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SERVICE AGREEMENT
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P.B. MANAGEMENT COMPANY, INC.
AND
BEACON MEDICAL GROUP, P.C.
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Effective October 1, 1997
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Table of Contents
1. RESPONSIBILITIES OF THE PARTIES........................................ 1
1.1 General Responsibilities of the Parties................... 1
1.2 BEACON's Matters.......................................... 1
1.3 Patient Referrals......................................... 1
2. POLICY COUNCIL......................................................... 1
2.1 Formation and Operation of the Policy Council............. 1
2.2 Duties and Responsibilities of the Policy Council......... 2
3. OBLIGATIONS OF PROMEDCO-HARRISBURG..................................... 3
3.1 Management and Administration............................. 3
3.3 Expansion of Clinic....................................... 8
3.4 Events Excusing Performance............................... 8
3.5 Compliance With Applicable Laws........................... 8
4. OBLIGATIONS OF BEACON............................................. 8
4.1 Professional Services..................................... 8
4.2 Employment Of Physician Employees......................... 9
4.3 BEACON Expenses........................................... 9
4.4 Medical Practice.......................................... 9
4.5 Professional Insurance Eligibility........................ 9
4.6 Employment Of Non-Physician Employees..................... 9
4.7 Events Excusing Performance............................... 9
4.8 Compliance With Applicable Laws...........................10
4.9 BEACON Employee Benefit Plans.............................10
4.10 Physician Powers of Attorney..............................10
4.11 Spokesperson..............................................11
5. RECORDS................................................................11
5.1 Patient Records...........................................11
5.2 Other Records.............................................11
5.3 Access to Records.........................................11
6. FACILITIES TO BE PROVIDED BY PROMEDCO-HARRISBURG.......................11
6.1 Facilities................................................11
6.2 Use of Facilities.........................................11
7. FINANCIAL ARRANGEMENTS.................................................11
7.1 Payments to BEACON and ProMedCo-Harrisburg................11
7.2 Distribution..............................................12
7.3 Clinic Expenses...........................................12
7.4 Accounts Receivable.......................................12
8. INSURANCE AND INDEMNITY................................................13
8.1 Insurance to be Maintained by ProMedCo-Harrisburg.........13
8.2 Tail Insurance Coverage...................................13
8.3 Additional Insured........................................13
8.4 Indemnification...........................................13
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES...........................14
9.1 Restrictive Covenants by BEACON...........................14
9.2 Restrictive Covenants By Medical Professionals............14
9.3 Physician Shareholder and Physician Employee
Liquidated Damages....................................14
9.4 Enforcement...............................................15
9.5 Termination of Restrictive Covenants......................15
10. TERM
10.1 Term and Renewal.............................................16
10.2 Termination by BEACON........................................16
10.3 Termination by ProMedCo-Harrisburg........................16
10.4 Actions After Termination.................................17
11. DEFINITIONS.......................................................18
11.1 Asset Purchase Agreement..................................18
11.2 BEACON Capitation Allocation..............................18
11.3 BEACON Employees..........................................18
11.4 BEACON Inducement Agreement...............................18
11.5 Capitated Revenues........................................19
11.6 Clinic....................................................19
11.7 Clinic Expenses...........................................19
11.8 Clinic Expenses shall not include.........................20
11.9 Clinic Facility...........................................20
11.10 Distribution Funds..........................................21
11.11 Effective Date..............................................21
11.12 HealthAmerica...............................................21
11.13 Medical Professional........................................21
11.14 Managed Care Surpluses......................................21
11.15 Net Capitated Revenues......................................21
11.16 Net Clinic Revenues.........................................21
11.17 Opening Balance Sheet.......................................21
11.18 Outside Medical Expenses....................................21
11.19 Physician Employees.........................................22
11.20 Physician Extenders.........................................22
11.21 Physician Shareholders......................................22
11.22 ProMedCo....................................................22
11.23 ProMedCo-Harrisburg Distribution............................22
11.24 Risk Management Expenses....................................22
11.25 Technical Employees.........................................22
12. GENERAL PROVISIONS......................................................22
12.1 Independent Contractor......................................22
12.2 Proprietary Property........................................23
12.3 Cooperation.................................................23
12.4 Licenses, Permits and Certificates..........................23
12.5 Compliance with Rules, Regulations and Laws.................23
12.6 Generally Accepted Accounting Principles (GAAP).............24
12.7 Notices...................................................24
12.8 Attorneys' Fees...........................................24
12.9 Severability..............................................24
12.10 Arbitration.................................................24
12.11 Construction of Agreement...................................24
12.12 Assignment and Delegation...................................24
12.13 Confidentiality.............................................25
12.14 Waiver......................................................25
12.15 Headings....................................................25
12.16 No Third Party Beneficiaries................................25
12.17 Time is of the Essence......................................25
12.18 Modifications of Agreement for Prospective Legal Events 25
12.19 Whole Agreement.............................................26
SERVICE AGREEMENT
Service Agreement ("Agreement") dated October 1, 1997, between PHB
Management Company, Inc., a Pennsylvania corporation ("ProMedCo-Harrisburg") and
Beacon Medical Group, P.C. a Pennsylvania professional corporation ("BEACON").
