH) members. Offerors should refer to the
following to incorporate expenses and reinsurance into their capitation bids.
NURSING FACILITY WORKSHEET - Offerors should not enter any expenses for those
members considered to be TBI/BH and possibly eligible for reinsurance coverage
on the Nursing Facility worksheet. Facility related expenses for these members
will be reported on the HCBS Worksheet.
HCBS WORKSHEET - Offerors should use lines #10 and #11 to report TBI/BH
related expenses for those members eligible for the TBI/BH specific reinsurance.
Expenses reported on these two lines should include all institutional or HCBS
expenses anticipated for OMD-approved TBI/BH members. This amount should be a
total facility, own home or approved residential setting per member per month
cost. Do not include acute care services which should be recorded on the Acute
Care worksheet.
Offerors should provide written documentation to support assumptions used for
lines #10 and #11. Assumptions must be detailed enough to support the per
member per month cost calculations for lines #10 and #11.
A projected offset for reinsurance revenue should be entered on the reinsurance
line. This is a deduction to the overall HCBS per member per month cost. This
line item is for TBI/BH related reinsurance only. Offerors should prepare
written documentation including utilization assumptions which correspond to the
assumptions used to calculate cost on lines #10 and #11. Refer to Amendment #1
for deductible and percentage coverage amounts.
ACUTE CARE WORKSHEET - Expenses for TBI/BH members should be blended in with
the acute expenses for all other acute care services.
---------------
<PAGE> 1
EXHIBIT 10.2
SECURED CONVERTIBLE
TERM LOAN AGREEMENT
Dated: September 30, 1996
$3,000,000
MANAGED CARE SOLUTIONS, INC.
(the "Borrower")
and
BLUE CROSS AND BLUE SHIELD OF TEXAS, INC.
("BCBSTX")
<PAGE> 2
SECURED CONVERTIBLE
TERM LOAN AGREEMENT
This Secured Convertible Term Loan Agreement (the "Agreement") is
made and entered into as of the 30th day of September, 1996 between Managed Care
Solutions, Inc., a Delaware corporation ("MCS"), and Blue Cross and Blue Shield
of Texas, Inc., a Texas group hospital services company ("BCBSTX").
RECITAL
This Agreement is being entered into to provide a secured
convertible term loan from BCBSTX to MCS in the maximum principal amount of
$3,000,000 (the "Loan"). As hereinafter provided, the Loan shall be convertible
into shares of common stock of MCS.
AGREEMENTS
In consideration of the mutual representations, warranties, and
covenants set forth herein, and in consideration of the Loan made hereunder to
or for the benefit of MCS by BCBSTX, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein:
"Accounts", "Chattel Paper", "Contracts", "Contract Rights",
"Documents", "Equipment", "Fixtures", "General Intangibles", "Goods",
"Instruments", "Inventory", "Investment Property" and "Account Debtor" shall
have the same respective meanings as are given to those terms in the Uniform
Commercial Code as in effect in the State of Arizona.
"AHC" means Arizona Health Concepts, Inc., an Arizona corporation,
which is a wholly-owned Subsidiary of the Borrower.
"Bankruptcy Law" means any law referred to in clause (i) of
Section 7.1.7 hereof.
"Benova" means Benova Managed Care Solutions, LLC, a New York
limited liability company, 65% of the equity interest of which is owned by the
Borrower.
"Business Plan" means the Business Plan dated July 16, 1996
delivered to BCBSTX by the Borrower prior to Closing.
"CHCI" means Community Health Choice of Illinois, Inc., a Delaware
corporation, which is 49% owned by the Borrower.
"CHCI Note" means the promissory note made by CHCI payable to the
order of the Borrower with an outstanding principal amount on the date of this
Agreement of $2,000,000.
<PAGE> 3
"Closing" means the closing referred to in Section 3.1.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Collateral" means the collateral referred to in Section 4.1
securing the Loan.
"Collateral Coverage Ratio" means a ratio of Eligible Assets to the
outstanding balance of the Loan at the time of determination equal to at least
150%.
"Collateral Documents" means Pledge Agreement, Security Agreement
and all financing statements required by the Security Agreement.
"Consolidated Tangible Net Worth" means, at any time, the excess of
the shareholders' equity of the Borrower over the unamortized goodwill of the
Borrower and other intangible assets of the Borrower.
"Controlled Group" means all members of a Controlled Group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414(b) or 414(c) of the Code.
"Current Account" means any Eligible Account which has been rendered
to the Account Debtor thereunder and does not remain unpaid for 90 days past the
invoice date thereof.
"Eligible Account" means an Account owing to Borrower so long as it
continues to meet the following requirements:
(i) it is genuine and in all respects what it purports to
be;
(ii) it is owned by the Borrower; and the Borrower has the right to
subject it to a security interest in favor of BCBSTX and it is subject to
a first priority perfected security interest in favor of BCBSTX and to no
other claim, lien, security interest or encumbrance whatsoever, other than
Permitted Liens;
(iii) it arises from (A) the performance of services by the Borrower
and such services have been fully performed and acknowledged and accepted
by the Account Debtor thereunder or (B) the sale or lease of Goods by the
Borrower, and such Goods have been completed in accordance with the
Account Debtor's specifications, if any, and delivered to and accepted by
the Account Debtor, such Account Debtor has not refused to accept any of
the Goods, and has not returned or offered to return any of the Goods, or
has not refused to accept any of the services, which are the subject of
such Account, and the Borrower has possession of shipping and delivery
receipts evidencing delivery of such Goods;
(iv) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not subject
to setoff, counterclaim, credit,
2
<PAGE> 4
allowance or adjustment by such Account Debtor, or to any claim by such
Account Debtor denying liability thereunder in whole or in part;
(v) it does not arise out of a contract or order which
fails in any material respect to comply with the requirements of
applicable law;
(vi) the Account Debtor thereunder is not a director,
officer, employee or agent of the Borrower or a Subsidiary;
(vii) it is not an Account with respect to which the Account Debtor
is the United States of America or any department, agency or
instrumentality thereof, unless the Borrower assigns its right to payment
of such Account to BCBSTX pursuant to, and in full compliance with, the
Assignment of Claims Act of 1940, as amended;
(viii) it is not an Account with respect to which the Account Debtor
is located in a state which requires the Borrower, as a precondition to
commencing or maintaining an action in the courts of that state, either to
(A) receive a certificate of authority to do business and be in good
standing in such state or (B) file a notice of business activities report
or similar report with such state's taxing authority, unless (x) the
Borrower has taken one of the actions described in clauses (A) or (B); (y)
the failure to take one of the actions described in either clause (A) or
(B) may be cured retroactively by the Borrower at its election if (z) the
Borrower has proven, to BCBSTX's satisfaction, that it is exempt from any
such requirements under any such state's laws;
(xi) it is an Account which arises out of a transaction
made in the ordinary course of Borrower's business;
(x) the Account Debtor is a resident or citizen of, and
is located within, the United States of America;
(xi) it is not an Account with respect to which the Account Debtor's
obligation to pay is conditional upon the Account Debtor's approval of the
Goods or services or is otherwise subject to any repurchase obligation or
return right, as with sales made on a bill-and-hold, guaranteed sale, sale
on approval, sale or return or consignment basis; and
(xii) it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is untrue or (B)
which violates any of the covenants of the Borrower contained in this
Agreement.
"Eligible Assets" means (A) 80% of the amount of any Current
Account, (B) 60% of the book value of any machinery and equipment, (C) 50% of
the book value of purchased software, (D) 75% of the outstanding principal
amount of the CHIC Note, (E) 95% of the amount of any certificate of deposit or
letter of credit issued by a national or state bank having capital and surplus
of at least $500,000,000 and (F) such portion of any other assets of the
Borrower,
3
<PAGE> 5
including the capital stock of any Subsidiary, as shall be agreed upon by BCBSTX
and the Borrower on any Valuation Date, provided, however, that if the Borrower
and BCBSTX are unable to mutually agree upon a valuation for this purpose of the
stock of Ventana, then such stock shall be valued at its book value and 90% of
such value shall be an Eligible Asset.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Event of Default" means an Event of Default under Section 7.1.
"Financial Statements" means the consolidated balance sheets of the
Borrower and its Subsidiaries as of May 31, 1996 and May 31, 1995 and as of
August 31, 1996 and August 31, 1995 and consolidated statements of operations
and cash flows of the Borrower and its Subsidiaries for the twelve and three
months, respectively, ended on such dates.
"Indebtedness" means, as to the Borrower or any Subsidiary, all
items of indebtedness, obligation or liability, whether matured or unmatured,
liquidated or unliquidated, direct or contingent, joint or several, including,
but without limitation:
(i) All indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse;
(ii) All indebtedness in effect guaranteed, directly or indirectly,
through agreements, contingent or otherwise: (1) to purchase such
indebtedness; or (2) to purchase, sell or lease (as lessee or lessor)
property, products, materials or supplies or to purchase or sell services,
primarily for the purpose of enabling the debtor to make payment of such
indebtedness or to assure the owner of the indebtedness against loss; or
(3) to supply funds to or in any other manner invest in the debtor;
(iii) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge
or encumbrance upon property owned or acquired subject thereto, whether or
not the liabilities secured thereby have been assumed; and
(iv) All indebtedness incurred as the lessee of goods or services
under leases that, in accordance with generally accepted accounting
principles, should not be reflected on the lessee's balance sheet.
Notwithstanding the foregoing, "Indebtedness" shall not be deemed to
include amounts due participants under certificates issued by health maintenance
organizations in the ordinary course of business unless the amount due under any
such certificate has been finally determined and remains unpaid for a period of
more than 30 days after such final determination.
"Insolvency Law" means any law referred to in clause (ii) of
Section 7.1.7.
4
<PAGE> 6
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or any court or similar entity established by any thereof.
"Loan" means the secured convertible term loan referred to in the
Recital of this Agreement and represented by the Note.
"MCSA" means Managed Care Solutions of Arizona, Inc., an Arizona
corporation, which is a wholly-owned Subsidiary of the Borrower.
"Note" means the 8% Convertible Note issued to BCBSTX, referred to
in Section 2.4 hereof, evidencing the Loan in the form attached hereto as
Exhibit A, as such note shall be amended, modified, extended, renewed or
restated from time to time.
"Obligations" means the obligation of the Borrower:
(i) To pay the principal of and interest on the Note in accordance
with the terms thereof and to satisfy all of its other indebtedness,
liabilities or obligations to BCBSTX, whether hereunder or otherwise,
whether now existing or hereafter incurred, matured or unmatured, direct
or contingent, joint or several, including any extensions, modifications,
renewals thereof and substitutions therefor (including amounts which would
become due but for the operation of the automatic stay under Section
362(a) of the United States Bankruptcy Code (or any successor statute));
(ii) To repay to BCBSTX all amounts advanced by BCBSTX hereunder on
behalf of the Borrower, including, but without limitation, advances for
liens, taxes, levies, insurance, rent, repairs to or maintenance or
storage of any of the Collateral; and
(iii) To reimburse BCBSTX, on demand, for all of BCBSTX's expenses
and costs, including the reasonable fees and expenses of its counsel, in
connection with enforcement of this Agreement and the documents required
hereunder, including, without limitation, any proceeding brought to
enforce payment of any of the obligations referred to in the foregoing
paragraphs (i) and (ii).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" means:
(i) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business that are not yet due
and payable;
(ii) Pledges or deposits made in the ordinary course of
business to secure payment of workmen's compensation, or to
participate in any fund in
5
<PAGE> 7
connection with workmen's compensation, unemployment insurance,
old-age pensions or other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen, carriers, or
other like liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable;
(iv) Good faith pledges or deposits made in the ordinary course of
business to secure performance of bids, tenders, contracts (other than for
the repayment of borrowed money) or leases, not in excess of ten percent
(10%) of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other similar
bonds required in the ordinary course of business;
(v) Encumbrances consisting of zoning restrictions, easements or
other restrictions on the use of real property, none of which materially
impairs the use of such property by the Borrower or any Subsidiary in the
operation of its business, and none of which is violated in any material
respect by existing or proposed structures or land use;
(vi) Liens in favor of BCBSTX;
(vii) Existing liens, if any, set forth or described on Exhibit D
hereto;
(viii) The following, if the validity or amount thereof is being
contested in good faith by appropriate and lawful proceedings, so long as
levy and execution thereon have been stayed and continue to be stayed and
they do not, in the aggregate, materially detract from the value of the
property of the Borrower or any Subsidiary, or materially impair the use
thereof in the operation of its business and so long as the Borrower shall
have established a reserve in its financial statements in an amount equal
to any such claim:
(a) Claims or liens for taxes, assessments or charges due
and payable and subject to interest or penalty;
(b) Claims, liens and encumbrances upon, and defects of title
to, real or personal property, including any attachment of personal
or real property or other legal process prior to adjudication of a
dispute on the merits;
(c) Claims or liens of mechanics, materialmen, warehousemen,
carriers, or other like liens; and
(d) Adverse judgments on appeal; and
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(ix) Rights of third parties in deposits required by applicable law
or regulations to be maintained by the Borrower and any of its
Subsidiaries in order to conduct their respective businesses in any
jurisdiction.
"Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government or political subdivision or agency thereof.
"Plan" means at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by a member of the
Controlled Group for employees of a member of the Controlled Group or (ii)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
"Pledge Agreement" means the pledge agreement dated September 30,
1996 entered into between the Borrower and BCBSTX in connection with the Loan,
which pledge agreement shall be substantially in the form of Exhibit B hereto.
"Pledged Stock" means all of the issued and outstanding capital
stock of, and equity interests in, AHC, MCSA, Ventana and CHCI which is now
owned or hereafter at any time acquired by the Borrower and all of the issued
and outstanding voting capital stock of any corporation which is hereafter at
any time acquired by the Borrower and all interest in Benova owned now or
hereafter at any time acquired by the Borrower and any interest in any other
partnership interest, limited liability company interest or joint venture
interest which may hereafter be acquired by the Borrower.
"Potential Default" means an event or condition which, but for the
lapse of time or giving of notice, or both, would constitute an Event of
Default.
"Rate" means the Rate referred to in Section 2.7.1.
"Records" means correspondence, memoranda, tapes, discs, papers,
books and other documents, or transcribed information of any type, whether
expressed in ordinary or machine language.
"Security Agreement" means the security agreement dated September
30, 1996 entered into between the Borrower and BCBSTX in connection with the
Loan, which security agreement shall be substantially in the form of Exhibit C
hereto.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the outstanding voting securities shall, at the time of determination,
be owned directly, or indirectly through one or more intermediaries, by the
Borrower. For purposes of this Agreement, the term Subsidiary shall include
Benova except that references to the corporate nature of Benova shall relate to
its existence as a limited liability company.
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"Third Party Financing" means any financing from a third party
whether in the form of an Indebtedness for borrowed money, funded debt, sale and
leaseback, convertible debt, private placement of common stock, preferred stock,
or other equity or hybrid security, but excludes any other obligations incurred
in the ordinary course of business, including, without limitation, renewals or
extensions of existing Indebtedness and interest thereon, accounts payable,
accrued medical claims, risk pool payables and accrued expenses.
"Valuation Date" means the last business day of each March, June,
September and December. In addition, BCBSTX shall have the right to designate
two additional Valuation Dates in any fiscal year.
"Ventana" means Ventana Health Systems, Inc., an Arizona
corporation, which is a wholly-owned Subsidiary of the Borrower.
"Warrant" means the warrant certificate issued to BCBSTX, referred
to in Section 2.8 hereof, evidencing the right granted to BCBSTX in connection
with the Loan to purchase shares of common stock of the Borrower, which Warrant
shall be in the form attached hereto as Exhibit E.
"WGB Convertible Note" means the 8% convertible unsecured note
issued to Malcolm McDougal Brown and Richard C. Jelinek, trustees u/a dated
12/20/93 with William Gardner Brown, grantor known as the William Gardner Brown
1993 GST Trust on the date hereof which is convertible into common stock, $.01
par value per share, on the same basis as the Note.
"WGB Warrant" means the Warrant issued to Malcolm McDougal Brown and
Richard C. Jelinek, trustees u/a dated 12/20/93 with William Gardner Brown,
grantor known as the William Gardner Brown 1993 GST Trust on the date hereof to
purchase 10,000 shares of common stock, $.01 par value per share, of the
Borrower, on the same basis as the Warrant.
Interpretation. In this Agreement, unless the context otherwise
requires:
(i) The terms "hereby," "hereof," "hereto," "hereunder," "herein"
and any similar terms used herein refer to this Agreement, and the term
"hereafter" shall mean after, and the term "heretofore" shall mean before
the date of this Agreement;
(ii) Words contemplating the singular number shall mean
and include the plural number and vice versa;
(iii) Any headings preceding the text of the several Sections and
Paragraphs of this Agreement, and any table of contents or marginal notes
appended to copies hereof, shall be solely for the convenience of
reference and shall not constitute a part of this Agreement, nor shall
they affect its meaning, construction or effect;
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(iv) Sections and Paragraphs mentioned by number only are
the respective Sections and Paragraphs of this Agreement so
numbered; and
(v) As previously disclosed to BCBSTX by the Borrower, AHC has a
negative net worth, and without the investment of additional funds, AHC
may be unable to satisfy its obligations as they become due. To the extent
any representation, warrant, covenant or default in this Agreement would
be breached or violated due to the financial condition of AHC or its
business, such representation, warranty, covenant or default shall be
deemed not to apply to AHC.
ARTICLE II
THE LOAN
2.1 General Terms. Subject to the terms hereof, BCBSTX will lend the
Borrower the principal sum of $3,000,000 on a term basis.
2.2 Disbursement of the Loan. BCBSTX will wire transfer the proceeds
of the Loan at Closing to the Borrower's bank account as shall be designated by
Borrower at least 24 hours prior to Closing.
2.3 Use of Loan Proceeds. Proceeds of the Loan will be used by the
Borrower to satisfy existing Indebtedness, provide working capital and finance
expansion.
2.4 The Note. At the time of the making of the Loan, the Borrower
will execute and deliver the Note to BCBSTX.
2.5 Payments of Principal. The principal of the Loan shall be repaid
as follows:
2.5.1 The principal amount of the Loan shall be due and payable on
September 30, 1999 unless (i) the Loan is automatically extended as
provided in Clause 2.5.2 below in which event the principal amount of the
Loan shall be due and payable on the date to which the Loan is
automatically extended pursuant to Clause 2.5.2 below, or (ii) BCBSTX
otherwise agrees to an extension of the Loan; and
2.5.2 (i) In the event that on September 30, 1999 no Default or
Potential Default, including a failure to pay interest due notwithstanding
that the applicable grace period has not expired, exists under this
Agreement, the date on which the principal of the Loan shall be repaid
shall be, without any action on behalf of BCBSTX, automatically extended
to September 30, 2000 and (ii) in the event that on September 30, 2000 no
Default or Potential Default, including a failure to pay interest due
notwithstanding that the applicable grace period has not expired, exists
under this Agreement, the date on which the principal of the Loan shall be
repaid shall be, without any action on behalf of BCBSTX, automatically
extended to September 30, 2001. Prior to any automatic extension becoming
effective, the
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Borrower shall deliver a certificate of an officer of the Borrower to the
effect that all conditions precedent to such automatic extension have been
satisfied.
2.5.3 The Borrower shall be entitled to prepay the Loan, in whole or
in part, at any time upon delivery of not less than 45 days nor more than
60 days prior written notice to BCBSTX of the date fixed for payment.
2.6 Conversion Rights. BCBSTX shall have the right, at any time and
from time to time prior to payment of the Loan in full, to convert the Note into
shares of common stock of the Borrower as more fully set forth in the Note.
2.7 Interest Rate and Payments of Interest.
2.7.1 Interest on the Loan shall be paid as follows:
(1) Interest on the principal balance of the Loan, from time
to time outstanding, and on all other Obligations arising under this
Agreement, will be payable at a rate (the "Rate") equal to eight
percent (8%) per annum, shall be compounded monthly and be payable
on September 30, 1999;
(2) If the Loan is extended as provided in Section 2.5.2,
interest accruing after September 30, 1999 shall be compounded
monthly and be payable on September 30, 2000 and interest accruing
after September 30, 2000 shall be compounded monthly and be payable
on September 30, 2001;
(3) If the Loan is prepaid either in whole or in part,
interest on any principal balance being prepaid to the prepayment
date shall be due on such date;
(4) If the Loan is converted into common stock of the Borrower
as provided in Section 2.6 and in the Note, all unpaid interest
accrued on the Loan to the conversion date shall be due on such
date; and
(5) At any time an Event of Default shall occur under this
Agreement all unpaid interest accrued on the Loan to the date such
Event of Default occurred shall be immediately due and payable.
2.7.2 If, at any time, the Rate shall be deemed by any competent
court of law, governmental agency or tribunal to exceed the maximum rate
of interest permitted by any applicable Laws, then, for such time as the
Rate would be deemed excessive, its application shall be suspended and
there shall be charged instead the maximum rate of interest permissible
under such Laws.
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2.8 Warrant. The Borrower shall deliver to BCBSTX the Warrant
granting BCBSTX the right to purchase 100,000 shares of common stock (subject to
anti-dilution protection) at a price equal to $4.45 per share. The Warrant shall
be subject to the terms and conditions set forth in the certificate evidencing
the Warrant and shall be exercisable on or before September 30, 2001.
2.9 Payment to BCBSTX. All sums payable to BCBSTX hereunder shall be
paid directly to BCBSTX in immediately available funds. BCBSTX shall send the
Borrower statements of all amounts due hereunder, which statements shall be
considered correct and conclusively binding on the Borrower unless the Borrower
notifies BCBSTX to the contrary within 30 days of its receipt of any statement
which it deems to be incorrect.
ARTICLE III
CONDITIONS PRECEDENT
The obligation of BCBSTX to make the Loan hereunder is subject to
the following conditions precedent:
3.1 Documents Required for the Closing. The Borrower shall have
delivered to BCBSTX, prior to the disbursement of the Loan (the "Closing") the
following:
3.1.1 The Note;
3.1.2 The Warrant;
3.1.3 The Pledge Agreement duly executed by the Borrower together
with the certificates representing (i) all shares of capital stock of the
Subsidiaries, (ii) 49% of the shares of capital stock of CHCI, (iii)
evidence, if any, representing the Borrower's interest in Benova and (iv)
the CHCI Note pledged under the Pledge Agreement, duly endorsed in blank
or with appropriate instruments of assignment;
3.1.4 A certificate of the Borrower's chief financial officer
confirming compliance on the date of Closing of the provisions of Section
4.1 establishing the Collateral required to be maintained hereunder and
the Collateral Coverage Ratio.
3.1.5 The Security Agreement;
3.1.6 The financing statements required by the Security
Agreement and the Pledge Agreement;
3.1.7 A copy of the resolutions of the Borrower's board of directors
authorizing the execution, delivery and performance of this Agreement, the
Note, the Warrant, the Pledge Agreement, the Security Agreement, the other
Collateral Documents and each other document to be delivered pursuant
hereto, certified as of the date of the Closing by the Borrower's
Secretary or Assistant Secretary;
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3.1.8 A copy, certified as of the most recent date practicable by
the Secretary of State of Delaware, of the Borrower's articles of
incorporation, together with a certificate dated the date of the Closing
of the Borrower's Secretary to the effect that such articles of
incorporation have not been amended since the date of the aforesaid
certification by the Secretary of State of Delaware;
3.1.9 A copy of the Borrower's bylaws certified as of the
date of the Closing by the Borrower's Secretary or Assistant
Secretary;
3.1.10 A certificate of the Borrower's Secretary or Assistant
Secretary dated the date of the Closing as to the incumbency and
signatures of the officers of the Borrower signing this Agreement, the
Note, the Warrant, the Collateral Documents, and each other document to be
delivered by the Borrower pursuant hereto;
3.1.11 Copies of certificates, as of the most recent dates
practicable, of the Secretary of State of Delaware respecting the Borrower
and the Secretaries of State of each state in which the Borrower is
qualified as a foreign corporation as to the good standing of the Borrower
and indicating that all franchise taxes due have been paid;
3.1.12 Copies, certified as of the most recent date practicable by
the Secretary of State of Arizona, of the articles of incorporation of
such Subsidiary, together with a certificate dated the date of the Closing
of the Secretary of such Subsidiary to the effect that such articles of
incorporation have not been amended since the date of the aforesaid
certification by the Secretary of State of Delaware;
3.1.13 Copies of the bylaws of each Subsidiary, certified as of the
date of the Closing by the Secretary or Assistant Secretary of such
Subsidiary;
3.1.14 Copies of certificates, as of the most recent dates
practicable, of the Secretaries of State of each state in which a
Subsidiary is organized and each state in which a Subsidiary is qualified
as a foreign corporation, as to the good standing of such Subsidiary and
indicating that all franchise taxes have been paid;
3.1.15 Copies of certificates of authority as of the most recent
dates practicable from the insurance department of each other state in
which any Subsidiary is conducting a business requiring such Subsidiary to
be licensed by such state;
3.1.16 Written opinions of Bell, Boyd & Lloyd, Chicago, Illinois,
and Laird, Scheck, Lindfors and Smyth, the Borrower's counsels, dated the
date of the Closing and addressed to BCBSTX, substantially in the forms
set forth in Exhibits F and G hereto, covering such other matters incident
to the transactions contemplated by this Agreement as BCBSTX may
reasonably request;
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3.1.17 A certificate, dated the date of the Closing, signed by the
President or a Vice President of the Borrower, to the effect that no event
or change referred to in Section 3.2 has occurred, the representation and
warranties set forth within Section 5.1 are true as of the date of the
Closing and with respect to such other matters as BCBSTX may reasonably
request; and
3.1.18 A Lock-up letter from James A. Burns.
3.1.19 Copies of non-compete agreements between the Company and each
of the following employees of the Company in a form approved by BCBSTX:
James A. Burns
Rhonda Brede
Richard M. Jelinek
Michael J. Kennedy
Jill Paterson
David Bryant
3.2 Certain Events. At the time of the Closing:
3.2.1 No Event of Default or Potential Default shall have
occurred and be continuing;
3.2.2 No material adverse change shall have occurred in the
financial condition of the Borrower and its Subsidiaries, taken as a
whole, since August 31, 1996, the date of the most recent financial
statements delivered to BCBSTX prior to the Closing; and
3.2.3 No event shall have occurred which would cause any of the
Collateral Documents not to be in full force and effect.
3.3 Legal Matters. At the time of the Closing, all legal matters
incidental to the Loan shall be reasonably satisfactory to Haynes & Boone,
counsel to BCBSTX.
3.4 Board Approval. Prior to the time of the Closing, BCBSTX's Board
of Directors shall have authorized the Loan.
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ARTICLE IV
SECURITY
4.1 Security.
4.1.1 As security for the prompt satisfaction of all Obligations,
the Borrower shall in (1) the Borrower Security Agreement grant BCBSTX a
lien upon and security interest in, all of the assets of the Borrower,
including the following, wherever located, whether now owned or hereafter
acquired, together with all replacements therefor and proceeds (including,
but without limitation, insurance proceeds) thereof: (a) Accounts; (b)
Chattel Paper; (c) Contracts; (d) Contract Rights; (e) Documents; (f)
Equipment; (g) Fixtures; (h) General Intangibles; (i) Instruments; (j)
Inventory; (k) Investment Property; (l) the Pledged Stock; (m) the CHCI
Note; (n) rights as seller of Goods and rights to returned or repossessed
Goods; (o) all Records pertaining to any other Collateral; and (p) any and
all other assets of the Borrower, and (2) the Pledge Agreement pledge to
BCBSTX all of the Pledged Stock and the CHCI Note.
4.1.2 Realization by BCBSTX on the pledge of all of the issued and
outstanding shares of common stock of Ventana in the event BCBSTX elects
to exercise its remedies under the Pledge Agreement if an Event of Default
occurs is subject to the receipt of the consent of the Arizona Health Care
Cost Containment System Administration. The Borrower agrees to take any
commercially reasonable actions requested by BCBSTX to assist BCBSTX in
obtaining such consent.
4.1.3 The Borrower shall maintain Collateral subject to the
foregoing lien which Collateral shall consist of Eligible Assets having a
value sufficient to satisfy the Collateral Coverage Ratio.
4.1.4 Subject to the following sentence, the Borrower shall have the
right on any Valuation Date to require BCBSTX to release its security
interest in, and lien on, any tangible and/or intangible assets of the
Borrower, provided that BCBSTX shall not be required to release such
assets if after giving effect to such release the Coverage Ratio on such
Valuation Date would not be satisfied. The Borrower shall have the right
to designate the assets to be released, provided, however, that the
capital stock of Ventana pledged under this Agreement shall not be
released so long as the Note is outstanding or any other Obligation is
owed by the Borrower to BCBSTX.
4.1.5 If on any Valuation Date, Eligible Assets are not subject to a
lien in favor of BCBSTX pursuant to the Security Agreement or the Pledge
Agreement sufficient to satisfy the Collateral Coverage Ratio, the
Borrower shall immediately pledge additional Eligible Assets to BCBSTX to
ensure that the Collateral Coverage Ratio is satisfied.
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4.2 Priority of Liens. The foregoing liens shall be first and prior
liens except for Permitted Liens.
ARTICLE V
REPRESENTATIONS AND WARRANTIES.
5.1 To induce BCBSTX to enter into this Agreement, the Borrower
represents and warrants to BCBSTX as follows:
5.1.1 The Borrower is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware and has
all power (corporate and other) necessary to carry on its business as now
being conducted and to own, lease and operate its properties. The Borrower
is duly licensed, qualified and authorized to conduct its business in
Arizona and in all other jurisdictions in which the character and location
of the assets owned by it or the nature of the business transacted by it
requires licensing, qualification or authorization;
5.1.2 The authorized equity securities of the Borrower consist of
10,000,000 shares of common stock, par value $.01 per share, of which
4,364,712 shares are issued and outstanding. The Borrower has no
obligation or commitment to issue any equity securities of the Borrower
except for 1,032,000 shares of common stock, $.01 par value per share,
issuable under the Borrower's Stock Option Plan, 984,273 shares of which
are subject to outstanding options, 300,000 shares of such common stock
issuable under the terms of the Borrower's Stock Purchase Plan and the
shares issuable upon conversion of the WGB Convertible Note and WGB
Warrant. The Borrower owns directly all of the outstanding shares of
common stock of AHC, MCSA and Ventana. In addition, the Borrower owns 49%
of the outstanding capital stock of Community Health Choice of Illinois,
Inc. and a 65% interest in Benova. The authorized capital stock of AHC
consists of 500,000 shares of common stock, $10.00 par value, of which on
the date of this Agreement 1 share is issued and outstanding. The
authorized capital stock of MCSA consists of 2,000,000 shares of common
stock, no par value, of which on the date of this Agreement 1 share is
issued and outstanding. The authorized capital stock of Ventana consists
of 2,000,000 shares of common stock, no par value, of which on the date of
this Agreement 1 share is issued and outstanding. The authorized capital
stock of CHCI consists of 102 shares of class A common stock, no par
value, of which, on the date of this Agreement, 102 shares are issued and
outstanding and 98 shares of class B common stock, no par value, of which,
on the date of this Agreement, 98 shares are issued and outstanding. The
Borrower owns the 98 shares of the class B common stock of CHCI or 49% of
the outstanding shares of capital stock of CHCI. The Borrower also owns a
65% interest in Benova. All of the outstanding shares of such Subsidiaries
have been duly authorized and validly issued, are fully paid and
non-assessable, except for the shares of CHCI which have not as yet been
paid, and are owned by the Borrower, directly free and clear of all
claims, liens, encumbrances
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and charges of any kind (except to the extent created by the Collateral
Documents); and there are no existing options, calls or commitments of any
character relating to any shares of capital stock of any such Subsidiary.