RECITALS:
Subject to the terms and conditions hereof, BEACON desires to engage
ProMedCoHarrisburg to provide to BEACON management services, facilities,
personnel, equipment and supplies necessary to operate the Clinic (as defined
herein) and ProMedCo-Harrisburg desires to accept such engagement.
The parties agree as follows:
1. RESPONSIBILITIES OF THE PARTIES
1.1 General Responsibilities of the Parties. ProMedCo-Harrisburg shall
provide BEACON with offices, facilities, equipment, supplies, non-professional
support personnel, and management and financial advisory services.
ProMedCo-Harrisburg shall neither exercise control over nor interfere with the
physician-patient relationship, which shall be maintained strictly between the
physicians of BEACON and their patients.
1.2 BEACON's Matters. BEACON shall maintain sole discretion and
authority over the financial matters relative to its corporate existence. It
shall set compensation levels for BEACON Employees. BEACON will also be
responsible for all other matters pertaining to the operation of BEACON not
otherwise assumed by ProMedCo-Harrisburg under the terms of this Agreement.
1.3 Patient Referrals. The parties agree that the benefits to BEACON do
not require, are not payment for, and are not in any way contingent upon the
admission, referral or any other arrangement for the provision of any item or
service offered by ProMedCo-Harrisburg to any of BEACON's patients in any
facility or laboratory controlled, managed or operated by ProMedCo-Harrisburg.
2. POLICY COUNCIL
2.1 Formation and Operation of the Policy Council. A Policy Council
will be established which shall be responsible for the major policies which will
serve as the basis for operations of the Clinic. The Policy Council shall
consist of six members. ProMedCo-Harrisburg shall designate, at its sole
discretion, three members of the Policy Council. Members of the Policy Council
shall be entitled to attend and vote by proxy at any meetings of the Policy
Council so long as at least one such representative is present in person and the
most senior member of the group of designees of Pro MedCo-Harrisburg shall be
deemed to hold the proxy of any designee of ProMedCo-Harrisburg who is absent
from the meeting. BEACON at its sole discretion shall designate three members.
Except as may otherwise be provided, the act of a majority of the members of the
Policy Council shall be the act of the Policy Council.
2.2 Duties and Responsibilities of the Policy Council. During the term
of this Agreement, the Policy Council shall have the following duties and
responsibilities.
(a) Annual Budgets. All annual capital and operating budgets
prepared by ProMedCo-Harrisburg, as set forth in Section 3 and
employing ProMedCo-Harrisburg's financial expertise, shall be
subject to the review and approval of the Policy Council,
provided; however, ProMedCo-Harrisburg shall have final
approval of any capital expenditure required by BEACON.
(b) Administrator. The selection and retention of the Administrator
pursuant to Section 3.1 shall be subject to the reasonable approval of
the Policy Council. If BEACON is dissatisfied with the services
provided by the Administrator, BEACON shall refer the matter to the
Policy Council. ProMedCo-Harrisburg and Policy Council shall in good
faith determine whether the performance of the Administrator could be
brought to acceptable levels through counsel and assistance, or
whether the Administrator should be terminated. ProMedCo-Harrisburg
shall have the ultimate authority to terminate the Administrator.
(c) Advertising. All advertising, marketing, and public relations
shall be subject to the prior review and approval of the
Policy Council, in compliance with applicable laws and
regulations governing professional advertising and in
accordance with the standards and medical ethics of the
American Medical Association and the Pennsylvania Medical
Society.
(d) Ancillary Services. The Policy Council shall approve Clinic
provided ancillary services based upon the pricing, access to
and quality of such services.
(e) Capital Improvements and Expansion. The Policy Council shall
determine the priority for any renovation, expansion plans and
major equipment expenditures with respect to the Clinic based
upon economic feasibility, physician support, productivity and
market conditions. Any capital expenditure in excess of
$10,000 shall require the approval of the Policy Council,
however, ProMedCo-Harrisburg shall have final approval over
any capital expenditures.
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(f) Exceptions to Inclusion in the Net Revenue Calculation. The
exclusion of any revenue from Net Clinic Revenues, whether now
or in the future, shall be subject to the approval of the
Policy Council.
(g) Grievance Issues. Subject to the provisions of Section 1.2 of
this Agreement, the Policy Council shall consider and make
final decisions regarding grievances pertaining to matters not
specifically addressed in this Agreement as referred to it by
BEACON's Board or ProMedCo-Harrisburg.
(h) Patient Fees. In consultation with BEACON and
ProMedCo-Harrisburg, the Policy Council shall review and adopt
the fee schedule for all physician and ancillary services
rendered by the Clinic.
(i) Physician Hiring. The Policy Council, with information and
analysis provided by ProMedCo-Harrisburg, shall determine the
number and type of physicians required for the efficient
operation of the Clinic and BEACON shall determine the
individual physicians to be hired to fill such positions. The
approval of ProMedCo-Harrisburg shall be required for any
variations to the restrictive covenants in any physician
employment contract.
(j) Provider and Payor Relationships. The Policy Council shall make the
decisions regarding the establishment and maintenance of relationships
with institutional health care providers and payors. The Policy
Council shall be responsible for approving the allocation of
capitation risk pools between the professional and institutional
components of these pools to the extent applicable under a payor
agreement. ProMedCo-Harrisburg and BEACON shall use actuarial data
from a nationally recognized actuarial firm as agreed to by both
parties, for the purposes of allocating capitation funds, for those
professional services provided directly by BEACON.
(k) Strategic Planning. The Policy Council, with the assistance of
ProMedCoHarrisburg, shall develop long-term strategic planning
objectives.
3. 0BLIGATIONS OF PROMEDCO-HARRISBURG
During the term of this Agreement, ProMedCo-Harrisburg shall provide or
arrange for the services set forth in this Section 3, the cost of all of which
shall be
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included in Clinic Expenses. ProMedCo-Harrisburg is hereby expressly authorized
to perform its services in whatever manner it deems reasonably appropriate, in
accordance with policies approved by the Policy Council, and including without
limitation, performance of some functions at locations other than the Clinic
Facility. BEACON will not act in a manner which would prevent
ProMedCo-Harrisburg from efficiently managing the Clinic Facility operations in
a businesslike manner. BEACON, through BEACON Employees, will provide all
medical services. ProMedCo-Harrisburg will have no authority, directly or
indirectly, to perform, and will not perform, any medical function.
ProMedCo-Harrisburg may, however, advise BEACON as to the relationship between
its performance of medical functions and the overall administrative and business
functioning of the Clinic.
3.1 Management and Administration. During the term of this Agreement,
BEACON
hereby appoints ProMedCo-Harrisburg as the sole and exclusive manager and
administrator of all non-medical functions and services related to BEACON's
services at the Clinic. BEACON, through BEACON Employees, shall perform all
medical services, and ProMedCo-Harrisburg shall have no authority, directly or
indirectly, to perform, and will not perform, any medical function. Without
limiting the generality of the foregoing, ProMedCo-Harrisburg shall provide the
following administrative, management and marketing services as may be required
in conjunction with BEACON's services at the Clinic. ProMedCo-Harrisburg shall
hire and supervise an Administrator, subject to the reasonable approval of the
Policy Council, to manage and administer all of the day-today business functions
of ProMedCo-Harrisburg, including without limitation:
3.1.1 Annual Budgets. Financial planning and preparation of annual
budgets. Annually and at least 30 days prior to the commencement of each fiscal
year, ProMedCoHarrisburg shall prepare and deliver to BEACON capital and
operating budgets reflecting in reasonable detail anticipated revenues and
expenses, sources and uses of capital to maintain and enhance BEACON's medical
practice and Clinic services.
3.1.2 Financial Statements. ProMedCo-Harrisburg shall prepare monthly
and fiscal year unaudited financial statements containing a balance sheet and a
statement of income for Clinic operations, which shall be delivered to BEACON
within thirty (30) days after the close of each calendar month. The fiscal year
statement may be examined by a certified public accountant as selected by
ProMedCo-Harrisburg in connection with the audit of the financial statements of
ProMedCo. If BEACON desires an audit in addition to the audit provided by
ProMedCo-Harrisburg, such an audit would be at BEACON's expense.