Each Subsidiary and CHCI is duly organized and validly existing under the
laws of its State of incorporation, and has all power (corporate and
other) necessary to carry on its business as now being conducted, and to
own, operate and lease its properties. Ventana, AHC and MCSA possess all
necessary rights, privileges, licenses, franchises and authorizations
necessary to carry on their business as now being conducted. Neither the
Borrower nor any Subsidiary is in violation of any law, statute, rule,
governmental regulation or order, which violation might have a material
adverse effect on the business, financial condition or consolidated
earnings of the Borrower.
5.1.3 Neither the Borrower nor any Subsidiary is in default with
respect to any of its existing Indebtedness, and the making and
performance of this Agreement, the Note, the Warrant and the Collateral
Documents will not (immediately, or with the passage of time or the giving
of notice, or both):
(1) Violate or conflict with the articles of incorporation or
bylaws of the Borrower, or violate any Laws binding upon the
Borrower or any Subsidiary or their properties;
(2) Violate or conflict with or result in a material breach of
any of the terms or conditions of or constitute a default under any
material contract, agreement, commitment, indenture, mortgage, note,
bond, license, permit, or other instrument or obligation to which
the Borrower or any Subsidiary is a party or by which any property
or assets of any of them may be bound or affected;
(3) Violate any order, writ, injunction or decree of any
court, administrative agency or governmental body; or
(4) Result in the creation or imposition of any security
interest in, or lien or encumbrance upon, any of the assets of the
Borrower or any Subsidiary, except in favor of BCBSTX;
5.1.4 The Borrower has the power and authority to enter into and
perform this Agreement, the Note, the Warrant and the Collateral
Documents, and to incur the obligations herein and therein provided for,
and has taken all corporate action necessary to authorize the execution,
delivery, and performance of this Agreement, the Note, the Warrant and the
Collateral Documents to be delivered by the Borrower;
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5.1.5 This Agreement and the Collateral Documents are, and the Note
and the Warrant when delivered will be, valid, binding obligations,
enforceable in accordance with their respective terms;
5.1.6 Except as otherwise set forth in Exhibit D to this Agreement
or in the consolidated financial statements at and for the fiscal year
ended May 31, 1996 of the Borrower and the Subsidiaries, there are no
actions, suits, investigations or proceedings pending other than actions,
suits, investigations or proceedings which are of a nature generally
encountered by the Borrower and/or Subsidiaries in the ordinary course of
their businesses in any court or before or by any federal, state,
municipal or other governmental or non-governmental department,
commission, board, bureau, agency, or instrumentality, or to the knowledge
of the Borrower, threatened against the Borrower or any Subsidiary which
seek $50,000 or more in compensatory or punitive damages or the eventual
outcome of which, if decided adversely to the Borrower or any Subsidiary,
could have a material adverse effect on the condition, financial or
otherwise, results of operations, business or prospects, of either the
Borrower and its Subsidiaries, taken as a whole; and the aggregate damages
sought in all such actions, suits or proceedings not disclosed because
they seek less than $25,000 in compensatory or punitive damages does not
exceed the aggregate of $200,000; and there are no other proceedings,
actions or other matters pending before any insurance department to which
the Borrower, or any Subsidiary is a party;
5.1.7 Except as otherwise set forth in Exhibit D to this Agreement,
there is no pending order, stipulation or other direction from any court,
agency, department or other body with jurisdiction over the Borrower or
any Subsidiary, that would materially restrict the Borrower's or any
Subsidiary's ability to carry on their respective businesses in the manner
in which they were carried on during the periods covered by the Financial
Statements;
5.1.8 Except as otherwise set forth in Exhibit D hereto, the
Borrower and each Subsidiary have good and marketable title to all of
their assets, subject to no security interest, encumbrance or lien, or
claim of any third person except for Permitted Liens;
5.1.9 The consolidated balance sheet at May 31, 1996 of the Borrower
and its Subsidiaries and the consolidated statements of operations and
cash flows for the twelve-month period ended May 31, 1996, reported on by
Price Waterhouse LLP, and the unaudited Financial Statements of the
Borrower and its Subsidiaries, at and for the three-month period ended
August 31, 1996, reported upon by the chief financial officer of the
Borrower, all of which have been furnished to BCBSTX, present fairly in
all material respects their respective consolidated and individual
financial positions, results of operations and changes in financial
position at and for the dates and periods indicated, in conformity with
generally accepted accounting principles applied on a consistent basis.
The unaudited financial statements reflect all adjustments (which consist
only of
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normal recurring accruals) necessary for a fair presentation in all
material respects of financial position and results of operations at the
respective dates and for the period;
5.1.10 Except where the failure to file or the inadequacy of a
filing would not have a materially adverse effect on financial condition,
results of operations, business or prospects of the Borrower or any
Subsidiary, all reports and statements required by any law to be filed by
or for the Borrower or any Subsidiary with any governmental authority
relating to or as a result of any business conducted by the Borrower or
any Subsidiary have been timely filed and are accurate and complete in all
material respects, and no material deficiency in any such filing has been
asserted by any such authority;
5.1.11 Except as otherwise set forth in Exhibit D to this Agreement,
at the date hereof, the Borrower has no material Indebtedness of any
nature including, but without limitation, liabilities for tax and interest
or penalties relating thereto, and the Borrower does not know and has no
reasonable ground to know any basis for the assertion against it or any
Subsidiary at the date hereof, or at the date hereof of any material
Indebtedness;
5.1.12 (i) Except where failure to file, pay or accrue would not
have a materially adverse impact on the condition of the Borrower or any
Subsidiary, financial or otherwise, the Borrower and each Subsidiary has
duly filed all tax returns and other reports required by law to be filed
by them with all proper federal, state and local taxing authorities, and
has paid or accrued all taxes, assessments or deficiencies called for by
such returns and reports or claimed to be due by any such taxing
authority; (ii) the federal, state and local income, franchise and premium
tax returns for the Borrower and each Subsidiary for all taxable years
ended prior to the dates set forth on Exhibit D to this Agreement have
been examined by the Internal Revenue Service or other taxing authority,
and no proposed additional taxes, interest or penalties have been asserted
for the years examined; (iii) there are no agreements, waivers or other
arrangements providing for extensions of time for the assessment or
collection of any material unpaid tax against the Borrower, or any
Subsidiary, nor are there any actions, suits, proceedings, investigations
or claims now pending against the Borrower or any Subsidiary, or any
matters under discussion with any federal, state or local authority by any
of them, relating to any material amount of unpaid and allegedly owing
tax, and (iv) neither the Borrower nor any Subsidiary has any knowledge of
any additional assessment or deficiency contemplated by any federal, state
or local authority in a materially important amount in connection with any
taxes not provided for on their respective books;
5.1.13 Except as otherwise disclosed in Exhibit D hereto, or except
to the extent that the failure to comply would not materially interfere
with the conduct of the business of the Borrower or any Subsidiary, the
Borrower and each Subsidiary has complied with all applicable Laws with
respect to: (1) any restrictions,
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specifications, or other requirements pertaining to products, including
the insurance products, that the Borrower or any Subsidiary sell or to the
services each performs; (2) the conduct of their respective businesses;
and (3) the use, maintenance, and operation of the real and personal
properties owned or leased by them in the conduct of their respective
businesses;
5.1.14 No representation or warranty by the Borrower contained
herein or in any certificate or other document furnished by the Borrower
pursuant hereto contains any untrue statement of a material fact or omits
to state a material fact necessary to make such representation or warranty
not misleading in light of the circumstances under which it was made;
5.1.15 Each consent, approval or authorization of, or filing,
registration or qualification with, any Person which is required to be
obtained or effected by the Borrower or any Subsidiary in connection with
the execution and delivery of this Agreement, the Note, the Warrant and
the Collateral Documents or the undertaking or performance of any
obligation hereunder or thereunder has been duly obtained or effected,
except for the consent of the Arizona Health Care Cost Containment
Administration required prior to any change in ownership of MCSA or
Ventana;
5.1.16 Except as otherwise described on Exhibit D hereto, neither
the Borrower nor any Subsidiary has a material lease, contract or
commitment of any kind (such as employment agreements; collective
bargaining agreements; powers of attorney; distribution arrangements;
patent license agreements; contracts for future purchase or delivery of
goods or rendering of services; bonus, pension and retirement plans; or
accrued vacation pay, insurance and welfare agreements); all parties'
(including the Borrower and the Subsidiaries) to all such material leases,
contracts and other commitments to which the Borrower or any Subsidiary is
a party have complied with the provisions of such leases, contracts and
other commitments; no party is in default under any thereof and no event
has occurred which, but for the giving of notice or the passage of time,
or both, would constitute a default;
5.1.17 Neither the Borrower nor any Subsidiary has made any
agreement or has taken any action which may cause anyone to become
entitled to a commission or finder's fee as a result of the making of the
Loan;
5.1.18 Each member of the Controlled Group has fulfilled its
obligations under the minimum funding standards under ERISA and the Code
with respect to each Plan and is in compliance in all material respects
with the applicable provisions of ERISA and the Code, and has not incurred
any liability to the PBGC or a plan under Title IV of ERISA;
5.1.19 Except as disclosed in the Exhibit D, the
Borrower has no direct or indirect subsidiaries other than AHC,
MCSA, Ventana and CHCI and has no
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ownership interest, directly or indirectly in any other corporation,
trust, partnership or other entity, except for a 65% interest in Benova;
and
5.1.19 The Borrower is the sole owner of all of the outstanding
shares of common stock of AHC, MCSA and Ventana, and owns 49% of the
outstanding shares of common stock of CHCI, in each case, except for the
shares of CHCI, free and clear of any claims, liens, charges or
encumbrances whatsoever, and has good and marketable title to such shares.
5.2 Survival. All of the representations and warranties set forth in
Section 5.1 shall survive until all Obligations are satisfied in full,
regardless of any investigation made by BCBSTX or on its behalf.
ARTICLE VI
COVENANTS
The Borrower does hereby covenant and agree with BCBSTX that, so
long as any of the Obligations remain unsatisfied (except for the covenant of
the Borrower set forth in Section 6.1.18, shall continue in the event BCBSTX
elects to convert the outstanding principal balance of the Note at any time in
its entirety for common stock, $.01 par value per share, of the Borrower for a
period of one year following conversion), it will comply and it will cause its
Subsidiaries to comply, with the following covenants:
6.1 Affirmative Covenants of Borrower.
6.1.1 The Borrower will use the proceeds of the Loan only for the
purposes set forth in Section 2.3.
6.1.2 The Borrower will furnish BCBSTX:
(1) as soon as available and in any event by the August 31
following the end of each fiscal year of the Borrower, a
consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries and consolidated and consolidating statements of
operations and cash flows of the Borrower and its Subsidiaries for
such year, setting forth in each case in comparative form
corresponding figures from the preceding fiscal year, all in
reasonable detail and satisfactory in scope to BCBSTX, all reported
on by Price Waterhouse LLP or other independent certified public
accountants of nationally recognized standing as having been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis;
(2) as soon as available and in any event no later than such
statement is filed by any Subsidiary with a state insurance
department or other state agency, a copy of any statement or report
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required to be filed with such insurance department
or state agency in the form filed;
(3) as soon as available and in any event within 60 days after
the end of each quarter of each fiscal year of the Borrower (other
than the quarter ending May 31), a consolidated balance sheet of the
Borrower and its Subsidiaries, and the related consolidated
statements of operations and cash flows, and for the portion of the
Borrower's fiscal year ended at the end of such quarter, setting
forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the
Borrower's previous fiscal year, all certified (subject to normal
year-end adjustments) as to the fairness of presentation, generally
accepted accounting principles, and consistency by the chief
financial officer of the Borrower;
(4) simultaneously with the delivery of each set of financial
statements referred to in clause (1) above, a certificate of the
chief financial officer of the Borrower setting forth in reasonable
detail the calculations required to establish whether the Borrower
was in compliance with the requirements of Sections 6.1.15 and
6.1.16 on the date of such financial statements and, simultaneously
with the delivery of each set of financial statements referred to in
clauses (1), (2) and (3) above a certificate stating whether there
exists on the date of such certificate any Event of Default and, if
any Event of Default exists, setting forth the details thereof and
the action which the Borrower is taking or proposes to take with
respect thereto;
(5) from time to time such additional information regarding
the financial position or business of the Borrower and the
Subsidiaries as BCBSTX shall reasonably request; and
(6) The Borrower shall provide BCBSTX with a copy of each
filing it makes with the Securities and Exchange Commission pursuant
to Section 12 of the Securities Exchange Act of 1934 within 15 days
of the date such report is filed with the Securities and Exchange
Commission. The obligation to deliver annual and quarterly financial
statements set forth above may be satisfied by the Company by
delivering copies of the Company's Annual Report on Form 10-K or
Quarterly Reports on Form 10-Q filed with the Securities and
Exchange Commission.
6.1.3 The Borrower and the Subsidiaries shall maintain accounting
Records in a manner that is sufficient, in all material respects, to
reflect fairly the transactions, resources and obligations of the
respective companies, and to
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provide information that is adequate for the preparation of financial
statements and other required financial data presenting fairly in all
material respects the financial position, results of operations, changes
in financial position and other required financial information of the
respective companies, in conformity with generally accepted accounting
principles.
6.1.4 The Borrower and its Subsidiaries will maintain their
Equipment and other properties in good condition and repair (normal wear
and tear excepted), and will pay and discharge or cause to be paid and
discharged when due, the cost of repairs to or maintenance of the same,
and will pay or cause to be paid all rental or mortgage payments due on
such real estate. The Borrower hereby agrees that, in the event it or any
Subsidiary fails to pay or cause to be paid any such payment, BCBSTX may
do so and be reimbursed by the Borrower therefor, such payment by BCBSTX
to constitute an Obligation under this Agreement.
6.1.5 The Borrower and its Subsidiaries will maintain, or cause to
be maintained, public liability insurance and fire and extended coverage
insurance on all material assets owned by them, all in such form and
amounts as are consistent with industry practices and with such insurers
as may reasonably be satisfactory to BCBSTX. Such policies shall contain a
provision whereby they cannot be cancelled except after 30 days' written
notice to BCBSTX. Such policies shall name BCBSTX as an additional insured
and as a lender loss payee. The Borrower will furnish to BCBSTX such
evidence of insurance as BCBSTX may require. The Borrower hereby agrees
that, in the event it or any Subsidiary fails to pay or cause to be paid
the premium on any such insurance, BCBSTX may do so and be reimbursed by
the Borrower therefor, such payment by BCBSTX to constitute an Obligation
under this Agreement. The Borrower hereby assigns to BCBSTX any returned
or unearned premiums that may be due the Borrower upon cancellation of any
such policies for any reason whatsoever effective upon the occurrence of
an Event of Default, irrevocably, and directs the insurers to pay BCBSTX
any amounts so due. Upon the occurrence of an Event of Default, BCBSTX is
hereby appointed the Borrower's attorney-in-fact (without requiring BCBSTX
to act as such) to endorse any check which may be payable to the Borrower
to collect such returned or unearned premiums or the proceeds of such
insurance, and any amount so collected may be applied by BCBSTX toward
satisfaction of any of the Obligations.
6.1.6 The Borrower and its Subsidiaries will pay or cause to be paid
when due, all taxes, assessments and charges or levies imposed upon them
or on any of their property or which any of them is required to withhold
and pay over, except where contested in good faith by appropriate
proceedings with adequate reserves therefor having been set aside on their
books, but the Borrower and each Subsidiary shall pay or cause to be paid
all such taxes, assessments, charges or levies forthwith whenever
foreclosure on any lien that attaches (or security therefor) appears
imminent.
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6.1.7 The Borrower and its Subsidiaries will, when requested so to
do, make available for inspection by duly authorized representatives of
BCBSTX their Records, and will furnish BCBSTX any information regarding
their business affairs and financial condition within a reasonable time
after written request therefor.
6.1.8 The Borrower and its Subsidiaries will take all necessary
steps to preserve their corporate existence, franchises, licenses and
certificates of authority and to comply with all present and future Laws,
applicable to them in the operation of their respective businesses, and
all material agreements to which they are subject.
6.1.9 The Borrower and its Subsidiaries will keep accurate and
complete Records of their respective assets consistent with sound business
practices.
6.1.10 The Borrower and its Subsidiaries will give immediate notice
to BCBSTX of: (1) any suit or proceeding in which any of them is a party
if an adverse decision therein would require them to pay over more than
$50,000 or deliver assets the value of which exceeds such sum (whether or
not the claim is considered to be covered by insurance); and (2) the
institution of any other suit or proceeding involving any of them that
might materially and adversely affect their operations, financial
condition, property or business.
6.1.11 The Borrower and its Subsidiaries will pay when due (or
within applicable grace periods) all Indebtedness (other than intercompany
Indebtedness from or to the Borrower and any affiliates of the Borrower),
except when the amount thereof is being contested in good faith by
appropriate proceedings and with adequate reserves therefor being set
aside on the books of the Borrower and its Subsidiaries. If default be
made by the Borrower or any Subsidiary in the payment of any principal (or
installment thereof) of, or interest on, any such Indebtedness, BCBSTX
shall have the right, in its discretion, to pay such interest or principal
for the account of the Borrower or such Subsidiary and be reimbursed by
the Borrower therefor. Any such payment by BCBSTX shall be deemed an
Obligation hereunder.
6.1.12 The Borrower and its Subsidiaries will notify BCBSTX
immediately if any of them becomes aware of the occurrence of any Event of
Default or of any Potential Default, or of the failure of the Borrower or
any Subsidiary to observe any of their respective undertakings hereunder.
6.1.13 The Borrower and its Subsidiaries will notify BCBSTX thirty
(30) days in advance of any change in the location of any of their
executive offices or of the establishment of any new executive office or
the discontinuance of any existing executive office.
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6.1.14 The Borrower will furnish BCBSTX, if and when the Borrower or
any Subsidiary (i) gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with respect to
any Plan which might constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that the plan administrator of any Plan
has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given
to the PBGC; (ii) receives notice of complete or partial withdrawal
liability under Title IV of ERISA, a copy of such notice; or (iii)
receives notice from the PBGC under Title IV of ERISA of an intent to
terminate or appoint a trustee to administer any Plan, a copy of such
notice, in each case within five days of its receipt.
6.1.15 The Borrower shall maintain a positive Consolidated Tangible
Net Worth of at least $4,500,000 at all times the Loan or any portion
thereof is outstanding.
6.1.16 The Borrower for each fiscal quarter shall have quarterly
consolidated revenues determined in accordance with generally accepted
accounting principles of at least $12,000,000, provided that in the event
the provider contract between AHC and the State of Arizona is terminated
for any reason, such quarterly consolidated revenues so determined shall
be at least $8,000,000.
6.1.17 The Borrower will use commercially reasonable efforts,
subject to reasonable business judgment, to conduct its business in the
manner contemplated by the Business Plan.
6.1.18 The Borrower shall permit a representative of BCBSTX to
attend and observe each meeting of its Board of Directors and each meeting
of any committee thereof. The Borrower shall provide BCBSTX with the same
notice of the place and time of each such meeting as is provided to
Borrower's directors. BCBSTX shall designate to the Borrower the person
who is to receive such notice. All costs and expenses incurred by BCBSTX
in attending any such meeting shall be borne by BCBSTX. If BCBSTX converts
the outstanding balance of the Note at any time in its entirety into
common stock, $.01 par value per share, of the Borrower, the Borrower
agrees to use its best efforts to cause the nomination and election of one
person designated by BCBSTX to serve as a director of the Borrower
commencing within 30 days of such request of the Borrower's stockholders
held after such conversion of the Note.
6.1.19 The Borrower shall, at BCBSTX's request, at any time and from
time to time, execute and deliver to BCBSTX such financing statements and
other documents and do such acts as BCBSTX may deem necessary in order to
establish and maintain valid, attached and perfected security interests in
the Collateral in favor of BCBSTX, free and clear of all liens (other than
Permitted Liens), claims and rights of third parties whatsoever.
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6.2 Negative Covenants of Borrower.
6.2.1 Neither the Borrower nor any Subsidiary will, without the
consent of BCBSTX, mortgage, pledge, grant or permit to exist a security
interest in or lien upon any of its assets of any kind, now owned or
hereafter acquired except for Permitted Liens.
6.2.2 Neither the Borrower nor any Subsidiary will become liable,
directly or indirectly, as guarantor or otherwise for any obligation of
any other Person, except for the endorsement of commercial paper for
deposit or collection in the ordinary course of business or as otherwise
contemplated by this Agreement and surety bonds issued in the ordinary
course of business.
6.2.3 The Borrower will not declare, without the consent of BCBSTX,
or pay any dividends, or make any other payment or distribution on account
of its capital stock, except that dividends may be paid to the Borrower by
any Subsidiary.
6.2.4 Neither the Borrower nor any Subsidiary will make any loan or
advance to any officer, shareholder, director or employee of the Borrower
or any Subsidiary, except for temporary advances in the ordinary course of
business.
6.2.5 The Borrower will not, without the consent of BCBSTX, (i)
redeem, purchase or retire any of its capital stock and no Subsidiary will
issue, redeem, purchase or retire any of its capital stock and (ii) except
for the WGB Convertible Note and the WGB Warrant, neither the Borrower nor
any Subsidiary will grant or issue any warrant, right or option pertaining
to the capital stock of the Borrower or other security convertible into
the capital stock of the Borrower.
6.2.6 Neither the Borrower nor any Subsidiary will prepay any
Indebtedness for borrowed money (except the Obligations), or enter into or
modify any agreement as a result of which the terms of payment of any of
the foregoing Indebtedness are waived or modified.
6.2.7 Neither the Borrower nor any Subsidiary will furnish BCBSTX
any certificate or other document that will contain any untrue statement
of a material fact or that will omit to state a material fact necessary to
make it not misleading in light of the circumstances under which it was
furnished.
6.2.8 Without the consent of BCBSTX, the Borrower shall not engage
in any transaction outside of the ordinary course of the Borrower's
business with any of its affiliates.
6.2.9 Without the consent of BCBSTX, the Borrower will not permit
its Subsidiaries to issue any capital stock or any rights, warrants or
options to purchase capital stock to any Person other than the Borrower,
and if such capital
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stock is issued to the Borrower, the certificates representing such shares
shall be delivered to BCBSTX pursuant to the terms of the Pledge
Agreement.
BCBSTX does hereby covenant and agree with the Borrower as follows:
6.3 Negative Covenants of BCBSTX.
6.3.1 For so long as no Event of Default has occurred and is
continuing under this Agreement, for a period of one (1) year following
the final payment of the Note, BCBSTX will not agree to employ any
employee of the Borrower for a period of one year following the
termination of such employee's employment with the Borrower, without the
Borrower's consent.
6.3.2 For so long as no Event of Default has occurred and is
continuing under this Agreement, for a period of one (1) year following
the final payment of the Note, BCBSTX will not disclose or otherwise
directly benefit from competition with the Borrower any confidential
information disclosed to it by the Borrower or otherwise divert any
corporate opportunity rightfully belonging to the Borrower to its own
benefit.
ARTICLE VII
DEFAULT
7.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
7.1.1 The Borrower shall fail to pay any installment of principal of
the Loan or any other Obligation when due and such failure shall continue
for a period of five days;
7.1.2 The Borrower shall fail to pay any installment of interest on
the Loan or any other Obligation hereunder when due and such failure shall
continue for a period of five days;
7.1.3 The Borrower or any Subsidiary shall fail to observe or
perform any other obligation to be observed or performed by them hereunder
or under any of the Collateral Documents, and such failure shall continue
for 30 days after: (1) notice of such failure from BCBSTX; or (2) BCBSTX
is notified of such failure or should have been so notified pursuant to
the provisions of Article VI, whichever is earlier;
7.1.4 The Borrower or any Subsidiary shall fail to pay any
Indebtedness (other than intercompany Indebtedness from or to the Borrower
and any affiliates of the Borrower) and such failure shall continue beyond
any applicable grace period, or the Borrower or any Subsidiary shall
suffer to exist any other default under any agreement binding upon the
Borrower or any Subsidiary unless, in either instance, the Borrower or
such Subsidiary shall have commenced an
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appropriate action or proceeding challenging in good faith its obligation
to make such payment or to perform under such agreement and any action by
the holder of such Indebtedness to enforce payment thereof or of the other
party to such agreement to require performance or obtain damages under
such agreement shall have been effectively suspended, enjoined or
otherwise stayed pending a determination in the Borrower's or the
Subsidiary's action or proceeding. Such action or proceeding shall be
diligently pursued by the Borrower or the Subsidiary or the Borrower shall
have otherwise posted a bond (any reimbursement obligations under which
shall be subordinate to all rights of BCBSTX hereunder) or additional
Collateral in either case in a form and amount satisfactory to BCBSTX;
7.1.5 Any financial statement, representation, warranty or
certificate made or furnished by the Borrower or any Subsidiary to BCBSTX
in connection with this Agreement, or as inducement to BCBSTX to enter
into this Agreement, or in any separate statement or document to be
delivered hereunder to BCBSTX, shall be materially false, incorrect, or
incomplete when made;
7.1.6 The Borrower or any Subsidiary (other than AHC) shall fail to
pay its debts as they mature, or shall make an assignment for the benefit
of its, or any of its, creditors;
7.1.7 (i) an order, judgment or decree is entered under the
bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law
("Bankruptcy Law") adjudicating the Borrower or any Subsidiary (other than
AHC) bankrupt or insolvent or (ii) an order, judgment or decree is entered
pursuant to the insurance or other laws of any state for the purpose of
liquidating, rehabilitating, reorganizing, or conserving any Subsidiary
(the "Insolvency Law");
7.1.8 The Borrower or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by,
a trustee, receiver, custodian, liquidator, rehabilitator, conservator or
similar official, of the Borrower or any Subsidiary (other than AHC) of
any substantial part of the assets of the Borrower or any Subsidiary
(other than AHC) or if the Borrower commences a voluntary case under
Bankruptcy Law or any Subsidiary or state commences a proceeding for the
purpose of liquidating, rehabilitating, reorganizing, or conserving any
Subsidiary under the Insolvency Law, whether now or hereafter in effect;
7.1.9 A petition or application referred to in Section 7.1.8 is
filed, or any such proceedings are commenced, against the Borrower or any
Subsidiary (other than AHC) and the Borrower or such Subsidiary by any act
indicates its approval thereof, consent thereto or acquiescence therein,
or an order for the relief is entered in an involuntary case against the
Borrower or any Subsidiary (other than AHC) under any Bankruptcy Law or
Insolvency Law, as the case may be, as now
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or hereafter constituted, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition or application in any such
proceedings, and any such order, judgment or decree remains unstayed and
in effect for more than 60 calendar days;
7.1.10 Any order, judgment or decree is entered in any proceedings
against the Borrower or Ventana decreeing the dissolution or liquidation
of the Borrower or Ventana and such order, judgment or decree remains
unstayed;
7.1.11 The Borrower or any Subsidiary shall suffer final
nonappealable judgments for payment of money aggregating in excess of
$50,000 and shall not discharge the same when due unless, pending further
proceedings, execution has not been commenced or if commenced has been
effectively stayed;
7.1.12 The validity or enforceability of this Agreement, the Note,
the Warrant or the Collateral Documents shall be contested by the
Borrower, or the Borrower shall deny that it has any or further liability
or obligation hereunder or thereunder.
7.2 Acceleration. Immediately and without notice upon the occurrence
of an Event of Default specified in the foregoing paragraphs 7.1.1, 7.1.2,
7.1.3, 7.1.4 or 7.1.5, or at the option of BCBSTX, but only upon notice to the
Borrower, upon the occurrence of any other Event of Default, all Obligations,
whether hereunder or otherwise, shall immediately become due and payable without
further action of any kind.
7.3 Remedies. After any acceleration, as provided for in Section
7.2, BCBSTX shall have, in addition to the rights and remedies given it by this
Agreement and the Collateral Documents, all those allowed by all applicable
Laws, including, but without limitation, the Uniform Commercial Code as enacted
in any jurisdiction in which any Collateral may be located. Without limiting the
generality of the foregoing, BCBSTX may immediately, without demand of
performance and without other notice (except as specifically required by this
Agreement or the Collateral Documents) or demand whatsoever to the Borrower, all
of which are hereby expressly waived, and without advertisement, sell at public
or private sale or otherwise realize upon, in Phoenix, Arizona, or elsewhere,
the whole or, from time to time, any part of the Collateral, or any interest
which the Borrower may have therein. After deducting from the proceeds of sale
or other disposition of the Collateral all expenses (including all reasonable
expenses for legal services), BCBSTX shall apply such proceeds toward the
satisfaction of the Obligations. Any remainder of the proceeds after
satisfaction in full of the Obligations shall be distributed as required by
applicable Laws. Notice of any sale or other disposition shall be given to the
Borrower at least five days before the time of any intended public sale or of
the time after which any intended private sale or other disposition of the
Collateral is to be made, which the Borrower hereby agrees shall be reasonable
notice of such sale or other disposition. The Borrower agrees to assemble, or to
cause to be assembled, at its own expense, the Collateral at such place or
places as BCBSTX shall designate. At any such sale or other disposition, BCBSTX
may, to the extent permissible under applicable Laws, purchase the whole or any
part of the Collateral, free from any right of redemption on the part of the
Borrower, which right is
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hereby waived and released. Without limiting the generality of any of the rights
and remedies conferred upon BCBSTX under this paragraph, BCBSTX may, to the full
extent permitted by applicable Laws:
7.3.1 Enter upon the premises of the Borrower, exclude therefrom the
Borrower or any affiliate thereof, and take immediate possession of the
Collateral, either personally or by means of a receiver appointed by a
court of competent jurisdiction, using all necessary force to do so;
7.3.2 At BCBSTX's option, use, operate, manage and control
the Collateral in any lawful manner;
7.3.3 Collect and receive all rents, income, revenue,
earnings, issues and profits therefrom; and
7.3.4 Maintain, repair renovate, alter or remove the Collateral as
BCBSTX may determine in its discretion.