3.1.3 Non-Physician Personnel. ProMedCo-Harrisburg will provide all
non physician personnel reasonably necessary for the conduct of Clinic
operations with the
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exception of Physician Extenders and Technical Employees. ProMedCo-Harrisburg
shall determine and cause to be paid the salaries, fringe benefits and any sums
withheld for income taxes, unemployment insurance, social security taxes
required to be withheld or any other withholding amounts required by applicable
law or governmental authority, of all such personnel. Such personnel shall be
under the direction, supervision and control of ProMedCo-Harrisburg, with those
personnel performing patient care services subject to the professional
supervision of BEACON. If BEACON is dissatisfied with the services of any
person, BEACON shall consult with ProMedCo-Harrisburg. ProMedCo-Harrisburg shall
in good faith determine whether the performance of that employee could be
brought to acceptable levels through counsel and assistance, or whether such
employee should be terminated. All of ProMedCo-Harrisburg's obligations
regarding staff shall be governed by the overriding principle and goal of
supporting BEACON in providing high quality medical care. At
ProMedCo-Harrisburg's option some or all of the non-physician personnel may be
carried on the books of BEACON as BEACON's employees in which event BEACON's
costs associated with such employees will be a Clinic Expense.
3.1.4 Quality Assurance. ProMedCo-Harrisburg will assist BEACON in
fulfilling its obligation to its patients to maintain high quality medical and
professional services, including patient satisfaction programs, employee
education, outcomes analysis, clinical protocol development and to implement a
risk management program.
3.1.5 Facilities and Equipment. ProMedCo-Harrisburg will ensure the
proper cleanliness of the premises, maintenance and cleanliness of the
equipment, furniture and furnishings located on the premises.
3.1.6 Inventory Control and Purchasing Supplies. ProMedCo-Harrisburg
shall order and purchase inventory and supplies, and such other ordinary,
necessary or appropriate materials which ProMedCo-Harrisburg shall deem to be
necessary in the operation of the Clinic, to deliver quality Clinic services in
a cost effective manner.
3.1.7 Managed Care Contracting. ProMedCo-Harrisburg will be responsible
for marketing, negotiation, and administering all managed care contracts,
subject to the provisions of Section 2.20); provided, however, except with
respect to the existing relationship with AllianceHealth NetSource, Inc., no
contract or arrangement regarding the provision of clinical services shall be
entered into without BEACON's consent. The parties agree that in the event the
Policy Council determines to pursue the formation of an IPA, other physician
organization or hospital network, or enter into risk assumption contractual
arrangements, the parties will structure the IPA, hospital network or such
arrangements in the manner in which the Policy Council determines unless
otherwise specifically addressed in this Agreement. The IPA or hospital
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network will be managed by ProMedCo-Harrisburg or an affiliate of
ProMedCo-Harrisburg. In the event a management agreement is entered into for the
management of an IPA or hospital network, the management agreement will provide
for a management fee to be paid to the management organization by the IPA. Such
management fee shall be approved by the Policy Council and set at a level to
cover the costs of the management agreement.
3.1.8 Billing and Collections. ProMedCo-Harrisburg shall ▇▇▇▇ patients
and collect all fees for services performed inside or outside the Clinic
Facility or arrange for such billing and collection. BEACON hereby appoints
ProMedCo-Harrisburg, for the term hereof, to be its true and lawful
Attorney-in-fact for the following purposes (i) to ▇▇▇▇ patients in BEACON's
name and on its behalf, (ii) to collect accounts receivable resulting from such
billing in BEACON's name and on its behalf, (iii) to receive payments from Blue
Cross and Blue Shield, Medicare, Medicaid, payments from health plans, and all
other third party payors; (iv) to receive the cash proceeds of any accounts
receivable; (v) to take possession of and endorse in the name of BEACON (and/or
in the name of an individual physician, such payment intended for purpose of
payment of a physician's ▇▇▇▇) any notes, checks, money orders, insurance
payments and other instruments received in payment of accounts receivable; and
(vi) in accordance with policies adopted by the Policy Council, to initiate
legal proceedings in the name of BEACON to collect any accounts and monies owed
to the Clinic, to enforce the rights of BEACON or BEACON Employees as creditor
under any contract or in connection with the rendering of any service, and to
contest adjustments and denials governmental agencies (or its fiscal
intermediaries) as third-party payors. All adjustments made for uncollectible
accounts, professional courtesies and other activities that do not generate a
collectible fee shall be done in a reasonable and consistent manner acceptable
to ProMedCo-Harrisburg's independent certified public accountants.