ARTICLE VIII
RIGHT OF FIRST REFUSAL
8.1 Underwritten Public Offering. The Borrower agrees that prior to
its or any Subsidiary's entering into an agreement to file a registration
statement and effect an underwritten public offering, the Borrower will arrange
a meeting with a representative of the underwriters it or its Subsidiary has
chosen and representatives of BCBSTX. Following this meeting, the Borrower will
or will cause such Subsidiary to offer BCBSTX the opportunity to purchase
directly the number of shares of stock in the Borrower or such Subsidiary then
contemplated to be included in the offering at the price which, in the case of
the Borrower, is equal to the bona fide estimate of the underwriters of the
price to the public and, in the case of any Subsidiary, is equal to the
mid-point in the range the underwriters recommend for use in the registration
statement for such public offering less their usual commission. Thus, in the
case of a Subsidiary, if the underwriters contemplate a 1,000,000 share
offering, plus a green shoe of 150,000 shares, at a price of $10 - $12, with an
underwriting commission of 7%, BCBSTX will be given the opportunity to purchase
1,150,000 shares at 10.23 ($11.00 - .07 times $11.00). The mechanics and legal
documentation of the Borrower's or Subsidiary's obligation to offer BCBSTX the
right to purchase shares (including the form of stock purchase agreement which
will be in a form containing appropriate representations and warranties as are
customary in this type of transaction) will be mutually agreed between the
Borrower or the Subsidiary and BCBSTX. If BCBSTX does not choose to purchase
such shares, the Borrower or the Subsidiary may enter into an agreement with the
underwriters in customary form and complete an offering even though the offering
may be for fewer shares and at a lower price than originally contemplated;
provided that if the public offering price is less than two-thirds (2/3) in the
case of the Borrower the bona fide estimate of the underwriter referred to above
and in the case of the Borrower or two-thirds (2/3) of the mid-point of the
filing range referred to above, the Borrower will again offer BCBSTX the
opportunity to purchase such shares at such public offering price in accordance
with the foregoing provisions of this Section 8.1.
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<PAGE> 31
8.2 Loans. Prior to incurring any Third Party Financing, the
Borrower will, or will cause any Subsidiary to, offer to BCBSTX the opportunity
to provide the Borrower funds on the same terms and conditions which it believes
are available from a Third Party Financing. The mechanics of this right of first
refusal will be mutually agreed upon in the same in spirit as those described
for an underwritten public offering so that the Borrower or the Subsidiary is
not indirectly blocked from negotiating with a third party. For example, BCBSTX
agrees that if the Borrower or the Subsidiary intends to borrow money from a
bank, after exploratory discussions with representative bankers, the Borrower or
the Subsidiary will describe to BCBSTX the approximate terms and conditions
offered by the bank. If BCBSTX wishes to make the loan on substantially the same
terms and conditions which the Borrower or a Subsidiary has described, it will
be given the opportunity to make the loan. If, however, BCBSTX does not wish to
make the loan, the Borrower or the Subsidiary will be free for a reasonable time
to negotiate in good faith and conclude a bank loan agreement with an unrelated
bank on substantially the same terms and conditions -- it being understood that
the amount of the loan may be different, the interest rate may be slightly
higher, and the other terms may be slightly different from those originally
anticipated by the Borrower or the Subsidiary.
8.3 Joint Ventures. The Borrower directly or through its
Subsidiaries intends to enter into partnerships, limited liability companies and
joint ventures with providers and other third parties who offer strategic or
financial resources in connection with the Borrower's business plan. Current
examples include Benova, Inc. and CHCI. The Borrower or any Subsidiary proposing
to engage in any such transaction will negotiate in good faith with BCBSTX,
offering to BCBSTX the opportunity to be its strategic partner, if appropriate,
and the provider of funds in each of the future joint venture opportunities
presented. Neither the Borrower nor any Subsidiary will initiate any such
negotiation without first negotiating with BCBSTX.
8.4 Sale or Merger of the Borrower. The rights of first refusal
contemplated herein and described in the preceding Sections 8.1, 8.2 and 8.3
will not prevent the Borrower or a Subsidiary from merging with or being
acquired by another unrelated company, subject in each case to BCBSTX's right to
offer the economic and strategic equivalent of any merger or acquisition offer.
8.5 Term. The rights of first refusal contemplated herein and
described in the preceding Sections 8.1, 8.2 and 8.3 shall be in effect and
enforceable by BCBSTX until the earlier of (i) one year after the conversion of
the Note or (ii) payment of the Loan in full, in cash.
ARTICLE IX
MISCELLANEOUS
9.1 Construction. The provisions of this Agreement shall be in
addition to those of any pledge or security agreement, note or other evidence of
liability held by BCBSTX, all of which shall be construed as complementary to
each other. Nothing herein contained shall prevent BCBSTX from enforcing any or
all other notes, guaranty, pledge or security agreements in accordance with
their respective terms.
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<PAGE> 32
9.2 Further Assurance. From time to time, the Borrower will execute
and deliver to BCBSTX such additional documents and will provide such additional
information as BCBSTX may reasonably require to carry out the terms of this
Agreement and be informed of the Borrower's status and affairs.
9.3 Enforcement and Waiver by BCBSTX. BCBSTX shall have the right at
all times to enforce the provisions of this Agreement and the Collateral
Documents in strict accordance with the terms hereof and thereof,
notwithstanding any conduct or custom on the part of BCBSTX in refraining from
so doing at any time or times. The failure of BCBSTX at any time or times to
enforce its rights under such provisions, strictly in accordance with the same,
shall not be construed as having created a custom in any way or manner contrary
to specific provisions of this Agreement or as having in any way or manner
modified or waived the same. All rights and remedies of BCBSTX are cumulative
and concurrent and the exercise of one right or remedy shall not be deemed a
waiver or release of any other right or remedy.
9.4 Expenses. The Borrower and BCBSTX shall each pay their own
respective expenses incurred in connection with the negotiation and execution of
this Agreement.
9.5 Notices. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by certified mail, postage prepaid, return receipt requested,
by an established and reputable overnight express delivery service or by
facsimile transmission, as follows, unless such address is changed by written
notice hereunder:
If to the Borrower:
Managed Care Solutions, Inc.
2510 West Dunlap Avenue
Suite 300
Phoenix, Arizona 85021
Attention: President
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<PAGE> 33
with a copy to:
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602
Attention: William G. Brown, Esq.
If to BCBSTX:
Blue Cross and Blue Shield of Texas, Inc.
901 South Central Expressway
Richardson, Texas 75080
Attention: Michael Lewis
with a copy to:
Haynes and Boone, LLP
901 Main Street
Suite 3100
Dallas, Texas 75202-3789
Attention: Sue P. Murphy
9.6 Waiver and Release by the Borrower. To the maximum extent
permitted by applicable laws, the Borrower releases BCBSTX and its officers,
attorneys, agents and employees from all claims for loss or damage caused by any
act or omission on the part of any of them except for its gross negligence or
willful misconduct.
9.7 Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any party, the determination of such satisfaction
shall be made by such party in its sole and exclusive judgment exercised in good
faith in a commercially reasonable manner.
9.8 Applicable Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Arizona applicable to contracts
made and to be performed in that state applicable to agreements made and to be
in that state without regard to conflict of laws provisions.
9.9 Binding Effect, Assignment and Entire Agreement. This Agreement
shall inure to the benefit of, and shall be binding upon, the respective
successors and permitted assigns of the parties hereto. The Borrower has no
right to assign any of its rights or obligations hereunder without the prior
written consent of BCBSTX. This Agreement, and the documents executed and
delivered pursuant hereto, constitute the entire agreement between the parties,
and may be amended only by a writing signed on behalf of each party.
9.10 Severability. If any provision of this Agreement shall be
held invalid under any applicable Laws, such invalidity shall not affect any
other provision of this Agreement
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<PAGE> 34
that can be given effect without the invalid provision, and, to this end the
provisions hereof are severable.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
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<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
MANAGED CARE SOLUTIONS, INC.
By: /s/ James Burns
--------------------------------
President
BLUE CROSS AND BLUE SHIELD OF TEXAS,
INC.
By: /s/ Michael R. Lewis
--------------------------------
Senior Vice President
34
<PAGE> 1
EXHIBIT 10.3
SECURED CONVERTIBLE
TERM LOAN AGREEMENT
Dated: September 30, 1996
$300,000
MANAGED CARE SOLUTIONS, INC.
(the "Borrower")
and
MALCOLM MCDOUGAL BROWN AND RICHARD C. JELINEK,
TRUSTEES U/A DATED 12/20/93 WITH WILLIAM GARDNER BROWN,
GRANTOR KNOWN AS THE WILLIAM GARDNER BROWN
1993 GST TRUST
("WGB Trust")
<PAGE> 2
SECURED CONVERTIBLE
TERM LOAN AGREEMENT
This secured loan agreement (the "Agreement") is made and entered
into as of the 30th day of September, 1996 between Managed Care Solutions, Inc.,
a Delaware corporation ("MCS"), and Malcolm McDougal Brown and Richard C.
Jelinek, trustees u/a dated 12/20/93 with William Gardner Brown, grantor known
as the William Gardner Brown 1993 GST Trust (the "WGB Trust").
RECITAL
This Agreement is being entered into to provide the following
secured convertible term loan from the WGB Trust to MCS in the maximum principal
amount of $300,000 (the "Loan"). As hereinafter provided, the Loan shall be
convertible into shares of common stock of MCS.
AGREEMENTS
In consideration of the mutual representations, warranties, and
covenants set forth herein, and in consideration of the Loan made hereunder to
or for the benefit of the WGB Trust by MCS, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used herein:
"AHC" means Arizona Health Concepts, Inc., an Arizona corporation,
which is a wholly-owned Subsidiary of the Borrower.
"Bankruptcy Law" means any law referred to in clause (i) of
Section 6.1.7 hereof.
"Closing" means the closing referred to in Section 3.1.
"Event of Default" means an Event of Default under Section 6.1.
"Indebtedness" means, as to the Borrower or any Subsidiary, all
items of indebtedness, obligation or liability, whether matured or unmatured,
liquidated or unliquidated, direct or contingent, joint or several, including,
but without limitation:
(i) All indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse;
(ii) All indebtedness in effect guaranteed, directly or
indirectly, through agreements, contingent or otherwise: (1) to
purchase such indebtedness;
<PAGE> 3
or (2) to purchase, sell or lease (as lessee or lessor) property,
products, materials or supplies or to purchase or sell services, primarily
for the purpose of enabling the debtor to make payment of such
indebtedness or to assure the owner of the indebtedness against loss; or
(3) to supply funds to or in any other manner invest in the debtor;
(iii) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by) any
mortgage, deed of trust, pledge, lien, security interest or other charge
or encumbrance upon property owned or acquired subject thereto, whether or
not the liabilities secured thereby have been assumed; and
(iv) All indebtedness incurred as the lessee of goods or services
under leases that, in accordance with generally accepted accounting
principles, should not be reflected on the lessee's balance sheet.
Notwithstanding the foregoing, "Indebtedness" shall not be deemed to
include amounts due participants under certificates issued by health maintenance
organizations in the ordinary course of business unless the amount due under any
such certificate has been finally determined and remains unpaid for a period of
more than 30 days after such final determination.
"Insolvency Law" means any law referred to in clause (ii) of
Section 6.1.7.
"Laws" means all ordinances, statutes, rules, regulations, orders,
injunctions, writs or decrees of any government or political subdivision or
agency thereof, or any court or similar entity established by any thereof.
"Loan" means the convertible term loan referred to in the Recital of
this Agreement and represented by the Note.
"Note" means the convertible note issued to the WGB Trust, referred
to in Section 2.4 hereof, evidencing the Loan in the form attached hereto as
Exhibit A, as such note shall be amended or restated from time to time.
"Obligations" means the obligation of the Borrower:
(i) To pay the principal of and interest on the Note in accordance
with the terms thereof and to satisfy all of its other indebtedness,
liabilities and obligations to the WGB Trust, whether hereunder or
otherwise, whether now existing or hereafter incurred, matured or
unmatured, direct or contingent, joint or several, including any
extensions, modifications, renewals thereof and substitutions therefor
(including amounts which would become due but for the operation of the
automatic stay under Section 362(a) of the United States Bankruptcy Code
(or any successor statute));
(ii) To repay to the WGB Trust all amounts advanced by the
WGB Trust hereunder on behalf of the Borrower; and
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<PAGE> 4
(iii) To reimburse the WGB Trust, on demand, for all of the WGB
Trust's expenses and costs, including the reasonable fees and expenses of
its counsel, in connection with enforcement of this Agreement and the
documents required hereunder, including, without limitation, any
proceeding brought to enforce payment of any of the obligations referred
to in the foregoing paragraphs (i) and (ii).
"Person" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, joint
venture, court or government or political subdivision or agency thereof.
"Potential Default" means an event or condition which, but for the
lapse of time or giving of notice, or both, would constitute an Event of
Default.
"Rate" means the Rate referred to in Section 2.7.1.
"Subsidiary" means any corporation of which more than fifty percent
(50%) of the outstanding voting securities shall, at the time of determination,
be owned directly, or indirectly through one or more intermediaries, by the
Borrower. For purposes of this Agreement, the term Subsidiary shall include
Benova Managed Care Solutions, LLC, a New York limited liability company, 65% of
the equity interest of which is owned by the Borrower, except that references to
the corporate nature of Benova shall relate to its existence as a limited
liability company.
"Ventana" means Ventana Health Systems, Inc., an Arizona
corporation, which is a wholly-owned Subsidiary of the Borrower.
"Warrant" means the warrant certificate issued to the WGB Trust,
referred to in Section 2.8 hereof, evidencing the right granted to the WGB Trust
in connection with the Loan to purchase shares of common stock of the Borrower,
which Warrant shall be in the form attached hereto as Exhibit B.
Interpretation. In this Agreement, unless the context otherwise
requires:
(i) The terms "hereby," "hereof," "hereto," "hereunder," "herein"
and any similar terms used herein refer to this Agreement, and the term
"hereafter" shall mean after, and the term "heretofore" shall mean before
the date of this Agreement;
(ii) Words contemplating the singular number shall mean and include
the plural number and vice versa;
(iii) Any headings preceding the text of the several Sections and
Paragraphs of this Agreement, and any table of contents or marginal notes
appended to copies hereof, shall be solely for the convenience of
reference and shall not constitute a part of this Agreement, nor shall
they affect its meaning, construction or effect;
3
<PAGE> 5
(iv) Sections and Paragraphs mentioned by number only are the
respective Sections and Paragraphs of this Agreement so numbered; and
(v) As previously disclosed to the WGB Trust by the Borrower, AHC
has a negative net worth, and without the investment of additional funds,
AHC may be unable to satisfy its obligations as they become due. To the
extent any representation, warrant, covenant or default in this Agreement
would be breached or violated due to the financial condition of AHC or its
business, such representation, warranty, covenant or default shall be
deemed not to apply to AHC.
ARTICLE II
THE LOAN
2.1 General Terms. Subject to the terms hereof, the WGB Trust will
lend the Borrower the principal sum of $300,000 on a term basis.
2.2 Disbursement of the Loan. The WGB Trust will wire transfer the
proceeds of the Loan at Closing to the Borrower's bank account as shall be
designated by Borrower at least 24 hours prior to Closing.
2.3 Use of Loan Proceeds. Proceeds of the Loan will be used by the
Borrower to satisfy existing Indebtedness, provide working capital and finance
expansion.
2.4 The Note. At the time of the making of the Loan, the Borrower
will execute and deliver the Note to the WGB Trust.
2.5 Payments of Principal. The principal of the Loan shall be repaid
as follows:
2.5.1 The principal amount of the Loan shall be due and payable on
September 30, 1999 unless (i) the Loan is automatically extended as
provided in Clause 2.5.2 below in which event the principal amount of the
Loan shall be due and payable on the date to which the Loan is
automatically extended pursuant to Clause 2.5.2 below, or (ii) the WGB
Trust otherwise agrees to an extension of the Loan; and
2.5.2 (i) In the event that on September 30, 1999 no Default or
Potential Default exists under this Agreement, the date on which the
principal of the Loan shall be repaid shall be, without any action on
behalf of the WGB Trust, automatically extended to September 30, 2000 and
(ii) in the event that on September 30, 2000 no Default or Potential
Default exists under this Agreement, the date on which the principal of
the Loan shall be repaid shall be, without any action on behalf of the WGB
Trust, automatically extended to September 30, 2001. Prior to any
automatic extension becoming effective, the Borrower shall deliver a
certificate of an officer of the Borrower to the effect that all
conditions precedent to such automatic extension have been satisfied.
4
<PAGE> 6
2.5.3 The Borrower shall be entitled to prepay the Loan, in whole or
in part, at any time upon delivery of not less than 45 days nor more than
60 days prior written notice to the WGB Trust of the date fixed for
payment.
2.6 Conversion Rights. The WGB Trust shall have the right, at any
time and from time to time prior to payment of the Loan in full, to convert the
Note into shares of common stock of the Borrower as more fully set forth in the
Note.
2.7 Interest Rate and Payments of Interest.
2.7.1 Interest on the Loan shall be paid as follows:
(1) Interest on the principal balance of the Loan, from time
to time outstanding, and on all other Obligations arising under this
Agreement, will be payable at a rate (the "Rate") equal to eight
percent (8%) per annum, shall be payable monthly on the last day of
the month for which such interest was earned with the final payment
of interest being due on September 30, 1999 or such later date to
which the Loan is extended pursuant to the terms hereof;
(2) If the Loan is extended as provided in Section 2.5.2,
interest accruing after September 30, 1999 shall be payable monthly
and be payable on the last day of the month for which such interest
was earned with the final payment of interest being due on September
30, 1999 or such later date to which the Loan is extended pursuant
to the terms hereof;
(3) If the Loan is prepaid either in whole or in part,
interest on any principal balance being prepaid to the prepayment
date shall be due on such date;
(4) If the Loan is converted into common stock of the Borrower
as provided in Section 3.6 and in the Note, all unpaid interest
accrued on the Loan to the conversion date shall be due on such
date; and
(5) At any time an Event of Default shall occur under this
Agreement all unpaid interest accrued on the Loan to the date such
Event of Default occurred shall be immediately due and payable.
2.7.2 If, at any time, the Rate shall be deemed by any competent
court of law, governmental agency or tribunal to exceed the maximum rate
of interest permitted by any applicable Laws, then, for such time as the
Rate would be deemed excessive, its application shall be suspended and
there shall be charged instead the maximum rate of interest permissible
under such Laws.
5
<PAGE> 7
2.8 Warrant. The Borrower shall deliver to the WGB Trust the Warrant
granting the WGB Trust the right to purchase 10,000 shares of common stock
(subject to anti-dilution protection) at a price equal to $4.45 per share. The
Warrant shall be subject to the terms and conditions set forth in the
certificate evidencing the Warrant and shall be exercisable on or before
September 30, 2001.
2.9 Payment to the WGB Trust. All sums payable to the WGB Trust
hereunder shall be paid directly to the WGB Trust in immediately available
funds. The WGB Trust shall send the Borrower statements of all amounts due
hereunder, which statements shall be considered correct and conclusively binding
on the Borrower unless the Borrower notifies the WGB Trust to the contrary
within 30 days of its receipt of any statement which it deems to be incorrect.
ARTICLE III
CONDITIONS PRECEDENT
The obligation of the WGB Trust to make the Loan hereunder is
subject to the following conditions precedent:
3.1 Documents Required for the Closing. The Borrower shall have
delivered to the WGB Trust, prior to the disbursement of the Loan (the
"Closing") the following:
3.1.1 The Note;
3.1.2 The Warrant; and
3.1.3 A copy of the resolutions of the Borrower's board of directors
authorizing the execution, delivery and performance of this Agreement, the
Note, and the Warrant.
3.2 Certain Events. At the time of the Closing:
3.2.1 No Event of Default or Potential Default shall have
occurred and be continuing;
3.2.2 No material adverse change shall have occurred in the
financial condition of the Borrower and its Subsidiaries, taken as a
whole, since August 31, 1996, the date of the most recent financial
statements delivered to the WGB Trust prior to the Closing; and
3.2.3 No event shall have occurred which would cause any of the
Collateral Documents not to be in full force and effect.
3.3 Legal Matters. At the time of the Closing, all legal matters
incidental to the Loan shall be reasonably satisfactory to Haines & Boone,
counsel to the WGB Trust.
6
<PAGE> 8
3.4 Board Approval. Prior to the time of the Closing, the WGB
Trust's Board of Directors shall have authorized the Loan.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 To induce the WGB Trust to enter into this Agreement, the
Borrower represents and warrants to the WGB Trust as follows:
4.1.1 The Borrower is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware and has
all power (corporate and other) necessary to carry on its business as now
being conducted and to own, lease and operate its properties. The Borrower
is duly licensed, qualified and authorized to conduct its business in
Arizona and in all other jurisdictions in which the character and location
of the assets owned by it or the nature of the business transacted by it
requires licensing, qualification or authorization;
4.1.2 Neither the Borrower nor any Subsidiary is in default with
respect to any of its existing Indebtedness, and the making and
performance of this Agreement, the Note, and the Warrant (immediately, or
with the passage of time or the giving of notice, or both):
(1) Violate or conflict with the articles of incorporation or
bylaws of the Borrower, or violate any Laws binding upon the
Borrower or any Subsidiary or their properties;
(2) Violate or conflict with or result in a material breach of
any of the terms or conditions of or constitute a default under any
material contract, agreement, commitment, indenture, mortgage, note,
bond, license, permit, or other instrument or obligation to which
the Borrower is a party or by which any of its property or assets
are bound or affected; or
(3) Violate any order, writ, injunction or decree of any
court, administrative agency or governmental body.
4.1.3 The Borrower has the power and authority to enter into and
perform this Agreement, the Note and the Warrant, and to incur the
obligations herein and therein provided for, and has taken all corporate
action necessary to authorize the execution, delivery, and performance of
this Agreement, the Note and the Warrant to be delivered by the Borrower;
4.1.4 This Agreement, the Note and the Warrant when delivered will
be, valid, binding obligations, enforceable in accordance with their
respective terms;
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<PAGE> 9
4.1.5 Except as otherwise set forth in Exhibit C to this Agreement
or in the consolidated financial statements at and for the fiscal year
ended May 31, 1996 of the Borrower and the Subsidiaries, there are no
actions, suits, investigations or proceedings pending other than actions,
suits, investigations or proceedings which are of a nature generally
encountered by the Subsidiaries in the ordinary course of their businesses
in any court or before or by any federal, state, municipal or other
governmental or non-governmental department, commission, board, bureau,
agency, or instrumentality, or to the knowledge of the Borrower,
threatened against the Borrower or any Subsidiary which seek $50,000 or
more in compensatory or punitive damages or the eventual outcome of which,
if decided adversely to the Borrower or any Subsidiary, could have a
material adverse effect on the condition, financial or otherwise, results
of operations, business or prospects, of either the Borrower and its
Subsidiaries, taken as a whole; and the aggregate damages sought in all
such actions, suits or proceedings not disclosed because they seek less
than $25,000 in compensatory or punitive damages does not exceed the
aggregate of $200,000; and there are no other proceedings, actions or
other matters pending before any insurance department to which the
Borrower, or any Subsidiary is a party;
4.1.6 Except as otherwise set forth in Exhibit C to this Agreement,
there is no pending order, stipulation or other direction from any court,
agency, department or other body with jurisdiction over the Borrower or
any Subsidiary, that would materially restrict the Borrower's or any
Subsidiary's ability to carry on their respective businesses in the manner
in which they were carried on during the periods covered by the Financial
Statements;
4.1.7 No representation or warranty by the Borrower contained herein
or in any certificate or other document furnished by the Borrower pursuant
hereto contains any untrue statement of a material fact or omits to state
a material fact necessary to make such representation or warranty not
misleading in light of the circumstances under which it was made; and
4.1.8 Each consent, approval or authorization of, or filing,
registration or qualification with, any Person which is required to be
obtained or effected by the Borrower or any Subsidiary in connection with
the execution and delivery of this Agreement, the Note and the Warrant or
the undertaking or performance of any obligation hereunder or thereunder
has been duly obtained or effected.
4.2 Survival. All of the representations and warranties set forth in
Section 4.1 shall survive until all Obligations are satisfied in full,
regardless of any investigation made by the WGB Trust or on its behalf.
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<PAGE> 10
ARTICLE V
COVENANTS
The Borrower does hereby covenant and agree with the WGB Trust that,
so long as any of the Obligations remain unsatisfied, it will comply and it will
cause its Subsidiaries to comply, with the following covenants:
5.1 Affirmative Covenants of Borrower.
5.1.1 The Borrower will use the proceeds of the Loan only for the
purposes set forth in Section 2.3.
5.1.2 The Borrower and its Subsidiaries will, when requested so to
do, make available for inspection by duly authorized representatives of
the WGB Trust their Records, and will furnish the WGB Trust any
information regarding their business affairs and financial condition
within a reasonable time after written request therefor.
5.1.3 The Borrower and its Subsidiaries will take all necessary
steps to preserve their corporate existence, franchises, licenses and
certificates of authority and to comply with all present and future Laws,
applicable to them in the operation of their respective businesses, and
all material agreements to which they are subject.
5.1.4 The Borrower and its Subsidiaries will pay when due (or within
applicable grace periods) all Indebtedness due third Persons, except when
the amount thereof is being contested in good faith by appropriate
proceedings and with adequate reserves therefor being set aside on the
books of the Borrower and its Subsidiaries. If default be made by the
Borrower or any Subsidiary in the payment of any principal (or installment
thereof) of, or interest on, any such Indebtedness, the WGB Trust shall
have the right, in its discretion, to pay such interest or principal for
the account of the Borrower or such Subsidiary and be reimbursed by the
Borrower therefor. Any such payment by the WGB Trust shall be deemed an
Obligation hereunder.
5.1.5 The Borrower and its Subsidiaries will notify the WGB Trust
immediately if any of them becomes aware of the occurrence of any Event of
Default or Potential Default, or of the failure of the Borrower or any
Subsidiary to observe any of their respective undertakings hereunder.
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<PAGE> 11
5.2 Negative Covenants of Borrower.
5.2.1 Neither the Borrower nor any Subsidiary will furnish the WGB
Trust any certificate or other document that will contain any untrue
statement of a material fact or that will omit to state a material fact
necessary to make it not misleading in light of the circumstances under
which it was furnished.
ARTICLE VI
DEFAULT
6.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default hereunder:
6.1.1 The Borrower shall fail to pay any installment of principal of
the Loan or any other Obligation when due and such failure shall continue
for a period of five days;
6.1.2 The Borrower shall fail to pay any installment of interest on
the Loan or any other Obligation hereunder when due and such failure shall
continue for a period of five days;
6.1.3 The Borrower or any Subsidiary shall fail to observe or
perform any other obligation to be observed or performed by them hereunder
or under any of the Collateral Documents, and such failure shall continue
for 30 days after: (1) notice of such failure from the WGB Trust; or (2)
the WGB Trust is notified of such failure or should have been so notified
pursuant to the provisions of Article VI, whichever is earlier;
6.1.4 The Borrower or any Subsidiary shall fail to pay any
Indebtedness due any third Person and such failure shall continue beyond
any applicable grace period, or the Borrower or any Subsidiary shall
suffer to exist any other default under any agreement binding upon the
Borrower or any Subsidiary unless, in either instance, the Borrower or
such Subsidiary shall have commenced an appropriate action or proceeding
challenging in good faith its obligation to make such payment or to
perform under such agreement and any action by the holder of such
Indebtedness to enforce payment thereof or of the other party to such
agreement to require performance or obtain damages under such agreement
shall have been effectively suspended, enjoined or otherwise stayed
pending a determination in the Borrower's or the Subsidiary's action or
proceeding. Such action or proceeding shall be diligently pursued by the
Borrower or the Subsidiary or the Borrower shall have otherwise posted a
bond (any reimbursement obligations under which shall be subordinate to
all rights of the WGB Trust hereunder) or additional Collateral in either
case in a form and amount satisfactory to the WGB Trust;
10
<PAGE> 12
6.1.5 Any financial statement, representation, warranty or
certificate made or furnished by the Borrower or any Subsidiary to the WGB
Trust in connection with this Agreement, or as inducement to the WGB Trust
to enter into this Agreement, or in any separate statement or document to
be delivered hereunder to the WGB Trust, shall be materially false,
incorrect, or incomplete when made;
6.1.6 The Borrower or any Subsidiary (other than AHC) shall admit
its inability to pay its debts as they mature, or shall make an assignment
for the benefit of its, or any of its, creditors;
6.1.7 (i) an order, judgment or decree is entered under the
bankruptcy, reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law
("Bankruptcy Law") adjudicating the Borrower or any Subsidiary (other than
AHC) bankrupt or insolvent or (ii) an order, judgment or decree is entered
pursuant to the insurance or other laws of any state for the purpose of
liquidating, rehabilitating, reorganizing, or conserving any Subsidiary
(the "Insolvency Law");
6.1.8 The Borrower or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by,
a trustee, receiver, custodian, liquidator, rehabilitator, conservator or
similar official, of the Borrower or any Subsidiary (other than AHC) of
any substantial part of the assets of the Borrower or any Subsidiary
(other than AHC) or if the Borrower commences a voluntary case under
Bankruptcy Law or any Subsidiary or state commences a proceeding for the
purpose of liquidating, rehabilitating, reorganizing, or conserving any
Subsidiary under the Insolvency Law, whether now or hereafter in effect;
6.1.9 A petition or application referred to in Section 7.1.2 is
filed, or any such proceedings are commenced, against the Borrower or any
Subsidiary (other than AHC) and the Borrower or such Subsidiary by any act
indicates its approval thereof, consent thereto or acquiescence therein,
or an order for the relief is entered in an involuntary case against the
Borrower or any Subsidiary (other than AHC) under any Bankruptcy Law or
Insolvency Law, as the case may be, as now or hereafter constituted, or an
order, judgment or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or approving the
petition or application in any such proceedings, and any such order,
judgment or decree remains unstayed and in effect for more than 60
calendar days;
6.1.10 Any order, judgment or decree is entered in any proceedings
against the Borrower or Ventana decreeing the dissolution or liquidation
of the Borrower or Ventana and such order, judgment or decree remains
unstayed;
6.1.11 The Borrower or any Subsidiary shall suffer final
nonappealable judgments for payment of money aggregating in excess of
$50,000 and shall not
11
<PAGE> 13
discharge the same within a period of 30 days or when due, whichever is
later, unless, pending further proceedings, execution has not been
commenced or if commenced has been effectively stayed;
6.1.12 The validity or enforceability of this Agreement, the Note or
the Warrant shall be contested by the Borrower, or the Borrower shall deny
that it has any or further liability or obligation hereunder or
thereunder.
6.2 Acceleration. Immediately and without notice upon the occurrence
of an Event of Default specified in the foregoing paragraphs 6.1.1, 6.1.2,
6.1.3, 6.1.4 or 6.1.5, or at the option of the WGB Trust, but only upon notice
to the Borrower, upon the occurrence of any other Event of Default, all
Obligations, whether hereunder or otherwise, shall immediately become due and
payable without further action of any kind.
6.3 Remedies. After any acceleration, as provided for in Section
7.2, the WGB Trust shall have, in addition to the rights and remedies given it
by this Agreement and the Collateral Documents, all those allowed by all
applicable Laws, including, but without limitation, the Uniform Commercial Code
as enacted in any jurisdiction in which any Collateral may be located. Without
limiting the generality of the foregoing, the WGB Trust may immediately, without
demand of performance and without other notice (except as specifically required
by this Agreement or the Collateral Documents) or demand whatsoever to the
Borrower, all of which are hereby expressly waived, and without advertisement,
sell at public or private sale or otherwise realize upon, in Phoenix, Arizona,
or elsewhere, the whole or, from time to time, any part of the Collateral, or
any interest which the Borrower may have therein. After deducting from the
proceeds of sale or other disposition of the Collateral all expenses (including
all reasonable expenses for legal services), the WGB Trust shall apply such
proceeds toward the satisfaction of the Obligations. Any remainder of the
proceeds after satisfaction in full of the Obligations shall be distributed as
required by applicable Laws. Notice of any sale or other disposition shall be
given to the Borrower at least five days before the time of any intended public
sale or of the time after which any intended private sale or other disposition
of the Collateral is to be made, which the Borrower hereby agrees shall be
reasonable notice of such sale or other disposition. The Borrower agrees to
assemble, or to cause to be assembled, at its own expense, the Collateral at
such place or places as the WGB Trust shall designate. At any such sale or other
disposition, the WGB Trust may, to the extent permissible under applicable Laws,
purchase the whole or any part of the Collateral, free from any right of
redemption on the part of the Borrower, which right is hereby waived and
released. Without limiting the generality of any of the rights and remedies
conferred upon the WGB Trust under this paragraph, the WGB Trust may, to the
full extent permitted by applicable Laws:
6.3.1 Enter upon the premises of the Borrower, exclude therefrom the
Borrower or any affiliate thereof, and take immediate possession of the
Collateral, either personally or by means of a receiver appointed by a
court of competent jurisdiction, using all necessary force to do so;
6.3.2 At the WGB Trust's option, use, operate, manage and
control the Collateral in any lawful manner;
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<PAGE> 14
6.3.3 Collect and receive all rents, income, revenue, earnings,
issues and profits therefrom; and
6.3.4 Maintain, repair renovate, alter or remove the Collateral as
the WGB Trust may determine in its discretion.
ARTICLE VII
MISCELLANEOUS
7.1 Construction. The provisions of this Agreement shall be in
addition to those of any pledge or security agreement, note or other evidence of
liability held by the WGB Trust, all of which shall be construed as
complementary to each other. Nothing herein contained shall prevent the WGB
Trust from enforcing any or all other notes, guaranty, pledge or security
agreements in accordance with their respective terms.
7.2 Enforcement and Waiver by the WGB Trust. The WGB Trust shall
have the right at all times to enforce the provisions of this Agreement in
strict accordance with the terms hereof and thereof, notwithstanding any conduct
or custom on the part of the WGB Trust in refraining from so doing at any time
or times. The failure of the WGB Trust at any time or times to enforce its
rights under such provisions, strictly in accordance with the same, shall not be
construed as having created a custom in any way or manner contrary to specific
provisions of this Agreement or as having in any way or manner modified or
waived the same. All rights and remedies of the WGB Trust are cumulative and
concurrent and the exercise of one right or remedy shall not be deemed a waiver
or release of any other right or remedy.
7.3 Expenses. The Borrower and the WGB Trust shall each pay their
own respective expenses incurred in connection with the negotiation and
execution of this Agreement.
7.4 Notices. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed delivered if delivered in
person or if sent by certified mail, postage prepaid, return receipt requested,
by an established and reputable overnight express delivery service or by
facsimile transmission, as follows, unless such address is changed by written
notice hereunder:
If to the Borrower:
Managed Care Solutions, Inc.
2510 West Dunlap Avenue
Suite 300
Phoenix, Arizona 85021
Attention: President
If to the WGB Trust:
Malcolm McDougal Brown, Trustee
13
<PAGE> 15
1275 N. Green Bay Road
Lake Forest, Illinois 60045
7.5 Waiver and Release by the Borrower. To the maximum extent
permitted by applicable laws, the Borrower releases the WGB Trust and its
officers, attorneys, agents and employees from all claims for loss or damage
caused by any act or omission on the part of any of them except for its gross
negligence or willful misconduct.
7.6 Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to any party, the determination of such satisfaction
shall be made by such party in its sole and exclusive judgment exercised in good
faith in a commercially reasonable manner.
7.7 Applicable Law. The laws of the State of Arizona applicable to
contracts made and to be performed in that state shall govern the construction
of this Agreement and the rights and remedies of the parties hereto without
regard to conflict of laws provisions.
7.8 Binding Effect, Assignment and Entire Agreement. This Agreement
shall inure to the benefit of, and shall be binding upon, the respective
successors and permitted assigns of the parties hereto. The Borrower has no
right to assign any of its rights or obligations hereunder without the prior
written consent of the WGB Trust. This Agreement, and the documents executed and
delivered pursuant hereto, constitute the entire agreement between the parties,
and may be amended only by a writing signed on behalf of each party.
7.9 Severability. If any provision of this Agreement shall be held
invalid under any applicable Laws, such invalidity shall not affect any other
provision of this Agreement that can be given effect without the invalid
provision, and, to this end the provisions hereof are severable.
7.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute but one and the same instrument.
14
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
MANAGED CARE SOLUTIONS, INC.
By /s/ Michael Kennedy
--------------------------------
Vice President
MALCOLM MCDOUGAL BROWN AND RICHARD C.
JELINEK, TRUSTEES U/A DATED 12/20/93
WITH WILLIAM GARDNER BROWN, GRANTOR
KNOWN AS THE WILLIAM GARDNER BROWN
1993 GST TRUST
By /s/ Malcolm McDougal Brown
--------------------------------
Malcolm McDougal Brown, Trustee
and
By /s/ Richard Jelinek
--------------------------------
Richard C. Jelinek, Trustee
15
<PAGE> 1
Exhibit 10.4
OFFICE LEASE
by and between
PIVOTAL SIMON OFFICE XVI, L.L.C.,
FORMERLY KNOWN AS
PIVOTAL SIMON POINTE, L.L.C.,
an Arizona limited liability company,
"LANDLORD"
and
MANAGED CARE SOLUTIONS, INC.,
a Delaware corporation,
"TENANT"
SEPTEMBER 30, 1996
POINTE CORRIDOR CENTRE I
7600 NORTH 16TH STREET
PHOENIX, ARIZONA 85020
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. BASIC PROVISIONS................................................. 1
2. LEASED PREMISES; NO ADJUSTMENTS.................................. 2
3. LEASE TERM; COMMENCEMENT DATE.................................... 3
4. SECURITY DEPOSIT................................................. 4
5. RENT; RENT TAX; ADDITIONAL RENT.................................. 4
6. OPERATING COSTS.................................................. 5
7. CONDITION, REPAIRS AND ALTERATIONS............................... 8
8. SERVICES......................................................... 9
9. LIABILITY AND PROPERTY INSURANCE................................. 10
10. RECONSTRUCTION.................................................. 13
11. WAIVER OF SUBROGATION........................................... 14
12. LANDLORD'S RIGHT TO PERFORM TENANT OBLIGATIONS.................. 14
13. DEFAULT AND REMEDIES............................................ 15
14. LATE PAYMENTS................................................... 17
15. ABANDONMENT AND SURRENDER....................................... 17
16. INDEMNIFICATION AND EXCULPATION................................. 17
17. ENTRY BY LANDLORD............................................... 18
18. SUBSTITUTE PREMISES............................................. 18
19. ASSIGNMENT AND SUBLETTING....................................... 19
20. USE OF LEASED PREMISES AND RUBBISH REMOVAL...................... 21
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
21. SUBORDINATION AND ATTORNMENT....................................... 22
22. ESTOPPEL CERTIFICATE............................................... 23
23. SIGNS.............................................................. 23
24. PARKING............................................................ 23
25. LIENS.............................................................. 24
26. HOLDING OVER....................................................... 24
27. ATTORNEYS' FEES.................................................... 24
28. RESERVED RIGHTS OF LANDLORD........................................ 24
29. EMINENT DOMAIN..................................................... 25
30. NOTICES............................................................ 26
31. RULES AND REGULATIONS.............................................. 26
32. ACCORD AND SATISFACTION............................................ 26
33. BANKRUPTCY OF TENANT............................................... 26
34. HAZARDOUS MATERIALS................................................ 28
35. MISCELLANEOUS...................................................... 30
</TABLE>
2
<PAGE> 4
1. BASIC PROVISIONS
<TABLE>
<S> <C>
1.1 Date: September 30, 1996
1.2 Landlord: Pivotal Simon Office XVI, L.L.C.,
formerly known as Pivotal Simon Pointe, L.L.C., an
Arizona limited liability company
1.3 Landlord's Address: c/o Pivotal Group, Inc.
2525 East Camelback Road, Suite 650
Phoenix, Arizona 85016
Attention: Mr. J. Jahm Najafi
1.4 Tenant: Managed Care Solutions, Inc., a Delaware
corporation
1.5 Tenant's Address:
(a) Prior to Commencement Managed Care Solutions, Inc.
Date: 2510 W. Dunlap, Suite 300
Phoenix, Arizona 85021
(b) Subsequent to
Commencement Date: Managed Care Solutions, Inc.
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
Attn: President
With a copy to: Managed Care Solutions, Inc.
7600 North 16th Street
Suite 150
Phoenix, Arizona 85020
Attn: Chief Financial Officer
</TABLE>
1.6 Project: The parcel of real estate commonly known
as the Pointe Corridor Centre, located in
Phoenix, Maricopa County, Arizona, legally
described on Exhibit "A" attached hereto
and incorporated herein by this reference,
together with the office buildings now or
hereafter situated thereon, the
landscaping, parking facilities and all
other improvements and appurtenances
thereto.
1.7 Property: The parcel of real estate located in
Phoenix, Maricopa County, Arizona, legally
described on Exhibit "B" attached hereto
and incorporated herein by this reference,
together with the office buildings now or
hereafter situated thereon, the
landscaping, parking facilities and all
other improvements and appurtenances
thereto.
3
<PAGE> 5
1.8 Building: That certain office building known as
Pointe Corridor Centre I located at 7600
North 16th Street, Phoenix, Maricopa
County, Arizona 85020, and situated on the
Property.
1.9 Leased Premises: 28,922 rentable (26,293 usable) square
feet of office space located on the first
floor of the Building and commonly known
as Suite 130A, as outlined on the Floor
Plan attached hereto as Exhibit "C".
1.10 Permitted Use: General office use.
1.11 Lease Term: Five (5) years.
1.12 Commencement Date
and Expiration Date: See Articles 1.11 and 3.
1.13 Annual Basic Rent:
<TABLE>
<CAPTION>
Rental Rate
Annual Monthly per Rentable
Lease Year Basic Rent Basic Rent Square Foot
<S> <C> <C> <C>
1 $484,443.50 $40,370.29 $16.75
2 498,904.50 41,575.38 17.25
3 513,365.50 42,780.46 17.75
4 527,826.50 43,985.54 18.25
5 542,287.50 45,190.63 18.75
</TABLE>
1.14 Security Deposit: See Article 4.
1.15 Base Year Costs: 1997 calendar year actual Operating Costs
per rentable square foot adjusted to 95%
occupancy.
1.16 Building Hours: 7:00 a.m. to 6:00 p.m., Monday through
Friday, and 8:00 a.m. to 12:00 p.m. on
Saturday, excluding recognized federal,
state or local holidays.
1.17 Parking Spaces: 35 covered reserved parking spaces at
$10.00 per space, per month. 79 uncovered
unreserved parking spaces on a first come,
first served basis, at no charge. All such
spaces shall be in parking areas adjacent
to the Building, including the parking lot
north of Belmont Street.
4
<PAGE> 6
1.18 Parking Charge: See 1.17 above.
1.19 Guarantors: Not applicable.
1.20 Broker: Lee & Associates, Benchmark Realty
Advisors and Roc Corporate Partners,
L.L.C.
1.21 Exhibits: A = Legal Description of the Project
B = Legal Description of the Property
C = Floor Plan
D = Memorandum of Commencement Date
E = Reserved Covered Parking License
F = Intentionally Omitted
G = Non-Exclusive Unreserved Parking License
H = As Is; Tenant's Allowance
I = Building Rules and Regulations
J = Intentionally Omitted
K = Janitorial Services
1.22 Riders: 1 = Option to Extend
2 = Rights of First Opportunity and Expansion
Options
2. LEASED PREMISES; NO ADJUSTMENTS
2.1 Leased Premises. Landlord hereby leases to Tenant, and Tenant hereby
leases and accepts from Landlord, the Leased Premises, upon the terms and
conditions set forth in this Lease and any modifications, supplements or addenda
hereto (the "Lease"), including the Basic Provisions of Article 0 which are
incorporated herein by this reference, together with the nonexclusive right to
use, in common with Landlord and others, the Building Common Areas (defined
below) and the Project Common Areas (defined below). For the purposes of this
Lease, the term "Building Common Areas" means common hallways, corridors,
walkways and footpaths, foyers and lobbies, bathrooms and janitorial closets,
electrical and telephone closets, landscaped areas, and such other areas within
or adjacent to the Building which are subject to or are designed or intended
solely for the common enjoyment, use and/or benefits of the tenants of the
Building. The term "Project Common Areas" means common walkways, footpaths,
driveways, parking areas, service areas, landscaped areas, and such other areas
within or adjacent to the Project which are subject to or are designed or
intended solely for the common enjoyment, use and/or benefits of the tenants of
the Project.
2.2 Square Footage. The Annual Basic Rent at the Commencement Date (as
hereinafter defined) is based on the Leased Premises containing the rentable
square footage set forth in Article 0 above, which square footage has been
precisely determined by Landlord and approved by Tenant prior to the
Commencement Date. No adjustments to Annual Basic Rent or any other charge shall
be made if the actual size of the Leased Premises is greater or smaller than
that set forth in Article 1.9. For the purpose of this Lease, Landlord and
Tenant agree that the usable square footage of the Leased Premises is 26,293.
2.3 Condition of Leased Premises. The Leased Premises shall be delivered
to Tenant in a clean, broom-swept condition. All furniture and movable personal
property of the previous tenant shall have been removed except the following:
5
<PAGE> 7
(i) All computer raised flooring and ramps;
(ii) All overstanding electrical apparatus;
(iii) All supplemental HVAC systems and related equipment; and
(iv) All fire and life safety systems.
All existing permanent built-in and above-the-ceiling improvements shall remain
in the Leased Premises and together with the items described in clauses (i)-(iv)
above (the "Existing Improvements") shall be delivered to Tenant in an "as is"
and "where is" condition, without any representation or warranty whatsoever.
Landlord hereby disclaims all express and implied warranties with respect to the
Existing Improvements, including the implied warranties of habitability,
merchantability and fitness or suitability for any particular purpose. Landlord
shall, at its sole cost and expense, without any deduction from the Tenant
Improvement Allowance or Additional Allowance (each defined in Exhibit "H")
perform any and all work necessary to cause all base building systems serving
the Leased Premises (as distinguished from the Existing Improvements), including
HVAC, plumbing, electrical and mechanical, serving the Leased Premises to be in
good working condition on the Commencement Date; provided, however, that
Landlord may deduct from the Tenant Improvement Allowance or Additional
Allowance the cost of any work performed by Landlord to the base building
systems which is necessitated by changes made to the Leased Premises by Tenant.
3. LEASE TERM; COMMENCEMENT DATE
3.1 Lease Term. The Lease Term shall begin on the Commencement Date and
shall be for the period set forth in Article 0 above, plus any period of less
than one (1) month between the Commencement Date and the first day of the next
succeeding calendar month, unless sooner terminated in accordance with the
further provisions of this Lease.
3.2 Commencement Date. Subject to Force Majeure, the Commencement Date
shall mean January 6, 1997; provided,however, that in the event that the
existing tenant of the Leased Premises shall not have vacated the Leased
Premises on or before September 30, 1996, the Commencement Date shall be
extended by the number of days between September 30, 1996 and the date on which
the existing tenant vacates the Leased Premises. Notwithstanding any provision
of this Lease to the contrary, Tenant shall have access to the Leased Premises
for the five (5) business days immediately preceding the Commencement Date (the
"Occupancy Date").
3.3 Memorandum of Commencement Date and Expiration Date. Landlord and
Tenant shall, within ten (10) days after the Commencement Date, execute a
declaration in the form of Exhibit "D" attached hereto specifying the
Commencement Date and the Expiration Date.
3.4 Delay in Commencement Date. In the event Landlord shall be unable, for
any reason, to deliver possession of the Leased Premises to Tenant on the
Commencement Date, Landlord shall not be liable for any loss or damage
occasioned thereby, nor shall such inability affect the validity of this Lease
or the obligations of Tenant. In such event, Tenant shall not be obligated to
pay Annual Basic Rent or Additional Rent until the Commencement Date. In the
event Landlord shall not have delivered possession of the Leased Premises to
Tenant within thirty (30) days after the Commencement Date, and if such failure
to deliver possession was (a) caused solely by the fault or neglect of Landlord,
and (b) not caused by any fault
6
<PAGE> 8
or neglect of Tenant or due to additional time required to plan for and install
other work for Tenant beyond the amount of time which would have been required
if only building standard improvements had been installed, then, as its sole and
exclusive remedy for Landlord's failure to deliver possession of the Leased
Premises in a timely manner, Tenant shall have the right to terminate this Lease
by delivering written notice of termination to Landlord at any time within
thirty (30) days after the expiration of such thirty (30) day period. Such
termination shall be effective thirty (30) days after receipt by Landlord of
Tenant's notice of termination unless Landlord shall, prior to the expiration of
such thirty (30) day period, deliver possession of the Leased Premises to
Tenant. Upon a termination of this Lease pursuant to the provisions of this
Article 0, the parties shall have no further obligations or liabilities to the
other and Landlord shall promptly return any monies previously deposited or paid
by Tenant.
3.5 Lease Year. Each "Lease Year" shall be a period of twelve (12)
consecutive calendar months, the first Lease Year beginning on the Commencement
Date or on the first day of the calendar month next succeeding the Commencement
Date if the Commencement Date is not on the first day of a calendar month. Each
Lease Year after the first Lease Year shall begin on the calendar day next
succeeding the expiration of the immediately preceding Lease Year.
7
<PAGE> 9
4. SECURITY DEPOSIT
Tenant shall pay to Landlord, concurrent with the execution of this Lease
by Tenant, a security deposit in an amount equal to the sum of (i) three (3)
monthly installments of the average amount of Annual Basic Rent payable during
the initial Lease Term (i.e., $128,341.37) and (ii) the Additional Allowance, if
any, as security for the performance by Tenant of its obligations under this
Lease (the "Security Deposit"). In addition, if during the first year of the
Lease Term, Tenant exercises an expansion right or a right of opportunity (each
as described on Rider "2"), within five (5) days after the exercise thereof, the
amount of the Security Deposit shall be increased by any Tenant Improvement
Allowance granted by Landlord to Tenant in connection with the exercise of such
option or right in excess of Four Dollars ($4.00) per usable square foot. The
Security Deposit shall be in the form of cash or a certificate of deposit which
Tenant shall be caused to be issued to Landlord by a federally insured financial
institution reasonably acceptable to Landlord. All interest that accrues on the
Security Deposit shall be held for the benefit of Tenant. In addition, upon the
expiration of the thirtieth (30th) month of the Lease Term, provided that there
has not been an Event of Default, or an event which with the lapse of time or
the delivery of notice, or both, would constitute an Event of Default, then the
amount of the Security Deposit shall decrease by sixty-seven percent (67%) and
upon receipt of written request by Tenant, Landlord shall return to Tenant an
amount equal to sixty-seven percent (67%) of the Security Deposit then held by
Landlord, plus interest accrued on such amount. Any increase in the Security
Deposit attributable to the exercise of any right of opportunity or expansion
option, shall be due and payable within five (5) days after the execution of the
supplement to this Lease described in Rider "2". The failure by Tenant to
deliver to Landlord any portion of the Security Deposit when due, which failure
is not cured within five (5) days after written notice thereof by Landlord to
Tenants shall constitute an Event of Default. Any unapplied portion of the
Security Deposit shall be returned to Tenant after the expiration or earlier
termination of this Lease, provided that Tenant shall have fully performed all
of its obligations contained in this Lease. The Security Deposit, in the
reasonable determination of Landlord, may be retained by Landlord as and for its
full damages or may be applied in reduction of any loss and/or damage sustained
by Landlord by reason of the occurrence of any breach, nonperformance or default
by Tenant under this Lease without the waiver of any other right or remedy
available to Landlord at law, in equity or under the terms of this Lease. If any
portion of the Security Deposit is so used or applied, Tenant shall, within
thirty (30) days after written notice from Landlord, deposit with Landlord
immediately available funds in an amount sufficient to restore the Security
Deposit to its then required amount, and Tenant's failure to do so shall be a
breach of this Lease. Tenant acknowledges and agrees that in the event Tenant
shall file a voluntary petition pursuant to the Bankruptcy Code or any successor
thereto, or if an involuntary petition is filed against Tenant pursuant to the
Bankruptcy Code or any successor thereto, then Landlord may apply the Security
Deposit towards those obligations of Tenant to Landlord which accrued prior to
the filing of such petition. In the event of termination of Landlord's interest
in this Lease, Landlord shall transfer the Security Deposit to Landlord's
successor in interest, whereupon Landlord shall be released from liability by
Tenant for the return of such deposit or the accounting therefore.
8
<PAGE> 10
5. RENT; RENT TAX; ADDITIONAL RENT
5.1 Payment of Rent. Tenant shall pay to Landlord the Annual Basic Rent
set forth in Article 1.13 above, subject to adjustment as provided herein. The
Annual Basic Rent shall be paid in equal monthly installments, on or before the
first day of each and every calendar month during the Lease Term, in advance,
without notice or demand and, except as set forth in this Lease, without
abatement, deduction or set-off. The Annual Basic Rent for the first full month
of the Lease Term shall be paid upon execution of this Lease. Notwithstanding
the foregoing, Landlord acknowledges that Tenant has previously paid to Landlord
the sum of Seven Thousand Seven Hundred Sixty Four and No/100 Dollars
($7,764.00) in connection with this Lease, which amount Landlord and Tenant
agree shall be applied to the first monthly payment of Annual Basic Rent due and
payable by Tenant. If the Commencement Date is other than the first day of a
calendar month, the payment for the partial month following the Commencement
Date shall be prorated and shall be payable on the first day of the first full
calendar month of the Lease Term. All payments requiring proration shall be
prorated on the basis of a thirty (30) day month. In addition, all payments to
be made under this Lease shall be paid in lawful money of the United States of
America to Landlord or its agent at the address set forth in Article 0 above, or
to such other person or at such other place as Landlord may from time to time
designate in writing.
5.2 Rent Tax. In addition to the Annual Basic Rent and Additional Rent,
Tenant shall pay to Landlord, together with the monthly installments of Annual
Basic Rent and payments of Additional Rent, an amount equal to any governmental
taxes, including, without limitation, any sales, rental, occupancy, excise, use
or transactional privilege taxes assessed or levied upon Landlord with respect
to the amounts paid by Tenant to Landlord hereunder, as well as all taxes
assessed or imposed upon Landlord's gross receipts or gross income from leasing
the Leased Premises to Tenant, including, without limitation, transaction
privilege taxes, education excise taxes, any tax now or hereafter imposed by the
City of Phoenix, the State of Arizona, any other governmental body, and any
taxes assessed or imposed in lieu of or in substitution of any of the foregoing
taxes. Such taxes shall not, however, include any franchise, gift, estate,
inheritance, conveyance, transfer or net income tax assessed against Landlord.
5.3 Additional Rent. In addition to Annual Basic Rent, all other amounts
to be paid by Tenant to Landlord pursuant to this Lease (including amounts to be
paid by Tenant pursuant to Article 0 below and parking charges to be paid by
Tenant pursuant to Exhibits "E", and "G"), if any, shall be deemed to be
Additional Rent, whether or not designated as such, and shall be due and payable
within fifteen (15) days after receipt by Tenant of Landlord's statement.
Landlord shall have the same remedies for the failure to pay Additional Rent as
for the nonpayment of Annual Basic Rent.
6. OPERATING COSTS
6.1 Tenant's Obligation. The Annual Basic Rent does not include amounts
attributable to any increase in the amount of Taxes (defined below) or amounts
attributable to any increase in the cost of the use, management, repair,
service, insurance, condition, operation and maintenance of the Building and the
Project. Therefore, in order that the Annual Basic Rent payable throughout the
Lease Term shall reflect any such increases, Tenant shall pay to Landlord, in
accordance with the further provisions of this Article 0, an amount per rentable
square foot of the Leased Premises equal to the difference between the Operating
Costs (as hereinafter defined) per rentable square foot and the Base Year Costs.
Tenant acknowledges that the Base Year Costs do not constitute a representation
by Landlord as to the Operating Costs per rentable square foot that may be
incurred during any subsequent calendar year.
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6.2 Landlord's Estimate. Landlord shall furnish Tenant its reasonable good
faith estimate of the Operating Costs per rentable square foot for each calendar
year commencing with the Commencement Date. In addition, Landlord may, annually,
furnish Tenant a revised estimate of Operating Costs should Landlord anticipate
any increase in Operating Costs from that set forth in a prior estimate.
Commencing with the first month to which an estimate applies, Tenant shall pay,
in addition to the monthly installments of Annual Basic Rent, an amount equal to
one-twelfth (1/12th) of the product of the rentable square footage of the Leased
Premises multiplied by the difference (but not less than zero (0)), if any,
between such estimate and the Base Year Costs; provided, however, if less than
ninety-five percent (95%) of the rentable area of the Building shall be occupied
by tenants during the period covered by such estimate, the estimated Operating
Costs for such period shall be, for the purposes of this Article 0, increased to
an amount reasonably determined by Landlord to be equivalent to the Operating
Costs that would be incurred if occupancy would be at least ninety-five percent
(95%) during the entire period. Within one hundred twenty (120) days after the
expiration of each calendar year, Landlord shall deliver to Tenant a statement
of the actual Operating Costs for such calendar year. If the actual Operating
Costs for such calendar year are more or less than the estimated Operating
Costs, a proper adjustment shall be made; provided, however, if less than
ninety-five percent (95%) of the rentable area of the Building shall have been
occupied by tenants at any time during such period, the actual Operating Costs
for such period shall be, for the purposes of this Article 0, increased to an
amount reasonably determined by Landlord, by applying generally accepted
accounting principles, consistently applied, to be equivalent to the Operating
Costs that would have been incurred had such occupancy been at least ninety-five
(95%) during the entire period. Any excess amounts paid by Tenant shall be
refunded to Tenant with such statement. Any deficiency between the estimated and
actual Operating Costs shall be paid by Tenant to Landlord concurrently with the
monthly installment of Annual Basic Rent next due. Any amount owing for a
fractional calendar year in the first or final Lease Years of the Lease Term
shall be prorated.
6.3 Operating Costs - Defined. For the purposes of this Lease, "Operating
Costs" shall mean all costs and expenses accrued, paid or incurred by Landlord,
or on Landlord's behalf, in respect of the use, management, repair, service,
insurance, condition, operation and maintenance of the Project including, but
not limited to the following:
(a) Salaries, wages and benefits of all persons who perform duties
in connection with landscaping, janitorial and general cleaning services,
security services and any and all other employees engaged by or on behalf of
Landlord;
(b) Payroll taxes, workmen's compensation, uniforms and related
expenses for such employees;
(c) The cost of all charges for oil, gas, steam, electricity, any
alternate source of energy, heat, ventilation, air-conditioning, refrigeration,
water, sewer service, trash collection, pest control and all other utilities,
together with any taxes on such utilities;
(d) The cost of painting the Building Common Areas;
(e) The cost of all charges for rent, casualty, liability, fidelity
and other insurance maintained by Landlord, including any deductible amounts
incurred with respect to an insured loss;
(f) The cost of all supplies (including cleaning supplies), tools,
materials, equipment and personal property, the rental thereof and sales,
transaction privilege, excise and other taxes thereon;
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(g) Depreciation of hand tools and other moveable equipment;
(h) The cost of all charges for window and other cleaning,
janitorial, security, refuse, lot sweeping and pest control services;
(i) The cost of charges for independent contractors;
(j) The cost of repairs and replacements made by Landlord at its
expense and the fees and other charges for maintenance and service agreements;
(k) The cost of exterior and interior landscaping;
(l) Costs relating to the operation and maintenance of all real
property and improvements appurtenant to the Project, including, without
limitation, all parking areas, service areas, walkways and landscaping;
(m) The cost of alterations and improvements made by reason of the
laws and requirements of any public authorities or the requirements of insurance
bodies imposed after the Commencement Date, unless such alterations and
improvements are due to Landlord's failure to construct the Building and/or
Project in compliance with such requirements and provided that any such costs
shall be amortized with interest over the useful life of the alteration or
improvement;
(n) All management fees and other charges for management services
and overhead costs (excluding travel and related expenses), whether provided by
an independent management company, Landlord or an affiliate of Landlord, not to
exceed, however, the then prevailing range of rates charged in comparable office
buildings in the Phoenix, Arizona metropolitan area;
(o) The cost of any capital improvements or additions which improve
the comfort available to tenants of the Project, provided, however, that any
such costs shall be amortized with interest over the useful life of the
improvement or addition and such improvements shall be approved by tenants
leasing a majority of the square footage of the Building;
(p) The cost of any capital improvements or additions which are
intended to enhance the safety of the Project (unless such improvements or
additions are due to Landlord's failure to construct the Building and/or Project
in compliance with applicable safety requirements) or reduce (or avoid increases
in) Operating Costs, provided, however, that any such costs shall be amortized
with interest over the useful life of the improvement or addition;
(q) The cost of licenses and permits, inspection fees and reasonable
legal, accounting and other professional fees and expenses;
(r) Taxes (as hereinafter defined);
(s) Costs relating to the use, management, repair, service,
insurance, condition, operation and maintenance of the Project Common Areas in
an amount equal to a fraction, the numerator of which is the rentable square
footage of the Building and the denominator of which is the rentable square
footage of all buildings in the Project;
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(t) Costs of monitoring and maintaining good internal air quality in
the Building and regularly inspecting, monitoring, maintaining and repairing the
Building's air quality systems, hiring outside consultants to investigate and
identify the sources of any suspected internal air quality problems that may be
identified, remedying any such problems, modifying, renovating or encapsulating
any portion of the Building, or systems or components thereof reasonably
required in order to continuously and efficiently maintain reasonably acceptable
internal air quality in the Building and comply with any and all local, state
and federal regulations, or real estate industry standards relating to internal
air quality;
(u) Costs of operating and maintaining an on-site property
management office; and
(v) All other charges properly allocable to the use, management,
repair, service, insurance, operation and maintenance of the Project in
accordance with generally accepted accounting principles.