3.1.9 Deposit of Net Clinic Revenues. During the term of this
Agreement, all Net Clinic Revenues collected resulting from the operations of
the Clinic shall be deposited directly into a bank account of which BEACON shall
be the owner ("Account"). ProMedCo-Harrisburg and BEACON shall maintain their
accounting records in such a way as to clearly segregate Net Clinic Revenues
from other funds of ProMedCo-Harrisburg or BEACON. BEACON hereby appoints
ProMedCo-Harrisburg as its true and lawful attorney-in-fact to deposit in the
Account all revenues collected. BEACON covenants, and shall cause all BEACON
Employees to covenant, to forward any payments received with respect to Net
Clinic Revenues for services provided by BEACON and BEACON Employees to
ProMedCo-Harrisburg for deposit. ProMedCo-Harrisburg shall have the right to
withdraw funds from the Account and all owners of the Account shall execute a
revocable standing transfer order ("Transfer Order") under which the bank
maintaining the Account shall periodically transfer the entire balance of the
Account to a separate bank account owned solely by ProMedCo-Harrisburg
("ProMedCo-Harrisburg Account"). BEACON and ProMedCo-Harrisburg hereby agree
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to execute from time to time such documents and instructions as shall be
required by the bank maintaining the Account and mutually agreed upon to
effectuate the foregoing provisions and to extend or amend such documents and
instructions. Any action by BEACON that interferes with the operation of this
Section, including, but not limited to, any failure to deposit or have
ProMedCo-Harrisburg deposit any Net Clinic Revenues into the Account, any
withdrawal of any funds from the Account not authorized by the express terms of
this Agreement, or any revocation of or attempt to revoke the Transfer Order
(otherwise than upon expiration or termination of this Agreement), will
constitute a breach of this Agreement and will entitle ProMedCo-Harrisburg, in
addition to any other remedies that it may have at law or in equity, to seek a
court ordered assignment of the following rights:
(a) To collect accounts receivable resulting from the provision of
services to patients of BEACON and the BEACON Employees;
(b) To receive payments from patients, third party payor plans, insurance
companies, Medicare, Medicaid and all other payors with respect to
services rendered by BEACON and its BEACON Employees;
(c) To take possession of and endorse any notes, checks, money orders,
insurance payments and any other instruments received as payment of
such accounts receivable; and
(d) To collect all revenues of the Clinic.
3.1.10 Management Information Systems/Computer Systems.
ProMedCo-Harrisburg shall supervise and provide information systems that are
necessary and appropriate for the operation of the Clinic.
3.1.11 Legal and Accounting Services. ProMedCo-Harrisburg shall arrange
for or render to BEACON such business and financial management consultation and
advice as may be reasonably required or requested by BEACON and directly related
to the operations of the Clinic, including the attorneys' fees and other costs
of enforcing any physician contract containing restrictive covenants and
attorneys' fees and other costs and expenses of litigation, arbitration or other
proceeding for malpractice suits against the Clinic and the BEACON Employees
other than the Physician Shareholders to the extent such fees, costs and
expenses are not covered by insurance; provided, such services must be approved
in advance by the Administrator and shall be paid by BEACON and treated as a
Clinic Expense. ProMedCo-Harrisburg shall not be responsible for rendering any
legal or tax advice or
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services or personal financial services to BEACON or any employee or agent of
BEACON.
3.1.12 Negotiation and Payment of Premiums For All Insurance Products
Held By BEACON. ProMedCo-Harrisburg shall negotiate for and cause premiums to be
paid with respect to the insurance provided for in Section 8. Premiums and
deductibles with respect to such policies shall be a Clinic Expense.
3.1.13 Physician Recruiting. ProMedCo-Harrisburg shall assist BEACON in
recruiting additional physicians, carrying out such administrative functions as
may be appropriate such as advertising for and identifying potential candidates,
checking credentials, and arranging interviews; provided, however, BEACON shall
interview and make the ultimate decision as to the suitability of any physician
to become associated with the Clinic. All physicians recruited by
ProMedCo-Harrisburg and accepted by BEACON shall be the sole employees of BEACON
to the extent such physicians are hired as employees. Any expenses incurred in
the recruitment of physicians, including, but not limited to, employment agency
fees, relocation and interviewing expenses shall be Clinic Expenses approved by
the Policy Council.