6.4 Operating Costs - Exclusions. Excluded from Operating Costs shall be
the following: (a) depreciation, except to the extent expressly included
pursuant to Article 0 above; (b) interest on and amortization of debts, except
to the extent expressly included pursuant to Article 0 above; (c) leasehold
improvements, including redecorating made for tenants of the Building; (d)
brokerage commissions and advertising expenses for procuring tenants for the
Building or the Property; (e) refinancing costs; (f) the cost of any repair,
replacement or addition which would be required to be capitalized under general
accepted accounting principles, except to the extent expressly included pursuant
to Article 0 above; (g) the cost of any item included in Operating Costs under
Article 0 above to the extent that such cost is reimbursed or paid directly by
an insurance company, condemnor, a tenant of the Project or any other party; (h)
the cost of any item included in Operating Costs under Article 0 above to the
extent that such cost is attributable solely to the use, management, repair,
service, insurance, condition, operation or maintenance of other office
buildings in the Project; (i) the cost of any item included in Operating Costs
under Article 0 above to the extent that such cost is attributable solely to the
use, management, repair, service, insurance, condition, operation or maintenance
of the Project Common Areas, to the extent such cost is paid by tenants of other
office buildings in the Project; (j) expenses incurred by Landlord to resolve
disputes, enforce or negotiate lease terms with prospective or existing tenants
or in connection with any financing, sale or syndication of the Project; (k)
costs, penalties or fines incurred by Landlord due to Landlord's violation of
any federal, state, or local law or regulation except as set forth in Article
6.3(m), (l) any interest or penalties due to late payment by Landlord of any of
the Operating Costs, except to the extent such interest on penalty is caused by
Tenant's failure to comply with any of Tenant's obligations under the Lease; (m)
expenses for any item or service not provided to Tenant but provided exclusively
to certain other tenants in the Building; (n) salaries of employees above the
grade of building superintendent or building manager; (o) Landlord's general
corporate overhead and administrative expenses except as set forth in Articles
6.3(a), (b), (n) and (u); and (p) fees paid to affiliates of Landlord in excess
of the fair market value of such services provided in exchange therefore.
6.5 Taxes - Defined. For the purposes of this Lease, "Taxes" shall mean
and include all real property taxes and personal property taxes, general and
special assessments, foreseen as well as unforeseen, which are levied or
assessed upon or with respect to the Project, any improvements, fixtures,
equipment and other property of Landlord, real or personal, located on the
Project and used in connection with the operation of all or any portion of the
Project, as well as any tax, surcharge or assessment which shall be levied or
assessed in addition to or in lieu of such real or personal property taxes and
assessments. Taxes shall also include any expenses incurred by Landlord in
contesting the amount or validity of any real or personal property taxes and
assessments. Taxes shall not, however, include any franchise, gift, estate,
inheritance, conveyance, transfer or income tax assessed against Landlord.
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6.6 Waiver. The failure by Landlord to furnish Tenant with a statement of
Operating Costs within two (2) years after the date such statement is due shall
constitute a waiver by Landlord of its right to require Tenant to pay excess
Operating Costs per rentable square foot. The failure by Tenant to complete the
inspection permitted in Article 0 below within two (2) years after receipt by
Tenant of a statement of Operating Costs shall be deemed a waiver of Tenant's
right to require Landlord to refund to Tenant any overpayment by Tenant of
Operating Costs paid pursuant to such statement.
6.7 Inspection Rights. Landlord shall, if requested by Tenant, furnish
Tenant any and all reasonable backup information and documentation pertaining to
any component Operating Costs. Tenant or its authorized agent shall have the
right, within two (2) years after receipt of Landlord's itemized statement of
Operating Costs, upon ten (10) days prior written notice to Landlord, to
inspect, at Landlord's main accounting offices, Landlord's books and records
regarding Operating Costs. Landlord agrees to maintain its books and records at
its main accounting offices for a minimum of two (2) years following the
expiration of each accounting year to which such books and records pertain. In
the event Tenant's audit shall disclose that Landlord has overstated Tenant's
pro rata share of Operating Costs by three percent (3%) or more during any two
(2) accounting years, then Landlord shall pay for the reasonable costs of the
audit. Any refund due Tenant shall be payable in any event.
7. CONDITION, REPAIRS AND ALTERATIONS
7.1 Condition. The respective obligations of Landlord and Tenant with
respect to the condition of the Leased Premises are set forth on Exhibit H to
this Lease.
7.2 Alterations and Improvements. Tenant may place partitions and fixtures
and may make improvements and other alterations to the interior of the Leased
Premises at Tenant's expense, provided, however, that prior to commencing any
structural work or any other work costing in excess of Twenty Thousand and
No/100 Dollars ($20,000.00), Tenant shall first obtain the written consent of
Landlord to the proposed work, including the plans, specifications, the proposed
architect and/or contractor(s) for such alterations and/or improvements and the
materials used in connection with such alterations, including, without
limitation, paint, carpeting, wall or window coverings and the use of carpet
glues and other chemicals for installation of such materials. At least ten (10)
days prior to the commencement of any construction in the Leased Premises,
Tenant shall deliver to Landlord copies of the plans and specifications for the
contemplated work and shall identify the contractor(s) selected by Tenant to
perform such work. Landlord may, as a condition to consenting to such work,
require that Tenant provide security adequate in Landlord's judgment so that the
improvements or other alterations to the Leased Premises will be completed in a
good, workmanlike and lien free manner. All such improvements or alterations
must conform to and be in substantial accordance in quality and appearance with
the quality and appearance of the improvements in the remainder of the Building.
All such improvements shall be the property of Landlord, unless otherwise agreed
to in writing by Landlord. Prior to the commencement of such work, Tenant shall
provide Landlord with evidence that Tenant's contractor has procured worker's
compensation, liability and property damage insurance (naming Landlord as an
additional insured) in a form and in an amount approved by Landlord, and
evidence that Tenant's architect and/or contractor has procured the necessary
permits, certificates and approvals from the appropriate governmental
authorities. Tenant acknowledges and agrees that any review by Landlord of
Tenant's plans and specifications and/or right of approval exercised by Landlord
with respect to Tenant's architect and/or contractor is for Landlord's benefit
only and Landlord shall not, by virtue of such review or right of approval, be
deemed to make any representation, warranty or acknowledgment to Tenant or to
any other person or
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entity as to the adequacy of Tenant's plans and specifications or as to the
ability, capability or reputation of Tenant's architect and/or contractor.
7.3 Tenant's Obligations. Tenant shall, at Tenant's sole cost and expense,
maintain the Leased Premises in a clean, neat and sanitary condition and shall
keep the Leased Premises and every part thereof in good condition and repair
except where the same is required to be done by Landlord. Tenant hereby waives
all rights to make repairs at the expense of Landlord as provided by any law,
statute or ordinance now or hereafter in effect. All of Tenant's alterations
and/or improvements are the property of the Landlord, unless otherwise agreed to
in writing by Landlord, and Tenant shall, upon the expiration or earlier
termination of the Lease Term, surrender the Leased Premises, including Tenant's
alterations and/or improvements, to Landlord, janitorial clean and in the same
condition as when received, ordinary wear and tear excepted. Except as set forth
in Article 0 below, Landlord has no obligation to construct, remodel, improve,
repair, decorate or paint the Leased Premises or any improvement thereon or part
thereof. Tenant shall pay for the cost of all repairs to the Leased Premises not
required to be made by Landlord and shall be responsible for any redecorating,
remodeling, alteration and painting during the Lease Term as Tenant deems
necessary. Tenant shall pay for any repairs to the Leased Premises, the
Building, the Property and/or the Project made necessary by any negligence or
carelessness of Tenant, its employees or invitees.
7.4 Landlord's Obligations. Landlord shall (a) make all necessary repairs
to the exterior walls, exterior doors, windows and corridors of the Building and
Building Common Areas, (b) keep the Building, the Building Common Areas and the
Project Common Area in a clean, neat and attractive condition, and (c) keep the
Building equipment such as elevators, plumbing, heating, air conditioning and
similar Building equipment in good repair, but Landlord shall not be liable or
responsible for breakdowns or interruptions in service when reasonable efforts
are made to restore such service.
7.5 Removal of Alterations. Upon the expiration or earlier termination of
this Lease, Tenant shall remove from the Leased Premises all movable trade
fixtures and other movable personal property, and shall promptly repair any
damage to the Leased Premises, the Building, the Property and/or the Project
caused by such removal. All such removal and repair shall be entirely at
Tenant's sole cost and expense. Immediately upon any termination of this Lease,
Landlord may require that Tenant remove from the Leased Premises any
alterations, additions, improvements, trade fixtures, equipment, shelving,
cabinet units or movable furniture (and other personal property) designated by
Landlord to be removed provided that Landlord shall have advised Tenant in
Landlord's written consent to such alteration or improvement that Tenant may be
required to remove the alteration or improvement upon the expiration or earlier
termination of this Lease. In such event, Tenant shall, in accordance with the
provisions of Article 0 above, complete such removal (including the repair of
any damage caused thereby) entirely at its own expense and within fifteen (15)
days after notice from Landlord. All repairs required of Tenant pursuant to the
provisions of this Article 0 shall be performed in a manner satisfactory to
Landlord, and shall include, but not be limited to, repairing plumbing,
electrical wiring and holes in walls, restoring damaged floor and/or ceiling
tiles, repairing any other cosmetic damage, and cleaning the Leased Premises.
7.6 No Abatement. Tenant's covenants and obligations under this Lease,
including without limitation, Tenant's obligation to pay Annual Basic Rent and
Additional Rent, shall not be reduced or abated in any manner whatsoever by
reason of any inconvenience, annoyance, interruption or injury to business
arising from Landlord's making any repairs or changes which Landlord is required
or permitted to make pursuant to the terms of this Lease or by any other
tenant's Lease or are required by law to be made in and to any portion of the
Leased Premises, the Building, the Property or the Project. Landlord shall,
nevertheless, use reasonable efforts to minimize any interference with Tenant's
business in the Leased Premises.
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8. SERVICES
8.1 Climate Control. Landlord shall provide reasonable climate control to
the Leased Premises during the Building Hours as is suitable for the comfortable
use and occupation of the Leased Premises, excluding, however, air conditioning
or heating for electronic data processing or other equipment requiring
extraordinary climate control.
8.2 Janitorial and Other Services. Landlord shall make janitorial and
cleaning services available to the Leased Premises as set forth in Exhibit "K"
at least five (5) evenings per week, except recognized federal, state or local
holidays. Tenant shall pay to Landlord, within five (5) days after receipt of
Landlord's bill, the reasonable costs incurred by Landlord for extra cleaning in
the Leased Premises required because of (a) misuse or neglect on the part of
Tenant, its employees or invitees, (b) use of portions of the Leased Premises
for special purposes requiring greater or more difficult cleaning work than
office areas, (c) interior glass partitions or unusual quantities of glass
surfaces, (d) non-building standard materials or finishes installed by Tenant or
at its request, and (e) removal from the Leased Premises of refuse and rubbish
of Tenant in excess of that ordinarily accumulated in general office occupancy
or at times other than Landlord's standard cleaning times. Landlord shall also
furnish elevator service during the Building Hours to be used by Tenant in
common with others. At least one elevator shall remain in service during all
other hours. Landlord shall make day porter service available to Tenant in
common with others as typically available in comparable office buildings in the
Phoenix, Arizona metropolitan area.
8.3 Electricity. Landlord shall, at all times, furnish reasonable amounts
of electric current as required for normal and usual lighting purposes and for
office machines and equipment such as personal computers, typewriters, adding
machines, copying machines, calculators and similar machines and equipment
normally utilized in general office use. Tenant's use of electric energy in the
Leased Premises shall not at any time exceed the capacity of any of the risers,
piping, electrical conductors and other equipment in or serving the Leased
Premises. In order to insure that such capacity is not exceeded and to avert any
possible adverse effect on the Building's electric system, Tenant shall not,
without Landlord's prior written consent in each instance, connect appliances,
machines using current in excess of 120 volts or heavy-duty equipment other than
ordinary office equipment to the Building's electric system or make any
alterations or additions to the Building's electric system. Should Landlord
grant such consent, all additional risers, piping and electrical conductors and
other equipment therefor shall be provided by Landlord and the cost thereof
shall be paid by Tenant within thirty (30) days after receipt of Landlord's
bill.
8.4 Water. Landlord shall furnish cold and heated water for drinking and
lavatory purposes to the Building Common Areas and the Leased Premises (but only
to the extent described in the Tenant Improvement Plans). Cost of water used in
the Leased Premises shall be paid by Tenant.
8.5 Light Bulbs. Landlord shall perform such replacement of lamps,
fluorescent tubes and lamp ballasts in the Leased Premises and in the Building
as may be required from time to time. If the lighting fixtures in the Leased
Premises are other than those furnished at the beginning of the Lease Term,
Tenant shall pay Landlord's charge for replacing the lamps, lamp ballasts and
fluorescent tubes in such lighting fixtures within ten (10) days after receipt
of Landlord's bill.
8.6 Heat Generating Equipment. Whenever heat generating machines or
equipment used in the Leased Premises affect the temperature otherwise
maintained by the climate control system (as determined by an engineer
reasonably acceptable to both Landlord and Tenant), Landlord shall have the
right to install
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supplementary air-conditioning units in the Leased Premises and the cost
thereof, including the cost of installation, operation and maintenance shall be
paid by Tenant to Landlord within thirty (30) days after receipt by Tenant of
Landlord's statement.
8.7 Separate Meters. Landlord may install separate meters for the Leased
Premises to register the usage of all or any one of the utilities serving the
Leased Premises at Landlord's sole cost and expense (subject to reimbursement as
an Operating Cost) and in such event, Tenant shall pay for the actual cost of
utility usage as metered (a) during other than Building Hours, or (b) which is
in excess of that usage customary for general office use within the Building.
8.8 Additional Services. Tenant shall pay to Landlord, monthly as billed,
as Additional Rent, Landlord's actual cost for services furnished by Landlord to
Tenant in excess of that agreed to be furnished by Landlord pursuant to this
Article 0, including, but not limited to (a) any utility services utilized by
Tenant during other than Building Hours or for computers, data processing
equipment or other electrical equipment in excess of the amounts of electric
current used for general office use within the Project, and (b) climate control
in excess of that agreed to be furnished by Landlord pursuant to Article 0 above
or provided at times other than Building Hours. In the event that Landlord shall
not have installed separate meters, Landlord shall bill Tenant for such climate
control services at an initial rate of Five and No/100 Dollars ($5.00) per hour,
per zone of the Leased Premises.
8.9 Interruptions in Service. Landlord does not warrant that any of the
foregoing services or any other services which Landlord may supply will be free
from interruption. Tenant acknowledges that any one or more of such services may
be suspended by reason of accident, repairs, inspections, alterations or
improvements necessary to be made, or by strikes or lockouts, or by reason of
operation of law, or by causes beyond the reasonable control of Landlord.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of Annual Basic Rent or Additional Rent by reason of any
disruption of the services to be provided by Landlord pursuant to this Lease
unless (i) the cause of the disruption is within Landlord's reasonable control
and is due to Landlord's negligence; and (ii) such disruption has a material
adverse effect on Tenant's business; and (iii) such disruption continues for
three (3) consecutive business days.
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9. LIABILITY AND PROPERTY INSURANCE
9.1 Liability Insurance. Tenant shall, during the Lease Term, keep in full
force and effect, a policy or policies of commercial general liability insurance
for personal injury (including wrongful death) and damage to property covering
(a) any occurrence in the Leased Premises, (b) any act or omission by Tenant, by
any subtenant of Tenant, or by any of their respective invitees, agents,
servants or employees anywhere in the Leased Premises or the Project, (c) the
business operated by Tenant and by any subtenant of Tenant in the Leased
Premises, and (d) the contractual liability of Tenant to Landlord pursuant to
the indemnification provisions of Article 0 below, which coverage shall not be
less than One Million and No/100 Dollars ($1,000,000.00) per occurrence and Two
Million and No/100 Dollars ($2,000,000.00) combined single limit. If Landlord
shall so request, Tenant shall increase the amount of such liability insurance
to the amount then customary for premises and uses similar to the Leased
Premises and Tenant's use thereof. The liability policy or policies shall
contain an endorsement naming Landlord, its partners or members (as applicable),
Landlord's lender and management agent and any persons, firms or corporations
designated by Landlord in written notice to Tenant as additional insureds, and
shall provide that the insurance carrier shall have the duty to defend and/or
settle any legal proceeding filed against Landlord seeking damages based upon
bodily injury or property damage liability even if any of the allegations of
such legal proceedings are groundless, false or fraudulent.
9.2 Property Insurance. Tenant shall, during the Lease Term, keep in full
force and effect, a policy or policies of insurance with "Special Form
Coverage," including coverage for vandalism or malicious mischief, insuring the
Tenant Improvements as defined on Exhibit H hereto and Tenant's alterations
and/or improvements made pursuant to Article 0 above and Tenant's stock in
trade, furniture, personal property, fixtures, equipment and other items in the
Leased Premises, with coverage in an amount equal to the full replacement cost
thereof.
9.3 Worker's Compensation Insurance. Tenant shall, during the Lease Term,
keep in full force and effect, a policy or policies of worker's compensation
insurance with an insurance carrier and in amounts approved by the Industrial
Commission of the State of Arizona.
9.4 Business Interruption Insurance. Tenant shall, during the Lease Term,
keep in full force and effect, a policy or policies of business interruption
insurance in an amount equal to twelve (12) monthly installments of Annual Basic
Rent and Additional Rent payable to Landlord, together with the taxes thereon,
insuring Tenant against losses sustained by Tenant as a result of any cessation
or interruption of Tenant's business in the Leased Premises for any reason.
9.5 Insurance Requirements. Each insurance policy and certificate thereof
obtained by Tenant pursuant to this Lease shall contain a clause that the
insurer will provide Landlord, its partners and any persons, firms or
corporations designated by Landlord with at least thirty (30) days prior written
notice of any material change, non-renewal or cancellation of the policy. Each
such insurance policy shall be with an insurance company authorized to do
business in the State of Arizona and reasonably acceptable to Landlord.
Certified copies of all insurance policies evidencing the coverage under each
such policy, as well as a certified copy of the required additional insured
endorsement(s) shall be delivered to Landlord prior to commencement of the Lease
Term. Each such policy shall provide that any loss payable thereunder shall be
payable notwithstanding (a) any act, omission or neglect by Tenant or by any
subtenant of Tenant, or (b) any occupation or use of the Leased Premises or any
portion thereof by Tenant or by any subtenant of Tenant for purposes more
hazardous than permitted by the terms of such policy or policies, or (c) any
foreclosure or other action or proceeding taken by any mortgagee or trustee
pursuant to any provision of any mortgage or
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deed of trust covering the Leased Premises, the Building, the Property or the
Project, or (d) any change in title or ownership of the Property. All insurance
policies required pursuant to this Article 0 shall be written as primary
policies, not contributing with or in excess of any coverage which Landlord may
carry. Tenant shall procure and maintain all policies entirely at its own
expense and shall, at least twenty (20) days prior to the expiration of such
policies, furnish Landlord with certified copies of replacement policies or
renewal certificates for existing policies in conformance with Accord Form No.
27 (March 1993). Tenant shall not do or permit to be done anything which shall
invalidate the insurance policies maintained by Landlord or the insurance
policies required pursuant to this Article 0 or the coverage thereunder. If
Tenant or any subtenant of Tenant does or permits to be done anything which
shall increase the cost of any insurance policies maintained by Landlord, then
Tenant shall reimburse Landlord for any additional premiums attributable to any
act or omission or operation of Tenant or any subtenant of Tenant causing such
increase in the cost of insurance. Any such amount shall be payable as
Additional Rent within five (5) days after receipt by Tenant of a bill from
Landlord. All policies of insurance shall name both Landlord and Tenant (and/or
such other party or parties as Landlord may require) as insureds and shall be
endorsed to indicate that the coverage provided shall not be invalid due to any
act or omission on the part of Landlord.
9.6 Co-Insurance. If on account of the failure of Tenant to comply with
the provisions of this Article 0, Landlord is deemed a co-insurer by its
insurance carrier, then any loss or damage which Landlord shall sustain by
reason thereof shall be borne by Tenant, and shall be paid by Tenant within five
(5) days after receipt of a bill therefor.
9.7 Adequacy of Insurance. Landlord makes no representation or warranty to
Tenant that the amount of insurance to be carried by Tenant under the terms of
this Lease is adequate to fully protect Tenant's interests. If Tenant believes
that the amount of any such insurance is insufficient, Tenant is encouraged to
obtain, at its sole cost and expense, such additional insurance as Tenant may
deem desirable or adequate. Tenant acknowledges that Landlord shall not, by the
fact of approving, disapproving, waiving, accepting, or obtaining any insurance,
incur any liability for or with respect to the amount of insurance carried, the
form or legal sufficiency of such insurance, the solvency of any insurance
companies or the payment or defense of any lawsuit in connection with such
insurance coverage, and Tenant hereby expressly assumes full responsibility
therefor and all liability, if any, with respect thereto.
9.8 Self-Insurance. Tenant shall have the right to self-insure for the
liability insurance, the property insurance and the business interruption
insurance required by Articles 0, 0 and 9.4, respectively, subject to the
requirements of this Article 0:
(a) For purposes of this Article 0, "self-insurance" shall mean that
Tenant is itself acting as though it were the insurance company providing the
insurance required under the provisions of this Article 0 and Tenant shall pay
any amounts due in lieu of insurance proceeds as required under the provisions
of this Lease, which amounts shall be treated as insurance proceeds for all
purposes under this Lease.
(b) All amounts which Tenant pays or is required to pay and all
losses or damages resulting from risks for which Tenant has elected to
self-insure shall be subject to the waiver of subrogation provisions in Article
0 below and shall not limit Tenant's indemnification obligations set forth in
Article 0 below.
(c) Tenant's right to self-insure and to continue to self-insure is
conditioned upon and subject to:
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(i) The Tenant having a net worth, calculated in accordance
with generally accepted accounting principles, consistently applied, of at least
One Hundred Million Dollars ($100,000,000.00).
(ii) The Tenant providing an audited financial statement,
prepared in accordance with generally accepted accounting principles,
consistently applied, to Landlord on or before the date which is thirty (30)
days prior to the upcoming annual anniversary of the Commencement Date which
establishes and confirms that Tenant has the required net worth, unless events
occur that make it apparent that such net worth has diminished below the
required level (such as the bankruptcy of Tenant), in which event Tenant shall
not be permitted to continue to self-insure; and
(iii) The Tenant maintaining appropriate loss reserves which
are actuarially derived in accordance with accepted standards of the insurance
industry and accrued (i.e., charged against earnings) or otherwise funded.
(d) In the event that Tenant elects to self-insure and an event or
claim occurs for which a defense and/or coverage would have been available from
the insurance company Tenant shall:
(i) undertake the defense of any such claim, including a
defense of Landlord, at Tenant's sole cost and expense, and
(ii) use its own funds to pay any claim or replace any
property or otherwise provide the funding which would have been available from
insurance proceeds but for such election by Tenant to self-insure.
(e) In the event Tenant has the right and elects that it will not
operate its business in the Leased Premises after the Leased Premises are
damaged or destroyed, Landlord shall have the right to determine that the
self-insurance proceeds either be paid to Landlord:
(i) for restoration of the Leased Premises in accordance with
Article 0 below and Tenant's liability and obligations under this Lease shall
continue in full force and effect, or
(ii) to terminate this Lease in accordance with the provisions
of Article 0 below.
(f) Tenant shall provide Landlord and Superior Mortgagee (defined
below) or Superior Lessor (defined below) with certificates of self-insurance
specifying the extent of self-insurance coverage hereunder and containing a
waiver of subrogation provision reasonably satisfactory to Landlord. Any
insurance coverage provided by Tenant shall be for the benefit of Landlord, the
Superior Mortgagee and the Superior Lessor as their respective interests may
appear.
9.9 Landlord's Insurance.
(a) Landlord, shall, at all times from and after the Commencement
Date, as a component of Operating Expenses, maintain in effect commercial
general liability insurance covering (a) any occurrence in the Project (other
than within the Leased Premises), (b) any act or omission by Landlord, or its
agent, servants, contractors or employees, anywhere in the Project (other than
within the Leased Premises), and (c) the contractual liability of Landlord to
Tenant pursuant to the indemnification provisions of Article 17.1
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below, which coverage shall not be less than Two Million and No/100 Dollars
($2,000,000.00), combined single limit, per occurrence.
(b) Landlord shall, at all times from and after the Commencement
Date, maintain in effect a policy or policies of "Special Risk" or "Special
Peril" insurance insuring the Building with coverage in an amount not less than
ninety percent (90%) of the replacement cost thereof (exclusive of the cost of
excavations, foundations and footings) from time to time during the Lease Term.
Landlord reserves the right to maintain a reasonable deductible in connection
with such insurance.
(c) Landlord's obligation to carry the insurance required in this
Article 0 may be brought within the coverage of any so called blanket policy or
policies of insurance carried and maintained by Landlord, provided that the
coverage afforded will not be reduced or diminished by reason of the use of such
blanket policy of insurance. Landlord shall have the right to self-insure for
the liability and casualty insurance required by Article 9.9(a) and (b),
provided that Landlord shall have a net worth, calculated in accordance with the
generally accepted accounting principles, consistently applied, of at least One
Hundred Million and No/100 Dollars ($100,000,000.00). In the event that Landlord
elects to self-insure in accordance with the provisions of this Article 9.9(c),
Landlord shall give Tenant written notice of such election, accompanied by
appropriate evidence demonstrating that Landlord is entitled to self-ensure in
accordance with the provisions of this Article 9.9(c).
10. RECONSTRUCTION
10.1 Insured Damage. In the event the Leased Premises are damaged during
the Lease Term by fire or other perils covered by Landlord's insurance, Landlord
shall:
(a) Subject to Force Majeure, within a period of ninety (90) days
after receipt by Landlord of insurance proceeds and the adjustment of the loss
with the Superior Mortgagee and/or the Superior Lessor, as the case may be, and
its insurer, and provided there is not then in existence of an Event of Default,
commence repair, reconstruction and restoration of the Leased Premises and
prosecute the same diligently to completion, in which event this Lease shall
continue in full force and effect.
(b) (i) In the event of a partial or total destruction of either the
Leased Premises, the Building, or the Project during the last two (2) years of
the Lease Term, Landlord shall have the option to terminate this Lease upon
giving written notice to Tenant within sixty (60) days after such destruction.
For purposes of this Article 0, "partial destruction" shall be deemed
destruction to an extent of at least thirty-three and one-third percent (33.33%)
of the then full replacement cost of the Leased Premises, the Building, or the
Project as of the date of destruction.
(ii) In the event of a partial or total destruction of either
the Leased Premises or the Building during the last two (2) years of the Lease
Term, Tenant shall have the option to terminate this Lease upon giving written
notice to Landlord within sixty (60) days after such destruction. For purposes
of this Article 0, "partial destruction" shall be deemed destruction to an
extent of at least thirty-three and one-third percent (33.33%) of the then full
replacement cost of the Leased Premises or the Building as of the date of
destruction.
(c) In the event that Superior Mortgagee shall require that
insurance proceeds be applied against the principal balance due on the Superior
Mortgage (defined below), then Landlord may, at Landlord's option and upon one
hundred twenty (120) days written notice to Tenant, elect to terminate this
Lease.
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10.2 Uninsured Damage. In the event the Leased Premises, the Building or
the Project shall be damaged as a result of any casualty not covered by
Landlord's insurance, to any extent whatsoever, Landlord may, subject to Force
Majeure, within ninety (90) days following the date of the casualty, commence
repair, reconstruction or restoration of the Leased Premises, in which event
this Lease shall continue in full force and effect, or within such ninety (90)
day period elect not to so repair, reconstruct or restore the Leased Premises,
the Building or the Project, as the case may be, in which event this Lease shall
cease and terminate. In either event, Landlord shall give Tenant written notice
of Landlord's intention within such ninety (90) day period.
10.3 Reconstruction. In the event of any reconstruction of the Leased
Premises, the Building or the Project pursuant to this Article 0, such
reconstruction shall be in conformity with all city, county, state and federal
ordinances, rules and regulations then in existence, as the same may be
interpreted and enforced. Notwithstanding that all reconstruction work shall be
performed by Landlord's contractor unless Landlord shall otherwise agree in
writing, Landlord's obligation to reconstruct the Leased Premises shall be only
to the comparable condition of the Leased Premises immediately prior to the
Commencement Date. Landlord's obligation to repair and reconstruct the Leased
Premises shall be limited to the amount of net proceeds of insurance received by
Landlord, subject to reduction pursuant to Article 0 above. Any extra expenses
incurred by Landlord in the reconstruction of the Leased Premises, the Building
or any other portion of the Project as a result of the violation by Tenant of
the terms and conditions set forth in Article 0 below shall be borne by Tenant.
Tenant, at Tenant's sole cost and expense, shall be responsible for the repair
and restoration of all items of the Tenant Improvements or Tenant's improvements
and/or alterations installed pursuant to Article 0 and the replacement of
Tenant's stock in trade, trade fixtures, furniture, furnishings and equipment.
Tenant shall commence the installation of fixtures, equipment and merchandise
promptly upon delivery to Tenant of possession of the Leased Premises and shall
diligently prosecute such installation to completion.
10.4 Termination. Upon any termination of this Lease under any of the
provisions of this Article 0, Landlord and Tenant each shall be released without
further obligations to the other coincident with the surrender of possession of
the Leased Premises to Landlord, except for items which have previously accrued
and remain unpaid. In the event of termination, all proceeds from Tenant's
property insurance coverage and covering the Tenant Improvements or Tenant's
improvements and/or alterations installed pursuant to Article 0 and that would,
except for the casualty, have become the property of Landlord pursuant to
Article 0, but excluding proceeds for trade fixtures, merchandise, signs and
other removable personal property, shall be disbursed and paid to Landlord.
10.5 Abatement. In the event of repair, reconstruction and restoration of
the Leased Premises, the Minimum Annual Rental and Additional Rent shall be
abated proportionately with the degree to which Tenant's use of the Leased
Premises is impaired commencing from the date of destruction and continuing
during the period of such repair, reconstruction or restoration. Tenant shall
continue the operation of Tenant's business at the Leased Premises during any
such period to the extent reasonably practicable from the standpoint of prudent
business management. Tenant shall not be entitled to any compensation or damages
from Landlord for loss of the use of the whole or any part of the Leased
Premises, or the building of which the Leased Premises are a part, Tenant's
personal property or for any inconvenience or annoyance occasioned by such
damage, repair, reconstruction or restoration.
10.6 Conflict. Landlord and Tenant acknowledge and agree that the
provisions of this Article 10 are the result of arms' length negotiations
between Landlord and Tenant and that in the event of any conflict between the
provisions of this Article 10 and any statutory or common law rights of
termination which may
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arise by reason of any partial or total destruction of the Leased Premises,
including the provisions of A.R.S. Section 33-343, the provisions of this
Article 10 shall prevail.
11. WAIVER OF SUBROGATION
Landlord and Tenant each hereby waive their respective rights and the
subrogation rights of their respective insurers against the other and any other
tenants of space in the Building, the Property or the Project, as well as their
respective members, officers, employees, agents, authorized representatives and
invitees, with respect to any claims including, but not limited to, claims for
injury to any persons, and/or damage to the Leased Premises and/or any fixtures,
equipment, personal property, furniture, improvements and/or alterations in or
to the Leased Premises, which are caused by or result from (a) risks or damages
required to be insured against under this Lease, or (b) risks and damages which
are insured against by insurance policies maintained by Tenant from time to
time. Landlord and Tenant each shall obtain for the other from their respective
insurers under each policy required by this Lease a waiver of all rights of
subrogation which such insurers of Tenant and Landlord might otherwise have
against Tenant or Landlord, as applicable.