3.1.14 Supervision of Ancillary Services. ProMedCo-Harrisburg shall
operate and supervise such ancillary services as approved by the Policy Council.
3.1.15 Strategic Planning Assistance. ProMedCo-Harrisburg shall
assist with and implement the strategic plan as approved by the Policy Council.
3.1.16 Advertising and Public Relations. From time to time
ProMedCo-Harrisburg shall recommend to the Policy Council various advertising
and public relations initiatives which shall not be implemented without Policy
Council approval.
3.1.17 Files and Records. ProMedCo-Harrisburg shall supervise and
maintain custody of all files and records relating to the operation of the
Clinic, including but not limited to accounting, billing, patient medical
records, and collection records. Patient medical records shall at all times be
and remain the property of BEACON and shall be located at Clinic facilities so
that they are readily accessible for patient care. The management of all files
and records shall comply with applicable state and federal statutes.
ProMedCo-Harrisburg shall use its reasonable efforts to preserve the
confidentiality of patients' medical records and use information contained in
such records only for the limited purpose necessary to perform the services set
forth herein, provided, however, in no event shall a breach of said
confidentiality be deemed a default under this Agreement unless such breach of
confidentiality is determined to have resulted from intentional or willful
misconduct or gross negligence of ProMedCo-Harrisburg. All medical records
pertaining to BEACON patients obtained by ProMedCo-Harrisburg pursuant to the
Asset Purchase Agreement shall be transferred to BEACON on the Effective Date of
this Agreement.
3.2 Administrator. ProMedCo-Harrisburg shall be responsible for the
selection and retention of the Administrator, subject to the provisions of
Section 2.2(b).
3.3 Expansion of Clinic. ProMedCo-Harrisburg will pursue various
programs to increase revenue and profitability including assisting BEACON in
adding additional office based procedures, ancillary services and adding
additional satellite office(s) as determined by the Policy Council to be
beneficial to the Clinic. ProMedCo-Harrisburg will also assist in recruiting new
physicians and developing relationships and affiliations with other physicians,
hospitals, networks, HMOs, etc. To assist in the continued growth and
development of the Clinic, ProMedCo-Harrisburg may acquire other physician
practices. BEACON will cooperate with ProMedCo-Harrisburg in such expansion
efforts and use its reasonable efforts to assist ProMedCo-Harrisburg with
respect thereto. Without limiting the generality of the foregoing, BEACON will
not enter into any agreements with respect to any such matter referred to in
this Section 3.3 without the prior consent of ProMedCo-Harrisburg.
3.4 Events Excusing Performance. ProMedCo-Harrisburg shall not be
liable to BEACON for failure to perform any of the services required herein in
the event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies, or other events over which ProMedCo-Harrisburg has no control for so
long as such events continue, and for a reasonable amount of time thereafter.
3.5 Compliance With Applicable Laws. ProMedCo-Harrisburg shall comply
with all applicable federal, state and local laws, regulations and restrictions
in the conduct of its obligations under this Agreement.
4. OBLIGATIONS OF BEACON
4.1 Professional Services. BEACON shall provide professional services
to patients in compliance at all times with ethical standards, laws and
regulations applying to the medical profession. BEACON shall also ensure that
each physician associated with BEACON is licensed by the Commonwealth of
Pennsylvania. In the event that any disciplinary actions or medical malpractice
actions are initiated against any such physician, BEACON shall immediately
inform the Administrator of such action and the underlying facts and
circumstances. BEACON shall carry out a program to monitor the quality of
medical care practiced, with ProMedCo-Harrisburg's assistance. BEACON will
cooperate with ProMedCo-Harrisburg in taking steps to
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resolve any utilization review or quality assurance issues which may arise in
connection with the Clinic.
4.2 Employment Of Physician Employees. BEACON shall have complete
control of and responsibility for the hiring, compensation, supervision,
evaluation and termination of its Physician Shareholders and Physician
Employees, although at the request of BEACON, ProMedCo-Harrisburg shall consult
with BEACON regarding such matters. BEACON shall enforce formal employee
agreements from each of its Physician Shareholders and Physician Employees,
hired or contracted, substantially in the form attached to the Asset Purchase
Agreement as Appendix 2.91).