12. LANDLORD'S RIGHT TO PERFORM TENANT OBLIGATIONS
Unless otherwise provided herein, all covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be performed by
Tenant at Tenant's sole cost and expense. If Tenant shall fail to pay any sum of
money, other than Annual Basic Rent, required to be paid by it hereunder, and
such failure shall continue for ten (10) days after notice thereof by Landlord,
or Tenant shall fail to perform any other act on its part to be performed
hereunder, and such failure shall continue for thirty (30) days after notice
thereof by Landlord, Landlord may (but shall not be obligated to do so) without
waiving or releasing Tenant from any of Tenant's obligations, make any such
payment or perform any such other act on behalf of Tenant. All sums so paid by
Landlord and all necessary incidental costs, together with interest thereon at
the greater of (a) fourteen percent (14%) per annum or (b) the rate of interest
per annum publicly announced, quoted or published, from time to time, by Bank
One, Arizona, NA, at its Phoenix, Arizona office as its "prime rate" plus four
(4) percentage points, from the date of such payment by Landlord until
reimbursement in full by Tenant (the "Default Rate"), shall be payable to
Landlord as Additional Rent with the next monthly installment of Annual Basic
Rent; provided, however, in no event shall the Default Rate exceed the maximum
rate (if any) permitted by applicable law.
13. DEFAULT AND REMEDIES
13.1 Event of Default. The occurrence of any one or more of the following
events will constitute an "Event of Default" on the part of Tenant:
(a) Failure to pay any installment of Annual Basic Rent, any
Additional Rent or any other sum required to be paid by Tenant under this Lease
when due, and such failure shall continue for seven (7) days after written
notice thereof by Landlord to Tenant;
(b) Failure to perform any of the other covenants or conditions
which Tenant is required to observe and perform (except failure in the payment
of Annual Basic Rent, Additional Rent or any other monetary obligation contained
in this Lease) and such failure shall continue for thirty (30) days (or such
shorter period of time as may be specified by Landlord in the event of an
emergency) after written notice thereof by Landlord to Tenant, provided that if
such default is other than the payment of money and cannot be
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cured within such thirty (30) day period, then an Event of Default shall not
have occurred if Tenant, within such thirty (30) day period, commences curing of
such failure and diligently in good faith prosecutes the same to completion and
furnishes evidence thereof to Landlord within thirty (30) days thereafter;
(c) If any warranty, representation or statement made by Tenant to
Landlord in connection with this Lease is or was materially false or misleading
when made or furnished;
(d) The occurrence of an Event of Default under any other agreement
between Landlord and Tenant;
(e) Intentionally Omitted;
(f) Intentionally Omitted;
(g) The levy of a writ of attachment or execution or other judicial
seizure of substantially all of Tenant's assets or its interest in this Lease,
such attachment, execution or other seizure remaining undismissed or discharged
for a period of sixty (60) days after the levy thereof;
(h) The filing of any petition by or against Tenant to declare
Tenant a bankrupt or to delay, reduce or modify Tenant's debts or obligations,
which petition is not discharged within sixty (60) days after the date of
filing;
(i) The filing of any petition or other action taken to reorganize
or modify Tenant's or any Guarantor's capital structure, which petition is not
discharged within sixty (60) days after the date of filing;
(j) If Tenant shall be declared insolvent according to law;
(k) A general assignment by Tenant for the benefit of creditors;
(l) The appointment of a receiver or trustee for Tenant or all or
any of their respective property, which appointment is not discharged within
sixty (60) days after the date of filing;
(m) The filing by Tenant of a voluntary petition pursuant to the
Bankruptcy Code or any successor thereto or the filing of an involuntary
petition against Tenant pursuant to the Bankruptcy Code or any successor
legislation, which petition is not discharged within sixty (60) days after the
date of filing; or
(n) The occurrence of an Event of Default under Articles 19.1, 0 or
0.
13.2 Remedies. Upon the occurrence of an Event of Default under this Lease
by Tenant, Landlord may, without prejudice to any other rights and remedies
available to a landlord at law, in equity or by statute, exercise one or more of
the following remedies, all of which shall be construed and held to be
cumulative and non-exclusive: (a) Terminate this Lease and re-enter and take
possession of the Leased Premises, in which event, Landlord is authorized to
make such repairs, redecorating, refurbishments or improvements to the Leased
Premises as may be necessary in the reasonable opinion of Landlord acting in
good faith for the purposes of reletting the Leased premises and the costs and
expenses incurred in respect of such repairs, redecorating and refurbishments
and the expenses of such reletting (including brokerage commissions) shall be
paid by Tenant to Landlord within five (5) days after receipt of Landlord's
statement;
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or (b) Without terminating this Lease, re-enter and take possession of the
Leased Premises; or (c) Without such re-entry, recover possession of the Leased
Premises in the manner prescribed by any statute relating to summary process,
and any demand for Annual Basic Rent, re-entry for condition broken, and any and
all notices to quit, or other formalities of any nature to which Tenant may be
entitled, are hereby specifically waived to the extent permitted by law; or (d)
Without terminating this Lease, Landlord may relet the Leased Premises as
Landlord may see fit without thereby voiding or terminating this Lease, and for
the purposes of such reletting, Landlord is authorized to make such repairs,
redecorating and refurbishments or improvements to the Leased Premises as may be
necessary in the reasonable opinion of Landlord acting in good faith for the
purpose of such reletting, and if a sufficient sum is not realized from such
reletting (after payment of all costs and expenses of such repairs, redecorating
and refurbishments and expenses of such reletting (including brokerage
commissions) and the collection of rent accruing therefrom) each month to equal
the Annual Basic Rent and Additional Rent payable hereunder, then Tenant shall
pay such deficiency each month within five (5) days after receipt of Landlord's
statement; or (e) Landlord may declare immediately due and payable the present
value of the remaining installments of Annual Basic Rent and Additional Rent
(utilizing the discount rate of the Federal Reserve Bank situated nearest to the
location of the Building at the time of Landlord's declaration plus one (1)
percentage point), and such amount, less the present value of the fair rental
value of the Leased Premises for the remainder of the Lease Term (utilizing the
discount rate of the Federal Reserve Bank situated nearest to the location of
the Building at the time of Landlord's declaration plus one (1) percentage
point) shall be paid by Tenant within five (5) days after receipt of Landlord's
statement. Landlord shall not by re-entry or any other act, be deemed to have
terminated this Lease, or the liability of Tenant for the total Annual Basic
Rent and Additional Rent reserved hereunder or for any installment thereof then
due or thereafter accruing, or for damages, unless Landlord notifies Tenant in
writing that Landlord has so elected to terminate this Lease. In no event shall
Tenant be responsible to Landlord for any special or consequential damages.
After the occurrence of an Event of Default, the acceptance of Annual Basic Rent
or Additional Rent, or the failure to re-enter by Landlord shall not be deemed
to be a waiver of Landlord's right to thereafter terminate this Lease and
exercise any other rights and remedies available to it, and Landlord may
re-enter and take possession of the Leased Premises as if no Annual Basic Rent
or Additional Rent had been accepted after the occurrence of an Event of
Default. Upon an Event of Default, Tenant shall also pay to Landlord all costs
and expenses incurred by Landlord, including court costs and attorneys' fees, in
retaking or otherwise obtaining possession of the Leased Premises, removing and
storing all equipment, fixtures and personal property on the Leased Premises and
otherwise enforcing any of Landlord's rights, remedies or recourses arising as a
result of an Event of Default.
13.3 Additional Remedies. All of the remedies given to Landlord in this
Lease in the event Tenant commits an Event of Default are in addition to all
other rights or remedies available to a landlord at law, in equity or by
statute, including, without limitation, the right to seize and sell all goods,
equipment and personal property of Tenant located in the Leased Premises and
apply the proceeds thereof to all due and unpaid Annual Basic Rent, Additional
Rent and other amounts owing under the Lease. All rights, options and remedies
available to Landlord shall be construed and held to be cumulative, and no one
of them shall be exclusive of the other.
13.4 Interest on Past Due Amounts. In addition to the late charge
described in Article 0 below, if any installment of Annual Basic Rent or
Additional Rent is not paid within thirty (30) days of the date when due, it
shall bear interest at the Default Rate; provided, however, this provision shall
not relieve Tenant from any default in the making of any payment at the time and
in the manner required by this Lease; and provided, further, in no event shall
the Default Rate exceed the maximum rate (if any) permitted by applicable law.
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13.5 Landlord Default. In the event Landlord should neglect or fail to
perform or observe any of the covenants, provisions or conditions contained in
this Lease on its part to be performed or observed, and such failure continues
for thirty (30) days after written notice of default (or if more than thirty
(30) days shall be required because of the nature of the default, if Landlord
shall fail to commence the curing of such default within such thirty (30) day
period and proceed diligently thereafter), then Landlord shall be responsible to
Tenant for any actual damages sustained by Tenant as a result of Landlord's
breach, but not special or consequential damages. Should Tenant give written
notice to Landlord to correct any default, Tenant shall give similar notice to
the holder of any mortgages or deeds of trust against the Building or the lessor
of any ground lease, and prior to any cancellation of this Lease, the holder of
such mortgage or deed of trust and/or the lessor under such ground lease shall
be given a reasonable period of time to correct or remedy such default. If and
when such holder of such mortgage or deed of trust and/or the lessor under any
such ground lease has made performance on behalf of Landlord, the default of
Landlord shall be deemed cured.
14. LATE PAYMENTS
Tenant hereby acknowledges that the late payment by Tenant to Landlord of
any monthly installment of Annual Basic Rent, any Additional Rent or any other
sums due hereunder will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult and impracticable
to ascertain. Such costs include but are not limited to processing,
administrative and accounting costs. Accordingly, if any monthly installment of
Annual Basic Rent, any Additional Rent or any other sum due from Tenant shall
not be received by Landlord within five (5) days after the date when due, Tenant
shall pay to Landlord a late charge equal to five percent (5%) of such overdue
amount or Two Hundred and No/100 Dollars ($200.00), whichever is greater. Tenant
acknowledges that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of late payments by Tenant. With respect
to any late payment by Tenant that is subject to a late charge, the acceptance
of payment in full of all amounts past due and the applicable late charge by
Landlord shall constitute a waiver of Tenant's default with respect to such
overdue amount, and shall prevent Landlord from exercising any of the other
rights and remedies available to Landlord with respect to that particular
default by Tenant. Nothing contained in this Article 0 shall be deemed to
condone, authorize, sanction or grant to Tenant an option for the late payment
of Annual Basic Rent, Additional Rent or any other sum due hereunder.
15. ABANDONMENT AND SURRENDER
15.1 Abandonment. Tenant shall not abandon the Leased Premises at any time
during the Lease Term. No act or thing done by Landlord or by any agent or
employee of Landlord during the Lease Term shall be deemed an acceptance of a
surrender of the Leased Premises unless such acceptance is expressed in writing
and duly executed by Landlord. Unless Landlord so agrees in writing, the
delivery of the key to the Leased Premises to any employee or agent of Landlord
shall not operate as a termination of this Lease or as a surrender of the Leased
Premises.
15.2 Surrender. Tenant shall, upon the expiration or earlier termination
of this Lease, peaceably surrender the Leased Premises, including any Tenant
Improvements and Tenant's improvements and/or alterations installed pursuant to
Article 0, in a janitorial clean condition and otherwise in as good condition as
when Tenant took possession, except for (i) reasonable wear and tear subsequent
to the last repair, replacement, restoration, alteration or renewal; (ii) loss
by fire or other casualty, and (iii) loss by condemnation. If Tenant shall
abandon the Leased Premises, any personal property and fixtures belonging to
Tenant and left in the Leased Premises shall be deemed abandoned and, at
Landlord's option, title shall pass to Landlord under this Lease as by a bill of
sale. Landlord may, however, if it so elects, remove all or any part
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of such personal property from the Leased Premises and the costs incurred by
Landlord in connection with such removal, including storage costs and the cost
of repairing any damage to the Leased Premises, the Building and/or the Project
caused by such removal shall be paid by Tenant within five (5) days after
receipt of Landlord's statement. Upon the expiration or earlier termination of
this Lease, Tenant shall surrender to Landlord all keys to the Leased Premises
and shall inform Landlord of the combination of any vaults, locks and safes left
on the Leased Premises. The obligations of Tenant under this Article 0 shall
survive the expiration or earlier termination of this Lease. Tenant shall
indemnify Landlord against any loss or liability resulting from delay by Tenant
in so surrendering the Premises, including, without limitation, any claims made
by any succeeding Tenant founded on such delay. Tenant shall give written notice
to Landlord at least thirty (30) days prior to vacating the Leased Premises for
the express purpose of arranging a meeting with Landlord for a joint inspection
of the Leased Premises.
16. INDEMNIFICATION AND EXCULPATION
16.1 Indemnification. Tenant shall indemnify, protect, defend and hold
Landlord harmless from and against, and shall be responsible for, all claims,
damages, losses, costs, liens, encumbrances, liabilities and expenses, including
reasonable attorneys', accountants' and investigators' fees and court costs
(collectively, the "Claims"), arising in whole or in part from Tenant's use of
all or any part of the Leased Premises, the Building and/or the Project or the
conduct of Tenant's business or from any activity, work or thing done, permitted
or suffered by Tenant or by any invitee, servant, agent, employee or subtenant
of Tenant in the Leased Premises, the Building and/or the Project, and shall
further indemnify, protect, defend and hold Landlord harmless from and against,
and shall be responsible for, all Claims arising in whole or in part from any
breach or default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease or arising in whole or in part from any
act, neglect, fault or omission by Tenant or by any invitee, servant, agent,
employee or subtenant of Tenant anywhere in the Leased Premises, the Building
and/or the Project. In case any action or proceeding is brought against Landlord
to which this indemnification shall be applicable, Tenant shall pay all Claims
resulting therefrom and shall defend such action or proceeding, if Landlord
shall so request, at Tenant's sole cost and expense, by counsel reasonably
satisfactory to Landlord. The obligations of Tenant under this Article 0 shall
survive the expiration or earlier termination of this Lease. Except for the
negligence or willful misconduct of Tenant, its employees, agents, servants,
contractors, subtenants and assignees, or a breach of this Lease by Tenant or
Tenant's employees, agents, contractors or servants, subtenants or assignees
Landlord hereby indemnifies and agrees to hold Tenant harmless for, from and
against any and all liability, claims, demands, damages, expenses, fees
(including attorney's fees), fines, penalties, suits, procedures, actions and
causes of action of any and every kind or nature which either (i) arise from, or
in connection with, any negligence or willful misconduct of the Landlord except
in connection with the Leased Premises to the extent covered by the insurance
maintained or required to be maintained by Tenant pursuant to Article 0; or (ii)
result from any default, breach, violation or non-performance of this Lease or
any provision of this Lease by Landlord.
16.2 Exculpation. Neither Landlord nor its agents or employees shall be
liable for (i) any injury or damage to persons or property resulting from any
cause, including, but not limited to, fire, explosion, falling plaster, steam,
gas, electricity, sewage, odor, noise, water or rain which may leak from any
part of the Building or from the pipes, appliances or plumbing works therein, or
from the roof of any structure on the Property or the Project, or from any
streets or subsurfaces on or adjacent to the Building, the Property or the
Project, or from any other place or resulting from dampness or any other causes
whatsoever, (ii) any defects in the Leased Premises, the Building and/or the
Project, nor shall Landlord be liable for the negligence or misconduct,
including, but not limited to, criminal acts, by maintenance or other personnel
or contractors serving the Leased Premises, the Building and/or the Project,
other tenants or third parties, unless caused by
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the negligence or wilful misconduct of Landlord, its agents or employees. All
property of Tenant kept or stored on the Project shall be so kept or stored at
the risk of Tenant only, and Tenant shall indemnify, defend and hold Landlord
harmless from and against, and shall be responsible for, any Claims arising out
of damage to the same, including subrogation claims by Tenant's insurance
carriers, unless such damage shall be caused by the willful act or gross neglect
of Landlord and through no fault of Tenant. None of the events or conditions set
forth in this Article 0 shall be deemed a constructive or actual eviction or
result in a termination of this Lease, nor shall Tenant be entitled to any
abatement or reduction of Annual Basic Rent or Additional Rent by reason
thereof. Tenant shall give prompt notice to Landlord with respect to any
defects, fires or accidents which Tenant observes in the Leased Premises, the
Building and/or the Project.
17. ENTRY BY LANDLORD
Landlord reserves and shall at any and all times have the right, with
prior notice to Tenant, to enter the Leased Premises, to inspect the same, to
supply janitorial service and other services to be provided by Landlord to
Tenant hereunder, to submit the Leased Premises to prospective purchasers or
tenants, to post notices of non-responsibility, and to alter, improve or repair
the Leased Premises and any portion of the Building of which the Leased Premises
are a part, without abatement of Annual Basic Rent or Additional Rent, and may
for that purpose erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, always
providing that access into the Leased Premises shall not be blocked thereby, and
further providing that the business of Tenant shall not be interfered with
unreasonably. For each of the aforesaid purposes, Landlord shall at all times
have and retain a key with which to unlock all the doors in, upon or about the
Leased Premises, excluding Tenant's vaults and safes, and Landlord shall have
the right to use any and all means which Landlord may deem proper to open such
doors in an emergency in order to obtain entry to the Leased Premises, and any
entry to the Leased Premises obtained by Landlord by any such means or otherwise
shall not under any circumstances be construed or deemed to be a forcible or
unlawful entry into, or a detainer of, the Leased Premises or an eviction of
Tenant from all or any portion of the Leased Premises. Nothing in this Article 0
shall be construed as obligating Landlord to perform any repairs, alterations or
maintenance except as otherwise expressly required elsewhere in this Lease.
18. SUBSTITUTE PREMISES
18.1 Relocation of Leased Premises. Landlord may, before or after the
Commencement Date, request by notice to Tenant, to substitute for the Leased
Premises other office space in the Project (the "Substitute Premises")
designated by Landlord, provided that the Substitute Premises shall contain at
least the same useable area as the Leased Premises and have a configuration
substantially similar to the Leased Premises. Tenant shall not be relocated by
Landlord without Tenant's prior written consent to such request. Landlord's
notice shall be accompanied by a plan of the Substitute Premises. In the event
that Tenant shall consent to relocation, Tenant shall vacate and surrender the
Leased Premises and shall occupy the Substitute Premises promptly (and, in any
event, not later than fifteen (15) days) after Landlord has substantially
completed the work to be performed by Landlord in the Substitute Premises
pursuant to Article 0 below. Tenant shall pay the same Annual Basic Rent and
Additional Rent with respect to the Substitute Premises as was payable with
respect to the Leased Premises. This Lease shall remain in full force and effect
and the Substitute Premises shall thereafter be deemed to be the Leased
Premises.
18.2 Compensation to Tenant. In the event Tenant shall have consented to
relocation to Substitute Premises, Tenant shall not be entitled to any
compensation for any inconvenience or interference with Tenant's business, nor
any abatement or reduction of Annual Basic Rent or Additional Rent, but Landlord
shall, at Landlord's expense perform the following:
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(a) Furnish and install in the Substitute Premises fixtures,
equipment, improvements, appurtenances and leasehold improvements at least equal
in kind and quality to those contained or to be contained in the Leased Premises
at the time such notices of substitution is given by Landlord;
(b) Provide personnel to perform, under Tenant's direction, the
moving of Tenant's personal property and trade fixtures from the Leased Premises
to the Substitute Premises;
(c) Promptly reimburse Tenant for Tenant's actual and reasonable
out-of-pocket costs incurred in connection with the relocation of any telephone
or other communications equipment from the Leased Premises to the Substitute
Premises; and
(d) Promptly reimburse Tenant for any other actual and reasonable
out-of-pocket costs incurred by Tenant in connection with Tenant's move from
Leased Premises to the Substitute Premises, provided such costs are approved by
Landlord in advance which approval shall not be unreasonably withheld.
Tenant shall cooperate with Landlord so as to facilitate the performance by
Landlord of its obligations under this Article 0 and the prompt surrender by
Tenant of the Leased Premises. Without limiting the generality of the preceding
sentence, Tenant shall provide Landlord promptly any approvals or instructions
and any plans or specifications or any other information reasonably requested by
Landlord, and Tenant shall perform promptly in the Substitute Premises any work
to be performed therein by Tenant to prepare the same for Tenant's occupancy.
19. ASSIGNMENT AND SUBLETTING
19.1 Consent of Landlord Required. Tenant shall not transfer or assign
this Lease or any right or interest hereunder, or sublet the Leased Premises or
any part thereof, without first obtaining Landlord's prior written consent,
which consent Landlord may not unreasonably withhold, delay or qualify. No
transfer or assignment (whether voluntary or involuntary, by operation of law or
otherwise) or subletting shall be valid or effective without such prior written
consent. Should Tenant attempt to make or allow to be made any such transfer,
assignment or subletting, except as aforesaid, or should any of Tenant's rights
under this Lease be sold or otherwise transferred by or under court order or
legal process or otherwise, then, and in any of the foregoing events Landlord
may, at its option, treat such act as an Event of Default by Tenant. Should
Landlord consent to a transfer, assignment or subletting, such consent shall not
constitute a waiver of any of the restrictions or prohibitions of this Article
0, and such restrictions or prohibitions shall apply to each successive
transfer, assignment or subletting hereunder, if any.
19.2 Deemed Transfers. For the purposes of this Article 0, an assignment
shall be deemed to include the following: (a) if Tenant is a partnership, a
withdrawal or change (voluntary, involuntary, by operation of law or otherwise)
of any of the partners thereof, a purported assignment, transfer, mortgage or
encumbrance (voluntary, involuntary, by operation of law or otherwise) by any
partner thereof of such partner's interest in Tenant, or the dissolution of the
partnership; (b) if Tenant consists of more than one person, a purported
assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by
operation of law or otherwise) from one person unto the other or others; (c) if
Tenant (or a constituent partner of Tenant) is a corporation, any dissolution,
merger, consolidation or reorganization of Tenant (or such constituent partner),
or any change in the ownership (voluntary, involuntary, by operation of law,
creation of new stock or otherwise) of fifty percent (50%) or more of its
capital stock from the ownership existing on the date set forth
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in Article 0 above; (d) if Tenant is an unincorporated association, a purported
assignment, transfer, mortgage or encumbrance (voluntary, involuntary, by
operation of law or otherwise) of any interest in such unincorporated
association; or (e) if Tenant is a limited liability company, a withdrawal or
change of any of the members thereof, a purported assignment, transfer, mortgage
or encumbrance (voluntary, involuntary, by operation of law or otherwise) by any
member of such member's interest in Tenant, or the dissolution of the limited
liability company; or (f) the sale of fifty percent (50%) or more in value of
the assets of Tenant. Notwithstanding the foregoing, Landlord hereby
acknowledges and consents to Tenant's right, without further approval from
Landlord but only after written notice to Landlord to sublease the Premises or
assign its interest in this Lease (i) to a corporation that directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with Tenant; (ii) in the event of the merger or
consolidation of Tenant with another corporation; (iii) in the event of a sale
or transfer of all or substantially all of the stock of Tenant or substantially
all of Tenant's assets; or (iv) in the event of a private placement by Tenant of
its shares pursuant to applicable federal and state securities acts
(collectively, the "PERMITTED TRANSFERS"). No Permitted Transfer shall relieve
Tenant of its liability under this Lease and Tenant shall remain liable to
Landlord for the payment of all Annual Basic Rent, Additional Rent and Operating
Costs and under performance of all covenants and conditions of this Lease
applicable to Tenant. The provisions of Articles 19.4 and 19.5 shall not be
applicable to a Permitted Transfer.
19.3 Delivery of Information. If Tenant wishes at any time to assign this
Lease or sublet the Leased Premises or any portion thereof, it shall first
notify Landlord of its desire to do so and shall submit in writing to Landlord:
(a) the name of the proposed subtenant or assignee; (b) the nature of the
proposed subtenant's or assignee's business to be carried on in the Leased
Premises; (c) the terms and the provisions of the proposed sublease or
assignment; and (d) such financial information as Landlord may reasonably
request concerning the proposed subtenant or assignee. Tenant's failure to
comply with the provisions of this Article 0 shall entitle Landlord to withhold
its consent to the proposed assignment or subletting.
19.4 Recapture. If Tenant seeks to assign its interest in this Lease
Landlord may, at its option, upon written notice (the "ASSIGNMENT RECAPTURE
NOTICE"), to Tenant within thirty (30) days after Landlord's receipt of the
information specified in Article 0 above, elect to recapture the Leased
Premises, and within sixty (60) days after notice of such election has been
given to Tenant, this Lease shall terminate unless Tenant shall, within fifteen
(15) days after delivery of the Assignment Recapture Notice to Tenant, deliver
to Landlord written notice withdrawing its notification delivered pursuant to
Article 0. If Tenant seeks to sublet all or any portion of the Leased Premises,
Landlord may, at Landlord's option, upon notice to Tenant (the "SUBLEASE
RECAPTURE NOTICE") within thirty (30) days after Landlord's receipt of Tenant's
notification delivered pursuant to Article 0, elect to recapture such portion of
the Leased Premises as Tenant seeks to sublet, and within sixty (60) days after
notice of such election has been given to Tenant, this Lease shall terminate as
to the portion of the Leased Premises recaptured, unless within fifteen (15)
days after delivery to Tenant of the Sublease Recapture Notice, Tenant delivers
to Landlord written notice withdrawing its notification delivered pursuant to
Article 0. If all or a portion of the Leased Premises is recaptured by Landlord
pursuant to this Article 0, Tenant shall promptly execute and deliver to
Landlord a termination agreement setting forth the termination date with respect
to the Leased Premises or the recaptured portion thereof, and prorating the
Annual Basic Rent, Additional Rent and other charges payable hereunder to such
date. If Landlord does not elect to recapture as set forth above, Tenant may
thereafter enter into a valid assignment or sublease with respect to the Leased
Premises, provided that Landlord consents thereto pursuant to this Article 0,
and provided further, that (a) such assignment or sublease is executed within
ninety (90) days after Landlord has given its consent, (b) Tenant pays all
amounts then owed to Landlord under this Lease, (c) there is not in existence an
Event of Default as of the effective date of the assignment or sublease, (d)
there have been no material changes with respect to the financial condition of
the proposed subtenant or assignee or
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the business such party intends to conduct in the Leased Premises, and (e) a
fully executed original of such assignment or sublease providing for an express
assumption by the assignee or subtenant of all of the terms, covenants and
conditions of this Lease is promptly delivered to Landlord.
19.5 Adjustment to Rental. In the event Tenant assigns its interest in
this Lease or sublets the Leased Premises, the Annual Basic Rent set forth in
Article 1.13 above, as adjusted, shall be increased effective as of the date of
such assignment or subletting by an amount equal to one-half (1/2) of the
difference, if any, between the Annual Basic Rent payable pursuant to this
Lease, as adjusted, and the rent and other consideration payable by any such
assignee or sublessee pursuant to such assignment or sublease. Notwithstanding
the foregoing, in no event shall the Annual Basic Rent after any such assignment
or subletting be less than the Annual Basic Rent specified in Article 1.13
above, as adjusted.
19.6 No Release from Liability. Landlord may collect Annual Basic Rent and
Additional Rent from the assignee, subtenant, occupant or other transferee, and
apply the amount so collected, first to the monthly installments of Annual Basic
Rent, then to any Additional Rent and other sums due and payable to Landlord,
and the balance, if any, to Landlord, but no such assignment, subletting,
occupancy, transfer or collection shall be deemed a waiver of Landlord's rights
under this Article 0, or the acceptance of the proposed assignee, subtenant,
occupant or transferee. Notwithstanding any assignment, sublease or other
transfer (with or without the consent of Landlord), Tenant shall remain
primarily liable under this Lease and shall not be released from performance of
any of the terms, covenants and conditions of this Lease.
19.7 Landlord's Expenses. If Landlord consents to an assignment, sublease
or other transfer by Tenant of all or any portion of Tenant's interest under
this Lease, Tenant shall pay or cause to be paid to Landlord, a transfer fee to
reimburse Landlord for administrative expenses and for legal, accounting and
other out of pocket expenses incurred by Landlord, which fee shall not exceed
Five Hundred and No/100 Dollars ($500.00).
19.8 Assumption Agreement. If Landlord consents to an assignment, sublease
or other transfer by Tenant of all or any portion of Tenant's interest under
this Lease, Tenant shall execute and deliver to Landlord, and cause the
transferee to execute and deliver to Landlord, an instrument in the form and
substance acceptable to Landlord in which (a) the transferee adopts this Lease
and assumes and agrees to perform, jointly and severally with Tenant, all of the
obligations of Tenant hereunder, (b) Tenant acknowledges that it remains
primarily liable for the payment of Annual Basic Rent, Additional Rent and other
obligations under this Lease, (c) Tenant subordinates to Landlord's statutory
lien, contract lien and security interest, any liens, security interests or
other rights which Tenant may claim with respect to any property of transferee
and (d) the transferee agrees to use and occupy the Leased Premises solely for
the purpose specified in Article 0 and otherwise in strict accordance with this
Lease.
19.9 Withholding Consent. Without limiting the grounds for withholding
consent which may be reasonable, it shall be reasonable for Landlord to withhold
consent if the proposed assignee or subtenant is a tenant in default of such
tenant's lease (or the termination by such assignee or subtenant of such lease
to sublease from Tenant will be a default under same) in a building in the
Phoenix metropolitan area owned by Landlord or by an affiliate of Landlord or
any of Landlord's constituent partners or principals; or if the proposed
assignee or subtenant is a governmental or quasi-governmental entity, agency,
department or any subdivision thereof; or if the use by the proposed assignee or
subtenant would violate the terms of this Lease, or any restrictive use covenant
or exclusive rights granted by Landlord; or if the nature of the proposed
assignee or subtenant or its business would not be consistent with the operation
of a first class, institutional grade office building; or if the proposed
assignee or subtenant does not intend to occupy the Premises for its
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own use, or if the proposed assignee or subtenant is an existing tenant of the
Project or the adjoining Pointe Corporate Centre located at 7500 North Dreamy
Draw Street, Phoenix, Arizona, or is a prospective tenant of the Project or the
adjoining project with whom Landlord or its broker are in active negotiations.
20. USE OF LEASED PREMISES AND RUBBISH REMOVAL
20.1 Use. The Leased Premises are leased to Tenant solely for the
Permitted Use set forth in Article 0 above and for no other purpose whatsoever.
Tenant shall not use or occupy or permit the Leased Premises to be used or
occupied, nor shall Tenant do or permit anything to be done in or about the
Leased Premises nor bring or keep anything therein which will in any way
increase the existing rate of or affect any casualty or other insurance on the
Building, the Property, the Project or any of their respective contents, or make
void or voidable or cause a cancellation of any insurance policy covering the
Building, the Property, the Project or any part thereof or any of their
respective contents. Tenant shall not do or permit anything to be done in or
about the Leased Premises, the Building and/or the Project which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building, the Property or the Project or injure or annoy them. Tenant shall not
use or allow the Leased Premises to be used for any improper, immoral, unlawful
or objectionable purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Leased Premises, the Building and/or the Project.
In addition, Tenant shall not commit or suffer to be committed any waste in or
upon the Leased Premises, the Building and/or the Project. Tenant shall not use
the Leased Premises, the Building and/or the Project or permit anything to be
done in or about the Leased Premises, the Building and/or the Project which will
in any way conflict with any matters of record, or any law, statute, ordinance
or governmental rule or regulation now in force or which may hereafter be
enacted or promulgated, and shall, at its sole cost and expense, promptly comply
with all matters of record and all laws, statutes, ordinances and governmental
rules, regulations and requirements now in force or which may hereafter be in
force and with the requirements of any Board of Fire Underwriters or other
similar body now or hereafter constituted, foreseen or unforeseen, ordinary as
well as extraordinary, relating to or affecting the condition, use or occupancy
of the Project, excluding structural changes not relating to or affected by
Tenant's improvements or acts. The judgment of any court of competent
jurisdiction or the admission by Tenant in any action against Tenant, whether
Landlord be a party thereto or not, that Tenant has violated any matters of
record, or any law, statute, ordinance or governmental rule, regulation or
requirement, shall be conclusive of that fact between Landlord and Tenant. In
addition, Tenant shall not place a load upon any floor of the Leased Premises
which exceeds the load per square foot which the floor was designed to carry,
nor shall Tenant install business machines or other mechanical equipment in the
Leased Premises which cause noise or vibration that may be transmitted to the
structure of the Building.
20.2 Rubbish Removal. Tenant shall keep the Leased Premises clean, both
inside and outside, subject, however, to Landlord's obligation as set forth in
Article 0 above. Tenant shall not burn any materials or rubbish of any
description upon the Leased Premises. Tenant shall keep all accumulated rubbish
in covered containers. In the event Tenant fails to keep the Leased Premises in
the proper condition, Landlord may cause the same to be done for Tenant and
Tenant shall pay the expenses incurred by Landlord on demand, together with
interest at the Default Rate, as Additional Rent. Tenant shall, at its sole cost
and expense, comply with all present and future laws, orders and regulations of
all state, county, federal, municipal governments, departments, commissions and
boards regarding the collection, sorting, separation, and recycling of waste
products, garbage, refuse and trash. Tenant shall sort and separate such waste
products, garbage, refuse and trash into such categories as provided by
law. Each separately sorted category of waste products, garbage, refuse and
trash shall be placed in separate receptacles reasonably approved by Landlord.
Such separate receptacles may, at Landlord's option, be removed from the Leased
Premises in accordance with a collection schedule prescribed by law. Landlord
reserves the right to refuse to collect or accept from Tenant any waste
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products, garbage, refuse or trash that is not separated and sorted as required
by law, and to require Tenant to arrange for such collection at Tenant's sole
cost and expense using a contractor satisfactory to Landlord. Tenant shall pay
all costs, expenses, fines, penalties or damages that may be imposed on Landlord
or Tenant by reason of Tenant's failure to comply with the provisions of this
Article 0, and, at Tenant's sole cost and expense, Tenant shall indemnify,
defend and hold Landlord and Landlord's agents and employees harmless (including
legal fees and expenses) from and against, and shall be responsible for, all
actions, claims, liabilities and suits arising from such noncompliance,
utilizing counsel reasonably satisfactory to Landlord.
21. SUBORDINATION AND ATTORNMENT
21.1 Subordination. This Lease and all rights of Tenant hereunder shall
be, at the option of Landlord, subordinate to (a) all matters of record, (b) all
ground leases, overriding leases and underlying leases (collectively referred to
as the "leases") of the Building, the Property or the Project now or hereafter
existing, (c) all mortgages and deeds of trust (collectively referred to as the
"mortgages") which may now or hereafter encumber or affect the Building, the
Property or the Project, and (d) all renewals, modifications, amendments,
replacements and extensions of leases and mortgages and to spreaders and
consolidations of the mortgages, whether or not leases or mortgages shall also
cover other lands, buildings or leases. The provisions of this Article 0 shall
be self-operative and no further instruments of subordination shall be required.
In confirmation of such subordination, Tenant shall promptly execute,
acknowledge and deliver any instrument that Landlord, the lessor under any lease
or the holder of any mortgage or any of their respective assigns or successors
in interest may reasonably request to evidence such subordination. Any lease to
which this Lease is subject and subordinate is called a "Superior Lease" and the
lessor under a Superior Lease or its assigns or successors in interest is called
a "Superior Lessor". Any mortgage to which this Lease is subject and subordinate
is called a "Superior Mortgage" and the holder of a Superior Mortgage is called
a "Superior Mortgagee". If Landlord, a Superior Lessor or a Superior Mortgagee
requires that such instruments be executed by Tenant, Tenant shall execute and
deliver such instruments within ten (10) days after request therefor. Tenant
waives any right to terminate this Lease because of any foreclosure proceedings.
Tenant hereby irrevocably constitutes and appoints Landlord (and any successor
Landlord) as Tenant's attorney-in-fact, with full power of substitution coupled
with an interest, to execute and deliver to any Superior Lessor or Superior
Mortgagee any documents required to be executed by Tenant for and on behalf of
Tenant if Tenant shall have failed to do so within ten (10) days after request
therefore.
21.2 Attornment. If any Superior Lessor or Superior Mortgagee (or any
purchaser at a foreclosure sale) succeeds to the rights of Landlord under this
Lease, whether through possession or foreclosure action, or the delivery of a
new lease or deed (a "Successor Landlord"), provided that such Superior Lessor
or Superior Mortgagee shall have executed and delivered to Tenant a
Non-Disturbance Agreement in a form reasonably acceptable to Landlord and
Tenant, Tenant shall attorn to and recognize such Successor Landlord as Tenant's
landlord under this Lease and shall promptly execute and deliver any instrument
that such Successor Landlord may reasonably request to evidence such attornment.
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22. ESTOPPEL CERTIFICATE
Tenant shall, whenever requested by Landlord, within twenty (20) days
after written request by Landlord, execute, acknowledge and deliver to Landlord
a statement in writing certifying: (a) that this Lease is unmodified and in full
force and effect, (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect); (b)
the dates to which Annual Basic Rent, Additional Rent and other charges are paid
in advance, if any; (c) that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder or specifying such defaults if any
are claimed; (d) that Tenant has paid Landlord the Security Deposit, (e) the
Commencement Date and the scheduled expiration date of the Lease Term, (f) the
rights (if any) of Tenant to extend or renew this Lease or to expand the Leased
Premises and (g) the amount of Annual Basic Rent, Additional Rent and other
charges currently payable under this Lease. In addition, such statement shall
provide such other information and facts Landlord may reasonably require. Any
such statement may be relied upon by any prospective or existing purchaser,
ground lessee or mortgagee of all or any portion of the Property, as well as by
any other assignee of Landlord's interest in this Lease. Tenant's failure to
deliver such statement within such time shall be conclusive upon Tenant (i) that
this Lease is in full force and effect, without modification except as may be
represented by Landlord; (ii) that there are no uncured defaults in Landlord's
performance hereunder; (iii) that Tenant has paid to Landlord the Security
Deposit; (iv) that not more than one month's installment of Annual Basic Rent or
Additional Rent has been paid in advance; (v) that the Commencement Date and the
scheduled expiration date of the Lease Term are as stated therein, (vi) that
Tenant has no rights to extend or renew this Lease or to expand the Leased
Premises, (vii) that the Annual Basic Rent, Additional Rent and other charges
are as set forth therein and (viii) that the other information and facts set
forth therein are true and correct.
23. SIGNS
Landlord shall retain absolute control over the exterior appearance of the
Building and the exterior appearance of the Leased Premises as viewed from the
public halls. Tenant shall not install, or permit to be installed, any drapes,
shutters, signs, lettering, advertising, or any items that will in any way, in
the sole opinion of Landlord, adversely alter the exterior appearance of the
Building or the exterior appearance of the Leased Premises as viewed from the
public halls or the exterior of the Building. Notwithstanding the foregoing,
Landlord shall install, at Tenant's sole cost and expense, letters or numerals
at or near the entryway to the Leased Premises provided Tenant obtains
Landlord's prior written consent as to size, color, design and location. All
such letters or numerals shall be in accordance with the criteria established by
Landlord for the Building. In addition, Tenant's name and suite number shall be
identified on the Building directory. Notwithstanding any provision of this
Article 23 to the contrary, subject to governmental restrictions, Tenant shall
have the right to display its corporate signage in each location utilized as of
June 11, 1996 by Colonial Penn and on the monument sign located along 16th
Street. Tenant shall reimburse Landlord for all costs and expenses incurred by
Landlord in installing such signage.
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24. PARKING
24.1 Parking Facility. Landlord shall provide, operate and maintain
parking accommodations (the "Parking Accommodations"), together with necessary
access, having a capacity adequate in Landlord's opinion to accommodate the
requirements of the Building and the Project. All spaces allocated to Tenant
pursuant to Article 0 shall be in parking areas adjacent to the Building,
including the parking lot north of Belmont Street. No storage of vehicles or
parking for more than twenty-four (24) hours shall be allowed without Landlord's
prior written consent. Subject to the terms of the Reserved Covered Parking
License in the form attached hereto as Exhibit "E" and Unreserved Parking
License in the form attached as Exhibit "G", as applicable, Landlord shall have
the right to establish, and from time to time change, alter and amend, and to
enforce against all users of the Parking Accommodations, such reasonable
requirements and restrictions as Landlord deems necessary and advisable for the
proper operation and maintenance of the Parking Accommodations, including,
without limitation, designation of particular areas for reserved, visitor and/or
employee parking, and establishment of a reasonable rental charge for the use of
the Parking Accommodations by tenants of the Building, the Project and/or the
general public, as a part of the Rules and Regulations of the Building
referenced in Article 31 hereof. Landlord and Tenant acknowledge that Landlord
is involved in litigation regarding the parking lot north of Belmont Street
(Maricopa County Civil Action No. CV 96-08708). Landlord represents and warrants
that notwithstanding such litigation throughout the Lease Term, as same may be
extended, Tenant shall have the non-exclusive right to use such parking lot in
common with others, subject to and in accordance with the terms and conditions
set forth in this Lease.
24.2 Parking Passes. Tenant is hereby allocated the number of reserved
covered, reserved uncovered and unreserved parking passes designated in Article
0 hereof, entitling holders to park in either reserved covered, reserved
uncovered or unreserved parking spaces, as the case may be, located in the
Parking Accommodations as designated by Landlord from time to time for use by
Tenant, its employees and licensees, and for which Tenant shall pay the monthly
charges set forth in Article 1.18 hereof. Landlord and Tenant shall execute,
prior to the Commencement Date a Reserved Covered Parking License in the form
attached hereto as Exhibit "E" and Unreserved Parking License in the form
attached as Exhibit "G", as applicable. The unreserved parking spaces shall be
available to Tenant, its employees and licensees on a "first come, first serve"
basis. Holders of parking passes shall not be entitled to park in visitor
parking spaces so designated by Landlord, or in any other parking spaces other
than those designated by Landlord for use by holders of parking passes.
25. LIENS
Tenant shall keep the Leased Premises free and clear of all mechanic's and
materialmen's liens. If, because of any act or omission (or alleged act or
omission) of Tenant, any mechanics', materialmen's or other lien, charge or
order for the payment of money shall be filed or recorded against the Leased
Premises, the Property, the Project or the Building, or against any other
property of Landlord (whether or not such lien, charge or order is valid or
enforceable as such), Tenant shall, at its own expense, cause the same to be
canceled or discharged of record within thirty (30) days after Tenant shall have
received written notice of the filing thereof, or Tenant may, within such thirty
(30) day period, furnish to Landlord, a bond pursuant to A.R.S. Section 33-1004
(or any successor statute) and satisfactory to Landlord and all Superior Lessors
and Superior Mortgagees against the lien, charge or order, in which case Tenant
shall have the right to contest, in good faith, the validity or amount thereof.
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26. HOLDING OVER
It is agreed that the date of termination of this Lease and the right of
Landlord to recover immediate possession of the Leased Premises thereupon is an
important and material matter affecting the parties hereto and the rights of
third parties, all of which have been specifically considered by Landlord and
Tenant. In the event of any continued occupancy or holding over of the Leased
Premises without the express written consent of Landlord beyond the expiration
or earlier termination of this Lease or of Tenants right to occupy the Leased
Premises, whether in whole or in part, or by leaving property on the Leased
Premises or otherwise, this Lease shall be deemed a monthly tenancy and Tenant
shall pay two (2) times the Annual Basic Rent then in effect, in advance at the
beginning of the hold-over month(s), plus any Additional Rent or other charges
or payments contemplated in this Lease, and any other costs, expenses, damages,
liabilities and attorneys' fees incurred by Landlord on account of Tenant's
holding over.
27. ATTORNEYS' FEES
Tenant shall pay to Landlord all amounts for costs (including reasonable
attorneys' fees) incurred by Landlord in connection with any breach or default
by Tenant under this Lease or incurred in order to enforce or interpret the
terms or provisions of this Lease. Such amounts shall be payable within five (5)
days after receipt by Tenant of Landlord's statement. In addition, if any action
shall be instituted by either of the parties hereto for the enforcement or
interpretation of any of their respective rights or remedies in or under this
Lease, the prevailing party shall be entitled to recover from the losing party
all costs incurred by the prevailing party in such action and any appeal
therefrom, including reasonable attorneys' fees to be fixed by the court.
28. RESERVED RIGHTS OF LANDLORD
Landlord reserves the following rights, exercisable without liability to
Tenant for damage or injury to property, persons or business and without
effecting an eviction, constructive or actual, or disturbance of Tenant's use or
possession or giving rise to any claim:
(a) To name the Building, the Property and the Project and to change the
name or street address of the Building, the Property or the Project after ninety
(90) days prior notice to Tenant;
(b) To install and maintain all signs on the exterior and interior of the
Building, the Property and the Project;
(c) To designate all sources furnishing sign painting and lettering;
(d) During the last ninety (90) days of the Lease Term, if Tenant has
vacated the Leased Premises, to decorate, remodel, repair, alter or otherwise
prepare the Leased Premises for re-occupancy, without affecting Tenant's
obligation to pay Annual Basic Rent;
(e) To have pass keys to the Leased Premises and all doors therein,
excluding Tenant's vaults and safes;
(f) On reasonable prior notice to Tenant, to exhibit the Leased Premises
to any prospective purchaser, mortgagee, or assignee of any mortgage on the
Building, the Property or the Project and to others
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having interest therein at any time during the Lease Term, and to prospective
Tenants during the last six (6) months of the Lease Term;
(g) To take any and all measures, including entering the Leased Premises
for the purposes of making inspections, repairs, alterations, additions and
improvements to the Leased Premises or to the Building (including, for the
purposes of checking, calibrating, adjusting and balancing controls and other
parts of the Building systems) as may be necessary or desirable for the
operation, improvement, safety, protection or preservation of the Leased
Premises or the Building, or in order to comply with all laws, orders and
requirements of governmental or other authorities, or as may otherwise be
permitted or required by this Lease; provided, however, that Landlord shall
endeavor (except in an emergency) to minimize interference with Tenant's
business in the Leased Premises;
(h) To relocate various facilities within the Building and on the Property
and/or the Project if Landlord shall determine such relocation to be in the best
interest of the development of the Building, the Property and/or the Project,
provided, that such relocation shall not materially restrict access to the
Leased Premises;
(i) To change the nature, extent, arrangement, use and location of the
Building Common Areas and the Project Common Areas;
(j) To make alterations or additions to and to build additional stories on
the Building and to build additional buildings or improvements on the Property
and on the Project; and
(k) To install vending machines of all kinds in the Building, and to
receive all of the revenue derived therefrom.
Landlord further reserves the exclusive right to the roof of the Building. No
easement for light, air, or view is included in the leasing of the Leased
Premises to Tenant. Accordingly, any diminution or shutting off of light, air or
view by any structure which may be erected on the Property, the Project or other
properties in the vicinity of the Building shall in no way affect this Lease or
impose any liability upon Landlord. Notwithstanding the foregoing, and subject
to governmental restrictions, Tenant may install upon the roof of the Building
an antenna or satellite dish. Such satellite dish shall be screened from view
and shall not be visible from the streets and roadways adjacent to the Project.
The satellite dish shall be installed and maintained by Tenant at its sole cost
and expense and shall be operated in a manner that does not unreasonably
interfere with the business being conducted by other tenants of the Building.
Tenant agrees to use any specified roofing contractor required to comply with
the existing roof warranties. Tenant shall be liable for any damage to the roof
caused by the installation, maintenance, repair or operation of the satellite
dish.
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29. EMINENT DOMAIN
29.1 Taking. If the whole of the Building is lawfully and permanently
taken by condemnation or any other manner for any public or quasi-public
purpose, or by deed in lieu thereof, this Lease shall terminate as of the date
of vesting of title in such condemning authority and the Annual Basic Rent and
Additional Rent shall be pro rated to such date. If any part of the Building,
Property or Project is so taken, or if the whole of the Building is taken, but
not permanently, then this Lease shall be unaffected thereby, except that (a)
Landlord may terminate this Lease by notice to Tenant within thirty (30) days
after the date of vesting of title in the condemning authority, and (b) if
twenty percent (20%) or more of the Leased Premises shall be permanently taken
and the remaining portion of the Leased Premises shall not be reasonably
sufficient for Tenant to continue operation of its business, Tenant may
terminate this Lease by notice to Landlord within thirty (30) days after the
date of vesting of title in such condemning authority. This Lease shall
terminate on the one hundred twentieth (120th) day after receipt by Landlord of
such notice, by which date Tenant shall vacate and surrender the Leased Premises
to Landlord. The Annual Basic Rent and Additional Rent shall be pro rated to the
earlier of the termination of this Lease or such date as Tenant is required to
vacate the Leased Premises by reason of the taking. If this Lease is not
terminated as a result of a partial taking of the Leased Premises, the Annual
Basic Rent and Additional Rent shall be equitably adjusted according to the
rentable area of the Leased Premises and Building remaining.
29.2 Award. In the event of a taking of all or any part of the Building,
the Property or the Project, all of the proceeds or the award, judgment,
settlement or damages payable by the condemning authority shall be and remain
the sole and exclusive property of Landlord, and Tenant hereby assigns all of
its right, title and interest in and to any such award, judgment, settlement or
damages to Landlord. Tenant shall, however, have the right, to the extent that
the same shall not reduce or prejudice amounts available to Landlord, to claim
from the condemning authority, but not from Landlord, such compensation as may
be recoverable by Tenant in its own right for relocation benefits, moving
expenses, and damage to Tenant's personal property and trade fixtures.
30. NOTICES
Any notice or communication given under the terms of this Lease shall be
in writing and shall be delivered in person, sent by any public or private
express delivery service or deposited with the United States Postal Service or a
successor agency, certified or registered mail, return receipt requested,
postage pre-paid, addressed as set forth in the Basic Provisions, or at such
other address as a party may from time to time designate by notice hereunder.
Notice shall be effective upon delivery. The inability to deliver a notice
because of a changed address of which no notice was given or a rejection or
other refusal to accept any notice shall be deemed to be the receipt of the
notice as of the date of such inability to deliver or rejection or refusal to
accept. Any notice to be given by Landlord may be given by the legal counsel
and/or the authorized agent of Landlord.
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31. RULES AND REGULATIONS
Tenant shall abide by all rules and regulations (the "Rules and
Regulations") of the Building and the Project imposed by Landlord, as attached
hereto as Exhibit "I" or as may hereafter be issued by Landlord. Such Rules and
Regulations are imposed to enhance the cleanliness, appearance, maintenance,
order and use of the Leased Premises, the Building and the Property, and the
proper enjoyment of the Building, the Property and the Project by all tenants
and their clients, customers and employees. The Rules and Regulations may be
changed from time to time upon ten (10) days notice to Tenant. Breach of the
Rules and Regulations, by Tenant shall constitute an Event of Default if such
breach is not fully cured within ten (10) days after written notice to Tenant by
Landlord. Landlord shall not be responsible to Tenant for nonperformance by any
other tenant, occupant or invitee of the Building, the Property or the Project
of any Rules or Regulations.
32. ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly installment of Annual Base Rent and Additional Rent (jointly called
"Rent" in this Article 0), shall be deemed to be other than on account of the
earliest stipulated Rent due and not yet paid, nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as Rent
be deemed an accord and satisfaction. Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such Rent or to
pursue any other remedy in this Lease. No receipt of money by Landlord from
Tenant after the termination of this Lease, after the service of any notice
relating to the termination of this Lease, after the commencement of any suit,
or after final judgment for possession of the Leased Premises, shall reinstate,
continue or extend the Lease Term or affect any such notice, demand, suit or
judgment.
33. BANKRUPTCY OF TENANT
33.1 Chapter 7. If a petition is filed by, or an order for relief is
entered against Tenant under Chapter 7 of the Bankruptcy Code and the trustee of
Tenant elects to assume this Lease for the purpose of assigning it, the election
or assignment, or both, may be made only if all of the terms and conditions of
Articles 0 and 0 below are satisfied. If the trustee fails to elect to assume
this Lease for the purpose of assigning it within sixty (60) days after
appointment, this Lease will be deemed to have been rejected. To be effective,
an election to assume this Lease must be in writing and addressed to Landlord
and, in Landlord's business judgment, all of the conditions hereinafter stated,
which Landlord and Tenant acknowledge to be commercially reasonable, must have
been satisfied. Landlord shall then immediately be entitled to possession of the
Premises without further obligation to Tenant or the trustee, and this Lease
will be terminated. Landlord's right to be compensated for damages in the
bankruptcy proceeding, however, shall survive.
33.2 Chapters 11 and 13. If Tenant files a petition for reorganization
under Chapters 11 or 13 of the Bankruptcy Code or a proceeding that is filed by
or against Tenant under any other chapter of the Bankruptcy Code is converted to
a Chapter 11 or 13 proceeding and Tenant's trustee or Tenant as a
debtor-in-possession fails to assume this Lease within sixty (60) days from the
date of the filing of the petition or the conversion, the trustee or the
debtor-in-possession will be deemed to have rejected this Lease. To be
effective, an election to assume this Lease must be in writing and addressed to
Landlord and, in Landlord's business judgment, all of the following conditions,
which Landlord and Tenant acknowledge to be commercially reasonable, must have
been satisfied:
(a) The trustee or the debtor-in-possession has cured or has
provided to Landlord adequate assurance, as defined in this Article 0, that;
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(1) The trustee will cure all monetary defaults under this
Lease within ten (10) days from the date of the assumption; and
(2) The trustee will cure all non-monetary defaults under this
Lease within thirty (30) days from the date of the assumption.
(b) The trustee or the debtor-in-possession has compensated
Landlord, or has provided to Landlord adequate assurance, as defined in this
Article 0, that within ten (10) days from the date of the assumption Landlord
will be compensated for any pecuniary loss it incurred arising from the default
of Tenant, the trustee, or the debtor-in-possession as recited in Landlord's
written statement of pecuniary loss sent to the trustee or the
debtor-in-possession. For purposes of this Lease, pecuniary loss shall include
all attorneys' fees and court costs incurred by Landlord in connection with any
bankruptcy proceeding filed by or against Tenant.
(c) The trustee or the debtor-in-possession has provided Landlord
with adequate assurance of the future performance of each of Tenant's
obligations under the Lease; provided, however, that:
(1) If not otherwise required by the terms of this Lease, the
trustee or the debtor-in- possession will also pay in advance, on each day that
the Annual Basic Rent is payable, one-twelfth of Tenant's estimated annual
obligations under the Lease for the Additional Rent.
(2) From and after the date of the assumption of this Lease,
the trustee or the debtor- in-possession will pay the Annual Basic Rent and
Additional Rent as provided in Article 0 above.
(3) The obligations imposed upon the trustee or the
debtor-in-possession will continue for Tenant after the completion of bankruptcy
proceedings.
(d) Landlord has determined that the assumption of the Lease will
not:
(1) Breach any provisions in any other lease, mortgage,
financing agreement, or other agreement by which Landlord is bound relating to
the Property; or
(2) Disrupt, in Landlord's judgment, the tenant mix of the
Building or the Project or any other attempt by Landlord to provide a specific
variety of Tenants in the Building or the Project that, in Landlord's judgment,
would be most beneficial to all of the tenants of the Building and the Project
and would enhance the image, reputation, and profitability of the Building and
the Project.
(e) For purposes of this Article 0 "adequate assurance" means that:
(1) Landlord will determine that the trustee or the
debtor-in-possession has, and will continue to have, sufficient unencumbered
assets after the payment of all secured obligations and administrative expenses
to assure Landlord that the trustee or the debtor-in-possession will have
sufficient funds to fulfill Tenant's obligations under this Lease and to keep
the Leased Premises properly staffed with sufficient employees to conduct a
fully operational, actively promoted business on the Leased Premises; and
(2) An order will have been entered segregating sufficient
cash payable to Landlord and/or a valid and perfected first lien and security
interest will have been granted in property of
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Tenant, trustee, or debtor-in-possession that is acceptable for value and kind
to Landlord, to secure to Landlord the obligation of the trustee or
debtor-in-possession to cure the monetary or non-monetary defaults under this
Lease within the time periods set forth above.
33.3 Landlord's Right to Terminate. In the event that this Lease is
assumed by a trustee appointed for Tenant or by Tenant as debtor-in-possession
under the provisions of Article 0 above and, thereafter, Tenant is either
adjudicated a bankrupt or files a subsequent petition for arrangement under
chapter 11 of the Bankruptcy Code, then Landlord may terminate, at its option,
this Lease and all Tenant's rights under it, by giving written notice of
Landlord's election to terminate.
33.4 Assignment by Trustee. If the trustee or the debtor-in-possession has
assumed the Lease, under the terms of Article 0 or 0 above, and elects to assign
Tenant's interest under this Lease or the estate created by that interest to any
other person, that interest or estate may be assigned only if Landlord
acknowledges in writing that the intended assignee has provided adequate
assurance, as defined in this Article 0, of future performance of all of the
terms, covenants, and conditions of this Lease to be performed by Tenant.
33.5 Adequate Assurance. For the purposes of this Article 0 "adequate
assurance of future performance" means that Landlord has ascertained that each
of the following conditions has been satisfied:
(1) The assignee has submitted a current financial statement,
audited by a certified public accountant, that shows a net worth and working
capital in amounts determined by Landlord to be sufficient to assure the future
performance by the assignee of Tenant's obligations under this Lease;
(2) If requested by Landlord, the assignee will obtain guarantees,
in form and substance satisfactory to Landlord from one or more persons who
satisfy Landlord's standards of creditworthiness;
(3) Landlord has obtained all consents or waivers from any third
party required under any lease, mortgage, financing arrangement or other
agreement by which Landlord is bound, to enable Landlord to permit the
assignment;
(4) When, pursuant to the Bankruptcy Code, the trustee or the
debtor-in-possession is obligated to pay reasonable use and occupancy charges
for the use of all or part of the Leased Premises, the charges will not be less
than the Annual Basic Rent and Additional Rent.
33.6 Consent of Landlord. Neither Tenant's interest in the Lease nor any
estate of Tenant created in the Lease will pass to any trustee, receiver,
assignee for the benefit of creditors, or any other person or entity, or
otherwise by operation of law under the laws of any state having jurisdiction of
the person or property of Tenant unless Landlord consents in writing to the
transfer. Landlord's acceptance of Annual Basic Rent or Additional Rent or any
other payments from any trustee, receiver, assignee, person, or other entity
will not be deemed to have waived, or waive, the need to obtain Landlord's
consent or Landlord's right to terminate this Lease for any transfer of Tenant's
interest under this Lease without that consent.
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34. HAZARDOUS MATERIALS
34.1 Hazardous Materials Laws. "Hazardous Materials Laws" means any and
all federal, state or local laws, ordinances, rules, decrees, orders,
regulations or court decisions (including the so-called "common-law") relating
to hazardous substances, hazardous materials, hazardous waste, toxic substances,
environmental conditions on, under or about the Premises, or soil and ground
water conditions, including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended, 42
U.S.C. Section 9601, et seq., the Resource Conversation and Recovery Act
("RCRA"), 42 U.S.C. Section 6901, et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., any amendments to the
foregoing, and any similar federal, state or local laws, ordinances, rules,
decrees, orders or regulations.
34.2 Hazardous Materials. "Hazardous Materials" means any chemical,
compound, material, substance or other matter that: (i) is a flammable
explosive, asbestos, radioactive material, nuclear medicine material, drug,
vaccine, bacteria, virus, hazardous waste, toxic substance, petroleum product,
or related injurious or potentially injurious material, whether injurious or
potentially injurious by itself or in combination with other materials; (ii) is
controlled, designated in or governed by any Hazardous Materials Law; (iii)
gives rise to any reporting, notice or publication requirements under any
Hazardous Materials Law; or (iv) gives rise to any liability, responsibility or
duty on the part of Tenant or Landlord with respect to any third person under
any Hazardous Materials Law.
34.3 Use. Tenant shall not allow any Hazardous Material to be used,
generated, released, stored or disposed of on, under or about, or transported
from, the Leased Premises, the Building or the Project, unless: (i) such use is
specifically disclosed to and approved by Landlord in writing prior to such use;
and (ii) such use is conducted in compliance with the provisions of this Article
0. Landlord may approve such use subject to reasonable conditions to protect the
Leased Premises, the Building or the Project, and Landlord's interests. Landlord
may withhold approval if Landlord determines that such proposed use involves a
material risk of a release or discharge of Hazardous Materials or a violation of
any Hazardous Materials Laws or that Tenant has not provided reasonable
assurances of its ability to remedy such a violation and fulfill its obligations
under this Article 0.
34.4 Compliance With Laws. Tenant shall strictly comply with, and shall
maintain the Leased Premises in compliance with, all Hazardous Materials Laws.
Tenant shall obtain and maintain in full force and effect all permits, licenses
and other governmental approvals required for Tenant's operations on the Leased
Premises under any Hazardous Materials Laws and shall comply with all terms and
conditions thereof. At Landlord's request, Tenant shall deliver copies of, or
allow Landlord to inspect, all such permits, licenses and approvals. Tenant
shall perform any monitoring, investigation, clean-up, removal and other
remedial work (collectively, "Remedial Work") required as a result of any
release or discharge of Hazardous Materials affecting the Leased Premises, the
Building or the Project, or any violation of Hazardous Materials Laws by Tenant
or any assignee or sublessee of Tenant or their respective agents, contractors,
employees, licensees, or invitees. Landlord shall have the right to intervene in
any governmental action or proceeding involving any Remedial Work, and to
approve performance of the work, in order to protect Landlord's interests.
34.5 Compliance With Insurance Requirements. Tenant shall comply with the
requirements of Landlord's and Tenant's respective insurers regarding Hazardous
Materials and with such insurers' recommendations based upon prudent industry
practices regarding management of Hazardous Materials.