4.3 BEACON Expenses. BEACON shall be solely responsible for the payment
of all costs and expenses incurred in connection with BEACON operations which
are not Clinic Expenses, including, but not limited to, accounting and other
professional services fees, salaries and benefits, retirement plan
contributions, health, disability and life insurance premiums (other than
premiums relating to Split Dollar Agreements between ProMedCo-Harrisburg and
certain Medical Professionals which shall be borne by ProMedCo-Harrisburg),
payroll taxes, membership in professional associations, continuing medical
education, and licensing and board certification fees for its Physician
Employees and Physician Extenders.
4.4 Medical Practice. BEACON shall use and occupy the Clinic Facility
exclusively for the practice of medicine, and shall comply with all applicable
local rules, ordinances and all applicable and required standards of medical
care. It is expressly acknowledged by the parties that the medical practice or
practices conducted at the Clinic Facility shall be conducted solely by
physicians associated with BEACON, and no other physician or medical
practitioner shall be permitted to use or occupy the Clinic Facility without the
prior written consent of the Policy Council.
4.5 Professional Insurance Eligibility. BEACON shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that its
Physician Shareholders and Physician Employees are insurable, and participating
in an ongoing risk management program.
4.6 Employment Of Non-Physician Employees. There will be certain
Technical Employees that perform technical functions for BEACON. These Technical
Employees will remain in the employ of BEACON. As provided in Section 3.1.3,
ProMedCo-Harrisburg will provide payroll and administrative services for such
Technical Employees which shall be a Clinic Expense.
4.7 Events Excusing Performance. BEACON shall not be liable to ProMedCo-
Harrisburg for failure to perform any of the services required herein in the
event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies, or other events
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over which BEACON has no control for so long as such events continue, and for a
reasonable amount of time thereafter.
4.8 Compliance With Applicable Laws. BEACON shall comply with all
applicable federal, state and local laws, regulations and restrictions in the
conduct of its obligations under this Agreement.
4.9 BEACON Employee Benefit Plans.
(a) As of the Effective Date of this Agreement, BEACON has in effect no
employee welfare benefit plans (as such term is defined in Section
3(l) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"))and no employee pension benefit plans (as such term
is defined in Section 3(2) of ERISA).
(b) BEACON shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of ERISA) without the express written consent
of ProMedCo-Harrisburg. Except as otherwise required by law, BEACON
shall not materially amend, freeze, terminate or merge any employee
welfare or employee benefit plan without the express written consent
of ProMedCo-Harrisburg unless such action is contemplated by the Asset
Purchase Agreement. BEACON agrees to make such changes to any employee
welfare or employee benefit plan, including the freeze, termination,
or merger of such plan, as may be approved by ProMedCo- Harrisburg.
(c) Expenses incurred in connection with any BEACON Plan or other employee
benefit plan maintained by BEACON, including without limitation the
compensation of counsel, accountants, corporate trustees and other
agents shall be expenses of BEACON.
(d) The contribution and administration expenses for Medical Professionals
shall be an expense of BEACON. ProMedCo-Harrisburg shall make
contributions or payments with respect to any BEACON Plan, as a Clinic
Expense, on behalf of eligible Technical Employees.
(e) ProMedCo-Harrisburg shall have the sole and exclusive authority to
adopt, amend, or terminate any employee benefit plan for the benefit
of its employees. ProMedCo-Harrisburg shall have the sole
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and exclusive authority to appoint the trustee, custodian, and
administrator of any such plan.
4.10 Physician Powers of Attorney. BEACON shall require all Medical
Professionals to execute and deliver to ProMedCo-Harrisburg powers of attorney,
satisfactory in form and substance to ProMedCo-Harrisburg and BEACON, appointing
ProMedCo-Harrisburg as attorney-in-fact for each of the purposes set forth in
Sections 3.1.8 and 3.1.9, which powers of attorney shall immediately terminate
upon termination of this Agreement.
4.11 Spokesperson. BEACON shall serve as spokesperson for
ProMedCo-Harrisburg and ProMedCo in Clinic, ProMedCo-Harrisburg and ProMedCo
development activities. The parties agree that ▇▇▇▇ ▇▇▇▇, M.D. and ▇▇▇▇▇▇ ▇▇▇▇▇,
M.D., or such other Physician Shareholder as tile Policy Council shall appoint,
shall serve in this capacity on behalf of BEACON.
5. RECORDS
5.1 Patient Records. Upon termination of this Agreement, BEACON shall
retain all patient medical records maintained by BEACON or ProMedCo-Harrisburg
in the name of BEACON. BEACON shall, at its option, be entitled to retain copies
of financial and accounting records relating to all services performed by
BEACON.