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34.6 Notice; Reporting. Tenant shall notify Landlord, in writing, within
two (2) days after any of the following: (a) a release or discharge of any
Hazardous Material, whether or not the release or discharge is in quantities
that would otherwise be reportable to a public agency; (b) Tenant's receipt of
any order of a governmental agency requiring any Remedial Work pursuant to any
Hazardous Materials Laws; (c) Tenant's receipt of any warning, notice of
inspection, notice of violation or alleged violation, or Tenant's receipt of
notice or knowledge of any proceeding, investigation of enforcement action,
pursuant to any Hazardous Materials Laws; or (d) Tenant's receipt of notice or
knowledge of any claims made or threatened by any third party against Tenant or
the Leased Premises, the Building or the Project, relating to any loss or injury
resulting from Hazardous Materials. Tenant shall deliver to Landlord copies of
all test results, reports and business or management plans required to be filed
with any governmental agency pursuant to any Hazardous Materials Laws.
34.7 Termination; Expiration. Upon the termination or expiration of this
Lease, Tenant shall remove any equipment, improvements or storage facilities
utilized in connection with any Hazardous Materials and shall, clean up,
detoxify, repair and otherwise restore the Leased Premises to a condition free
of Hazardous Materials.
34.8 Indemnity. Tenant shall protect, indemnify, defend and hold Landlord
harmless from and against, and shall be responsible for, any and all claims,
costs, expenses, suits, judgments, actions, investigations, proceedings and
liabilities arising out of or in connection with any breach of any provisions of
this Article 0 or directly or indirectly arising out of the use, generation,
storage, release, disposal or transportation of Hazardous Materials by Tenant or
any sublessee or assignee of Tenant, or their respective agents, contractors,
employees, licensees, or invitees, on, under or about the Leased Premises, the
Building or the Project during the Lease Term or Tenant's occupancy of the
Leased Premises, including, but not limited to, all foreseeable and
unforeseeable consequential damages and the cost of any Remedial Work. Neither
the consent by Landlord to the use, generation, storage, release, disposal or
transportation of Hazardous Materials nor the strict compliance with all
Hazardous Material Laws shall excuse Tenant from Tenant's indemnification
obligations pursuant to this Article 0. The foregoing indemnity shall be in
addition to and not a limitation of the indemnification provisions of Article 0
of this Lease. Tenant's obligations pursuant to this Article 0 shall survive the
termination or expiration of this Lease.
34.9 Assignment; Subletting. If Landlord's consent is required for an
assignment of this Lease or a subletting of the Leased Premises, Landlord shall
have the right to refuse such consent if the possibility of a release of
Hazardous Materials is materially increased as a result of the assignment or
sublease or if Landlord does not receive reasonable assurances that the new
tenant has the experience and the financial ability to remedy a violation of the
Hazardous Materials Laws and fulfill its obligations under this Article 0.
34.10 Entry and Inspection; Cure. Landlord and its agents, employees and
contractors, shall have the right, but not the obligation, to enter the Leased
Premises at all reasonable times to inspect the Leased Premises and Tenant's
compliance with the terms and conditions of this Article 0, or to conduct
investigations and tests. No prior notice to Tenant shall be required in the
event of an emergency, or if Landlord has reasonable cause to believe that
violations of this Article 0 have occurred, or if Tenant consents at the time of
entry. In all other cases, Landlord shall give at least twenty-four (24) hours
prior notice to Tenant. Landlord shall have the right, but not the obligation,
to remedy any violation by Tenant of the provisions of this Article 0 or to
perform any Remedial Work which is necessary or appropriate as a result of any
governmental order, investigation or proceeding. Tenant shall pay, upon demand,
as Additional Rent, all costs incurred by Landlord in remedying such violations
or performing all Remedial Work, plus interest thereon at the Default Rate from
the date of demand until the date received by Landlord.
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34.11 Event of Default. The release or discharge of any Hazardous Material
or the violation of any Hazardous Materials Law shall constitute an Event of
Default by Tenant under this Lease. In addition to and not in lieu of the
remedies available under this Lease as a result of such Event of Default,
Landlord shall have the right, without terminating this Lease, to require Tenant
to suspend its operations and activities on the Leased Premises until Landlord
is satisfied that appropriate Remedial Work has been or is being adequately
performed and Landlord's election of this remedy shall not constitute a waiver
of Landlord's right thereafter to pursue the other remedies set forth in this
Lease.
34.12 Representation and Warranty by Landlord. To Landlord's knowledge,
which knowledge is based solely on that certain Phase I Environmental Site
Assessment of Pointe Corporate Center, Pointe Corridor Centre I and Pointe
Corridor Centre II, Phoenix, Arizona (WT Job No. 2185JF187) prepared by Western
Technologies Inc., Landlord has received no written notice that there are
Hazardous Materials present in the Building or Project in violation of any
Hazardous Materials Laws. Subject to the receipt of written notice by Landlord
of the breach of the foregoing warranty and the expiration of the applicable
cure periods set forth in Article 12.5, Landlord shall indemnify, defend and
hold Tenant harmless for, from and against any loss, cost, damage, fine,
penalty, claim or expense (including reasonable attorneys' fees) incurred or
sustained by Tenant as a result of the breach by Landlord of any Hazardous
Materials Laws.
35. MISCELLANEOUS
35.1 Entire Agreement, Amendments. This Lease and any Exhibits and Riders
attached hereto and forming a part hereof, set forth all of the covenants,
promises, agreements, conditions and understandings between Landlord and Tenant
concerning the Leased Premises and there are no covenants, promises, agreements,
representations, warranties, conditions or understandings either oral or written
between them other than as contained in this Lease. Except as otherwise provided
in this Lease, no subsequent alteration, amendment, change or addition to this
Lease shall be binding unless it is in writing and signed by both Landlord and
Tenant.
35.2 Time of the Essence. Time is of the essence of each and every term,
covenant and condition of this Lease.
35.3 Binding Effect. The covenants and conditions of this Lease shall,
subject to the restrictions on assignment and subletting, apply to and bind the
heirs, executors, administrators, personal representatives, successors and
assigns of the parties hereto.
35.4 Recordation. Neither this Lease nor any memorandum hereof shall be
recorded by Tenant. At the sole option of Landlord, Tenant and Landlord shall
execute, and Landlord may record, a short form memorandum of this Lease in form
and substance satisfactory to Landlord.
35.5 Governing Law. This Lease and all the terms and conditions thereof
shall be governed by and construed in accordance with the laws of the State of
Arizona.
35.6 Defined Terms and Paragraph Headings. The words "Landlord" and
"Tenant" as used in this Lease shall include the plural as well as the singular.
Words used in masculine gender include the feminine and neuter. If there is more
than one Tenant, the obligations in this Lease imposed upon Tenant shall be
joint and several. The paragraph headings and titles to the paragraphs of this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
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35.7 Representations and Warranties.
(a) Tenant represents and warrants to Landlord as follows:
(i) Tenant has been duly organized, is validly existing, and
is in good standing under the laws of its state of incorporation and is
qualified to transact business in Arizona. All necessary action on the part of
Tenant has been taken to authorize the execution, delivery and performance of
this Lease and of the other documents, instruments and agreements, if any,
provided for herein. The persons who have executed this Lease on behalf of
Tenant are duly authorized to do so;
(ii) This Lease constitutes the legal, valid and binding
obligation of Tenant, enforceable against Tenant in accordance with its terms,
subject, however, to bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, general principles of equity, whether enforceability is
considered in a proceeding in equity or at law, and to the qualification that
certain waivers, procedures, remedies and other provisions of this Lease may be
unenforceable under or limited by applicable law, however, none of the foregoing
shall prevent the practical realization to Landlord of the benefits intended by
this Lease;
(iii) To the best of its knowledge, there are no suits,
actions, proceedings or investigations pending, or to the best of its knowledge,
threatened against or involving Tenant before any court, arbitrator or
administrative or governmental body which might reasonably result in any
material adverse change in the contemplated business, condition or operations of
Tenant;
(iv) To the best of its knowledge, Tenant is not, and the
execution, delivery and performance of this Lease and the documents, instruments
and agreements, if any, provided for herein will not result in any breach of or
default under any other document, instrument or agreement to which Tenant is a
party or by which Tenant is subject or bound;
(v) To the best of its knowledge, Tenant has obtained all
required licenses and permits, both governmental and private, to use and operate
the Leased Premises in the manner intended by this Lease.
(b) Landlord represents and warrants to Tenant as follows:
(i) Landlord has been duly organized, is validly existing, and
is in good standing under the laws of its state of formation and is qualified to
transact business in Arizona. All necessary action on the part of Landlord has
been taken to authorize the execution, delivery and performance of this Lease
and of the other documents, instruments and agreements, if any, provided for
herein. The persons who have executed this Lease on behalf of Landlord are duly
authorized to do so;
(ii) This Lease constitutes the legal, valid and binding
obligation of Landlord, enforceable against Landlord in accordance with its
terms, subject, however, to bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, general principles of equity, whether enforceability is
considered in a proceeding in equity or at law, and to the qualification that
certain waivers, procedures, remedies and other provisions of this Lease may be
unenforceable under or limited by applicable law, however, none of the foregoing
shall prevent the practical realization to Tenant of the benefits intended by
this Lease;
44
<PAGE> 46
35.8 No Waiver. The failure of either party to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this Lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this Lease or the right to exercise such election, but the
same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission.
35.9 Severability. If any clause or provision of this Lease is or becomes
illegal or unenforceable because of any present or future law or regulation of
any governmental body or entity effective during the Lease Term, the intention
of the parties is that the remaining provisions of this Lease shall not be
affected thereby.
35.10 Exhibits. If any provision contained in an Exhibit, Rider or Addenda
to this Lease is inconsistent with any other provision of this Lease, the
provision contained in this Lease shall supersede the provisions contained in
such Exhibit, Rider or Addenda, unless otherwise provided.
35.11 Fair Meaning. The language of this Lease shall be construed to its
normal and usual meaning and not strictly for or against either Landlord or
Tenant. Landlord and Tenant acknowledge and agree that each party has reviewed
and revised this Lease and that any rule of construction to the effect that
ambiguities are to be resolved against the drafting party shall not apply to the
interpretation of this Lease, or any Exhibits, Riders or amendments hereto.
35.12 No Merger. The voluntary or other surrender of this Lease by Tenant
or a mutual cancellation of this Lease shall not work as a merger and shall, at
Landlord's option, either terminate any or all existing subleases or
subtenancies, or operate as an assignment to Landlord of any or all of such
subleases or subtenancies.
35.13 Force Majeure. Any prevention, delay or stoppage due to strikes,
lockouts, labor disputes, acts of God, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, regulations or
controls, judicial orders, enemy or hostile government actions, civil commotion,
fire or other casualty and other causes beyond the reasonable control of Tenant
or Landlord shall excuse the performance of the applicable party hereunder for
the period of any such prevention, delay, or stoppage, except (unless otherwise
stated herein) the obligations imposed with regard to Annual Basic Rent,
Operating Costs, Additional Rent and other charges to be paid by Tenant pursuant
to this Lease.
35.14 Government Energy or Utility Controls. In the event of the
imposition of federal, state or local governmental controls, rules, regulations
or restrictions on the use or consumption of energy or other utilities during
the Lease Term, both Landlord and Tenant shall be bound thereby. In the event of
a difference in interpretation of any governmental control, rule, regulation or
restriction between Landlord and Tenant, the reasonable interpretation of
Landlord shall prevail, and Landlord shall have the right to enforce compliance,
including the right of entry into the Leased Premises to effect compliance.
35.15 Shoring. If any excavation or construction is made adjacent to, upon
or within the Building, or any part thereof, Tenant shall afford to any and all
persons causing or authorized to cause such excavation or construction license
to enter onto the Leased Premises for the purpose of doing such work as such
persons shall deem necessary to preserve the Building or any portion thereof
from injury or damage and to support the same by proper foundations, braces and
supports without any claim for damages, indemnity or abatement of Annual Basic
Rent or Additional Rent or for a constructive or actual eviction of Tenant.
45
<PAGE> 47
35.16 Transfer of Landlord's Interest. The term "Landlord" as used in this
Lease, insofar as the covenants or agreements on the part of the Landlord are
concerned, shall be limited to mean and include only the owner or owners of
Landlord's interest in this Lease at the time in question. Upon any transfer or
transfers of such interest, the Landlord herein named (and in the case of any
subsequent transfer, the then transferor) shall thereafter be relieved of all
liability for the performance of any covenants or agreements on the part of the
Landlord contained in this Lease.
35.17 Limitation on Landlord's Liability. If Landlord becomes obligated to
pay Tenant any judgment arising out of any failure by the Landlord to perform or
observe any of the terms, covenants, conditions or provisions to be performed or
observed by Landlord under this Lease, Tenant shall be limited in the
satisfaction of such judgment solely to Landlord's interest in the Building and
the Property or any proceeds arising from the sale thereof and no other property
or assets of Landlord or the individual partners, directors, officers or
shareholders of Landlord or its constituent partners shall be subject to levy,
execution or other enforcement procedure whatsoever for the satisfaction of any
such money judgment.
35.18 Brokerage Fees. Tenant warrants and represents that it has not dealt
with any realtor, broker or agent in connection with this Lease except the
Broker identified in Article 0 above. Tenant shall indemnify, defend and hold
Landlord harmless from and against, and shall be responsible for, any cost,
expense or liability (including the cost of suit and reasonable attorneys' fees)
for any compensation, commission or charges claimed by any other realtor, broker
or agent in connection with this Lease or by reason of any act of Tenant.
35.19 Intentionally Omitted.
35.20 Continuing Obligations. All obligations of Lessee hereunder not
fully performed as of the expiration or earlier termination of this Lease shall
survive the expiration or earlier termination of this Lease, including, without
limitation, all payment obligations with respect to Annual Basic Rent,
Additional Rent and all obligations concerning the condition of the Premises.
35.21 Consent of Landlord and Tenant. Whenever in this Lease the approval
or consent of any party is required or desired, unless otherwise expressly
provided, such party shall not withhold or delay its approval or consent
unreasonably.
35.22 Quiet Possession. So long as there is not in existence an Event of
Default, Tenant may quietly have, hold and enjoy the Leased Premises during the
Lease Term, subject, however, to the matters referred to in Article 0. The
provisions of this Article 0 shall not extend to any disturbance, act or
condition brought about by any tenant in the Building.
46
<PAGE> 48
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the
date and year first above written.
LANDLORD:
Pivotal Simon Office XVI, L.L.C., an Arizona
limited liability company, formerly known as
Pivotal Simon Pointe, L.L.C.
By: Pivotal Group II, L.L.C., an Arizona
limited liability company, its
Administrative Member
By: Jahm Najafi, Trustee of the Jahm Najafi
Trust dated July 30, 1996, its Member
By: Jahm Najafi
------------------------
Name: Jahm Najafi
Its: Trustee
TENANT:
MANAGED CARE SOLUTIONS, INC.,
a Delaware corporation
By: Michael Kennedy
---------------------------------
Name: Michael Kennedy
Its: CFO and Assistant Secretary
Witness for purposes of
Power of Attorney:
Kippy Knight Schader By: James A. Burns
- ----------------------------- -----------------------------------
Witness Name: James A. Burns
Name: Kippy Knight Shader Its: President
If Tenant is a CORPORATION, the
authorized officers must sign on behalf
of the corporation and indicate the
capacity in which they are signing. The
Lease must be executed by the president
or vice-president and the secretary or
assistant secretary, unless the bylaws
or a resolution of the board of
directors shall
47
<PAGE> 49
otherwise provide, in which event, the
bylaws or a certified copy of the
resolution, as the case may be, must be
attached to this Lease.
48
<PAGE> 50
RIDER "1"
Rider 1 to Lease dated September 30, 1996 between Pivotal Simon Office
XVI, L.L.C., formerly known as Pivotal Simon Pointe, L.L.C., an Arizona limited
liability company ("Landlord"), and Managed Care Solutions, Inc., a Delaware
corporation ("Tenant").
1. Option to Extend. Provided that Tenant is not in breach or default of
any of the terms, conditions, covenants, obligations or provisions of the Lease
to which this Rider is attached, and that no event shall have occurred or state
of facts exists which if continued uncured will, with the lapse of time or the
delivery of notice, or both, constitute an Event of Default, then Tenant shall
have, and is hereby granted, the option to extend the Initial Term for one (1)
additional period of five (5) years. Except as set forth in Section 0 of this
Rider, Tenant's occupancy of the Leased Premises during the Renewal Term shall
be governed by all of the terms, conditions, covenants and provisions of the
Lease to which this Rider is attached except that Tenant shall have no further
option to extend the Initial Term after the expiration of the Renewal Term. If
Tenant desires to exercise its option to extend the Initial Term, it must give
Landlord notice in writing ("Option Notice") of its intent to do so at least
eight (8) months, but not more than twenty-four (24) months prior to the
expiration of the Initial Term. For the purposes of the Lease to which this
Rider is attached, the phrase "Lease Term" shall be deemed to refer to the
Initial Term and the Renewal Term to the extent applicable.
2. Amendment to Basic Provisions.
(a) Lease Term. Article 1.11 of the Lease entitled "Lease Term" is
hereby deleted and replaced with the following:
1.11 Lease Term.
(a) Initial Term: Five (5) years;
(b) Renewal Term: Five (5) years.
(b) Annual Basic Rent. Article 1.13 of the Lease entitled "Annual
Basic Rent" is hereby deleted and replaced with the following:
1.13 Annual Basic Rent.
(a) Initial Term:
<TABLE>
<CAPTION>
Rental Rate
Annual Monthly per Rentable
Lease Year Basic Rent Basic Rent Square Foot
---------- ---------- ---------- ------------
<S> <C> <C> <C>
1 $484,443.50 $40,370.29 $16.75
2 498,904.50 41,575.38 17.25
3 513,365.50 42,780.46 17.75
4 527,826.50 43,985.54 18.25
5 542,287.50 45,190.63 18.75
</TABLE>
Rider 1 - 1
<PAGE> 51
(b) Renewal Term: Landlord and Tenant shall have thirty (30) days
after Landlord receives the Option Notice within which to agree on the Annual
Basic Rental for the Renewal Term based upon ninety-five percent (95%) of the
"THEN FAIR MARKET RENTAL VALUE OF THE PREMISES" as defined below. If the parties
agree on the Annual Basic Rental for the Renewal Term within thirty (30) days,
they shall amend this Lease by stating the Annual Basic Rental for the Renewal
Term.
3. Calculation of Fair Market Rental Value of the Premises: (a) If they
are unable to agree on the Annual Basic Rental for the Renewal Term within the
thirty (30) day period, then the Annual Basic Rental shall be ninety-five
percent (95%) of the "THEN FAIR MARKET RENTAL VALUE OF THE PREMISES" as
determined in accordance with this Rider.
(b) The "THEN FAIR MARKET RENTAL VALUE OF THE PREMISES" means what a
landlord under no compulsion to lease the Premises and a tenant under no
compulsion to lease the Premises, would determine as rent for the Renewal Term,
as of the commencement of the Renewal Term, taking into consideration the use
permitted under the Lease, the quality, size, shape, design and location of the
Premises within the Building, taking into account concessions and all other
relevant factors. The then fair market rental value of the Premises for the
first year of the Renewal Term will not be less than the Annual Basic Rental and
Parking Charge payable during the last year of the Initial Term.
(c) Within seven (7) days after the expiration of the fifteen (15)
day period set forth in Subsection 1.12 above, Landlord and Tenant shall each
appoint a real estate broker with at least ten (10) full years full-time
commercial brokerage experience in the area in which the Premises are located to
appraise the then fair market rental value of the Premises. If either the
Landlord or the Tenant does not appoint an broker within ten (10) days after the
other has given notice of the name of its broker, the single broker appointed
shall be the sole broker and shall set the then fair market rental value of the
Premises. If two (2) brokers are appointed pursuant to this paragraph, they
shall meet promptly and attempt to set the then fair market rental value of the
Premises. If they are unable to agree within the thirty (30) days after the
second broker has been appointed, they shall attempt to elect a third broker
meeting the qualifications stated in this paragraph within ten (10) days after
the last day the two (2) brokers are given to set the then fair market rental
value of the Premises. If they are unable to agree on the third broker, either
the Landlord or Tenant may petition the presiding civil court judge of the
Maricopa County Superior Court for the selection of a third broker who meets the
qualifications stated in this paragraph. Tenant and Landlord shall each bear
one-half (1/2) of the cost of appointing the brokers and of paying the broker's
fees.
(d) Within thirty (30) days after the selection of the third broker,
a majority of the brokers shall set the then fair market rental value of the
Premises. If a majority of the brokers are unable to set the then fair market
rental value of the Premises within thirty (30) days after selection of the
third broker, the three (3) appraisals shall be averaged and the average shall
be the then fair market rental value of the Premises.
The broker(s) determination of the fair rental value of the Premises shall
contemplate an Annual Basic Rent that increases over the Renewal Term.
4. Definitions. Capitalized terms used in this Rider without definition
shall have the definition assigned to such terms in the Lease to which this
Rider is attached, unless the context requires otherwise.
Rider 1 - 2
<PAGE> 52
5. Full Force and Effect. Except as specifically modified by this Rider,
the Lease to which this Rider is attached remains in full force and effect.
JN MK
- --------------------------- ----------------------------
Landlord's Initials Tenant's Initials
Rider 1 - 3
<PAGE> 53
RIDER "2"
Rider 2 to Lease dated May ____, 1996 between Pivotal Simon Office XVI
L.L.C., formerly known as Pivotal Simon Pointe, an Arizona limited liability
company ("Landlord"), and Managed Care Solutions, Inc., a Delaware corporation
("Tenant").
Rider 2 - 1
<PAGE> 54
EXHIBIT 10.4
1. Terms and Conditions of Right of First Opportunity to Lease and
Expansion Options. Tenant's right to exercise the rights of opportunity to lease
and/or expansion options described in this Rider "2" shall be conditioned on the
following: (i) there is not then in existence an Event of Default (notice
thereof having been given and any applicable cure period having expired), (ii)
there shall not have been three (3) or more Events of Default prior to Tenant's
exercise of the right of first refusal to lease, right of first opportunity to
lease, or expansion option, as applicable, (iii) the originally named Tenant or
the tenant pursuant to a Permitted Transfer (as defined in Article 0 of the
Lease to which this Rider is attached) shall be in occupancy of all of the
Leased Premises, and (iv) there has not occurred a material adverse change in
Tenant's financial condition from and after the date Tenant executed the Lease.
Tenant's rights to exercise any of the rights and options described herein shall
also be subject to any rights of first refusal or opportunity existing prior to
the date of this Lease, which rights are more particularly described on Annex 1
to this Rider. If a right of first opportunity or option to expand is exercised
by Tenant on or before September 30, 1997, the additional space leased by Tenant
shall be occupied by Tenant upon the same terms and conditions contained in the
Lease with respect to the Leased Premises, including Annual Basic Rent, Lease
Term, renewal option and Tenant Improvement Allowance (but not the Additional
Allowance); provided, however, the Tenant Improvement Allowance shall be reduced
on a straight-line basis (e.g., one-sixtieth (1/60th) each month) commencing on
the Commencement Date. If Tenant exercises a right of first opportunity or
expansion option after September 30, 1997, unless otherwise set forth below,
such additional space shall be leased for a term of not less than three (3)
years and at otherwise prevailing fair-market rental rates, terms and conditions
determined in accordance with the provisions of Paragraph 3 of Rider "1". In the
event that Tenant expands the Leased Premises by exercise of any right of
opportunity to lease or expansion option, the number of covered reserved and
uncovered reserved parking spaces to which Tenant is entitled shall expand
proportionately (i.e. the ratio of parking spaces to square footage leased by
Tenant), unless the lease supplement between Landlord and Tenant in connection
with such expansion provides for a lower ratio of parking spaces.
2. Right of First Opportunity to Lease. In the event all or any portion of
the space in Suites 100A, 110, 145 and 240 (collectively, the "ADDITIONAL
SPACE") (as more particularly described on the floor plan attached hereto as
Annex 3) is not then leased or occupied or all renewal rights held by the
current tenant of any portion of the Additional Space shall have expired without
exercise thereof, prior to Landlord offering the Additional Space for lease,
Landlord shall deliver to Tenant written notice (the "OPPORTUNITY PROPOSAL
NOTICE") which Opportunity Proposal Notice shall set forth the Base Year Costs,
Annual Basic Rent, Additional Rent and Tenant Improvement Allowance at which
Landlord intends to market the Additional Space. Tenant shall have an option
(the "OPTION") exercisable by written notice to Landlord within thirty (30) days
after receipt of the Opportunity Proposal Notice to lease all of the Additional
Space upon the terms and conditions contained in the Opportunity Proposal
Notice. Promptly after Tenant exercises the Option, Landlord and Tenant shall
exercise supplement agreement to the Lease to which this Rider is attached, in a
form satisfactory to Landlord and Tenant, incorporating the Additional Space as
part of the Lease Premises. If Tenant does not timely exercise the Option, or if
Landlord and Tenant do not execute a supplemental agreement to this Lease within
thirty (30) days after notice by Tenant to Landlord of its election to exercise
the Option, the Option shall be deemed waived and Landlord may lease the
Additional Space to third parties provided that the Annual Basic Rent,
Additional Rent and tenant improvement allowance is at least ninety-five percent
(95%) of the Annual Basic Rent and Additional Rent set forth in the Opportunity
Proposal Notice. Prior to entering into a lease with a third party for all or
any
<PAGE> 55
portion of the Additional Space, Landlord shall provide Tenant with notice
of the material terms of such Lease. In the event that the Base Year Costs,
Annual Basic Rent, Additional Rent and Tenant Improvement Allowance contained in
the lease between Landlord and any third party to whom Landlord proposes to
lease the applicable Additional Space are not at least ninety-five percent (95%)
of the Base Year Costs, Annual Basic Rent, Additional Rent and Tenant
Improvement Allowance set forth in the Opportunity Proposal Notice, Tenant shall
have five (5) business days to lease the Additional Space on the terms and
conditions set forth in the lease between Landlord and such third party. In the
event Tenant does not agree to lease the Additional Space within such five (5)
business day period, Tenant shall have no further rights of opportunity with
respect to such Additional Space.
3. Expansion Rights.
(a) Expansion Right No. 1. Tenant shall have and is hereby granted
an option to lease approximately twelve thousand twenty-nine (12,029) rentable
square feet comprising Suite 200 on the second floor of the Building (the
"EXPANSION SPACE NO. 1") (as more particularly described on the floor plan
attached hereto as Annex 4) for a lease term to commence not later than February
1, 1997 and terminating on the Expiration Date. If Tenant desires to exercise
its option to lease the Expansion Space No. 1, it must give Landlord notice of
its intent to do so (the "EXPANSION NOTICE NO. 1") no later than October 1,
1996. Promptly after receipt by Landlord of the Expansion Notice No. 1, Landlord
and Tenant shall enter into a supplemental agreement to the Lease to which this
Rider is attached, in a form satisfactory to Landlord and Tenant, incorporating
the Expansion Space No. 1 into the Leased Premises. If Landlord and Tenant do
not execute a supplemental agreement to the Lease to which this Rider is
attached within thirty (30) days after notice by Tenant to Landlord of its
election to exercise the Expansion Right No. 1, the expansion right shall be
deemed waived.
(b) Expansion Right No. 2. Tenant shall have and is hereby granted
an option to lease Suite 100A located on the first floor of the Building (the
"EXPANSION SPACE NO. 2") (as more particularly described on the floor plan
attached hereto as Annex 5) for a term to commence sixty (60) days after the
date the existing tenant vacates Suite 100A, subject to the following terms and
conditions: (i) Tenant shall have furnished Landlord written notice exercising
such option, (ii) within thirty (30) days of delivery of such notice Landlord
and Tenant shall have executed a supplement to the Lease, in a form satisfactory
to Landlord and Tenant, incorporating Suite 100A into the Leased Premises, and
(iii) Landlord shall, within thirty (30) days after execution of such supplement
to the Lease to which this Rider is attached, have entered into an agreement
pursuant to which the existing tenant of Suite 100A agrees to relocate to other
space within the Building.
(c) Expansion Right No. 3. Tenant shall have and is hereby granted
an option to lease all or any portion of the space in Suites 110 and 240 (the
"EXPANSION SPACE NO. 3") as more particularly described on the floor plan
attached hereto as Annex 6) for a term to commence on the date the applicable
existing tenants vacate all or such portion of Suites 110 and 240, respectively,
as the case may be. Tenant's exercise of its option to lease all or any portion
of the Expansion Space No. 3 shall be subject to the following terms and
conditions: (i) Tenant shall have furnished Landlord written notice exercising
such option, (ii) within thirty (30) days after delivery of such notice Landlord
and Tenant shall have executed a
<PAGE> 56
supplement to the Lease to which this Rider is attached, in a form satisfactory
to Landlord and Tenant, incorporating all or such portion of Suite 110 and 240
into the Leased Premises, (iii) Landlord shall, within thirty (30) days after
execution of such supplement to the Lease, have entered into an agreement
pursuant to which the existing tenants of all or such portion of Suites 110 and
240 agree to relocate to other space within the Building, and (iv) Tenant shall
reimburse Landlord for all reasonable costs and expenses (including reasonable
attorneys' fees) incurred by Landlord in connection with relocating such tenants
to other space within the Building.
4. Landlord shall use commercially reasonable efforts to relocate tenants
occupying space subject to any of the rights of opportunity to lease and/or
expansion options described in this Rider "2", so as to make such space
available for offer to Tenant pursuant to the terms hereof.
5. Definitions. Capitalized terms used in this Rider without definition
shall have the definition assigned to such terms in the Lease to which this
Rider is attached, unless the context requires otherwise.
6. Full Force and Effect. Except as specifically modified by this Rider,
the Lease to which this Rider is attached remains in full force and effect.
JN MK
- ----------------------------- ----------------------------------
Landlord's Initials Tenant's Initials
<PAGE> 1
Exhibit 21
MANAGED CARE SOLUTIONS
SUBSIDIARIES
<TABLE>
<CAPTION>
State of Ownership
Subsidiary Incorporation %
- ---------- ------------- ---------
<S> <C> <C>
Arizona Health Concepts, Inc. Arizona 100%
Managed Care Solutions of Arizona, Inc. Arizona 100%
Ventana Health Systems, Inc. Arizona 100%
Community Health USA, Inc. Arizona 100%
Benova Managed Care Solutions, LLC New York 65%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> NOV-30-1996
<EXCHANGE-RATE> 1
<CASH> 6,957,000
<SECURITIES> 2,356,000
<RECEIVABLES> 6,851,000
<ALLOWANCES> 1,406,000
<INVENTORY> 0
<CURRENT-ASSETS> 16,583,000
<PP&E> 5,954,000
<DEPRECIATION> 1,256,000
<TOTAL-ASSETS> 30,590,000
<CURRENT-LIABILITIES> 16,068,000
<BONDS> 3,505,000
0
7,000
<COMMON> 44,000
<OTHER-SE> 10,966,000
<TOTAL-LIABILITY-AND-EQUITY> 30,590,000
<SALES> 35,101,000
<TOTAL-REVENUES> 35,101,000
<CGS> 0
<TOTAL-COSTS> 36,662,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,000
<INCOME-PRETAX> (1,457,000)
<INCOME-TAX> (50,000)
<INCOME-CONTINUING> (1,407,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,407,000)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