5.2 Other Records. All records relating in any way to the operation of
the Clinic which are not the property of BEACON under the provisions of Section
5.1 above, shall at all times be the property of ProMedCo-Harrisburg.
5.3 Access to Records. During the term of this Agreement, and
thereafter, BEACON or its designee shall upon 24 hours notice have reasonable
access during normal business hours to BEACON's and ProMedCo-Harrisburg's
financial records, including, but not limited to, records of collections,
expenses and disbursements as kept by ProMedCo-Harrisburg in performing
ProMedCo-Harrisburg's obligations under this Agreement, and BEACON may copy any
or all such records.
6. FACILITIES TO BE PROVIDED BY PROMEDCO-HARRISBURG
6.1 Facilities. ProMedCo-Harrisburg hereby agrees to provide or arrange
as a Clinic Expense the offices and facilities for Clinic operations, including
but not limited to, the Clinic Facility and all costs of repairs, maintenance
and improvements, utility (telephone, electric, gas, water) expenses, normal
janitorial services, related real or personal property lease cost payments and
expenses, taxes and insurance, refuse disposal and all other costs and expenses
reasonably incurred in conducting operations in the Clinic Facility during the
term of this Agreement.
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6.2 Use of Facilities. ProMedCo-Harrisburg and BEACON agree that
BEACON, as an independent contractor, is a separate organization that retains
the authority to direct the medical, professional, and ethical aspects of its
medical practice. If a Physician Shareholder or a Physician Employee performs
abortion procedures in any facility, ProMedCo-Harrisburg shall not receive any
ProMedCo-Harrisburg Distribution from the revenue generated from such
procedures.
7. FINANCIAL ARRANGEMENTS
7.1 Payments to BEACON and ProMedCo-Harrisburg. BEACON and
ProMedCo-Harrisburg agree that the compensation set forth herein is being paid
to ProMedCo-Harrisburg in consideration of a substantial commitment made by
ProMedCo-Harrisburg hereunder and that such fees are fair and reasonable. As
payment for its services rendered to BEACON, each month ProMedCo-Harrisburg
shall be paid the amount of all Clinic Expenses and the ProMedCo-Harrisburg
Distribution. All Net Clinic Revenues after deduction of Clinic Expenses, and
the ProMedCo-Harrisburg Distribution, shall be referred to as the "BEACON
Distribution."
7.2 Distribution. The amounts to be paid to ProMedCo-Harrisburg under
this Section 7.2 shall be payable monthly. ProMedCo-Harrisburg shall pay to
BEACON, in accordance with the provisions of Section 7.4, the BEACON
Distribution amounts on or about the 15th day of such following month. Some
amounts may need to be estimated, with adjustments made as necessary the
following month. Any audit adjustments would be made after completion of the
fiscal year audit.
7.3 Clinic Expenses. Commencing on the Effective Date,
ProMedCo-Harrisburg shall pay all Clinic Expenses as they fall due (including
without limitation those related to any Non-Physician Personnel carried on the
books of BEACON at the requirement of ProMedCo-Harrisburg), provided, however,
that ProMedCo-Harrisburg may, in the name of and on behalf of BEACON, contest in
good faith any claimed Clinic Expenses as to which there is any dispute
regarding the nature, existence or validity of such claimed Clinic Expenses.
ProMedCo-Harrisburg hereby agrees to indemnify and hold BEACON harmless from and
against any liability, loss, damages, claims, causes of action and reasonable
expenses of BEACON resulting from the contest of any Clinic Expenses.
7.4 Accounts Receivable. Except for the first month of this Agreement,
on approximately the 15th day of each month, ProMedCo-Harrisburg shall purchase
the accounts receivable of BEACON arising during the previous month, by payment
of cash, or other readily available funds into an account of BEACON. The
consideration for the purchase shall be an amount equal to the BEACON
Distribution for such
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previous month. Although it is the intention of the parties that
ProMedCo-Harrisburg purchase and thereby become owner of the accounts receivable
of BEACON, in case such purchase shall be ineffective for any reason, BEACON, as
of the Effective Date of this Agreement, grants and shall cause each Medical
Professional to grant to ProMedCo-Harrisburg a first priority lien on and
security interest in and to any and all interest of BEACON and such Medical
Professional in any accounts receivable generated by the medical practice of
BEACON and the Medical Professionals Employees or otherwise generated through
the operations of the Clinic, and all proceeds with respect thereto, to secure
the payment to ProMedCo-Harrisburg of all such accounts receivable, and this
Agreement shall be deemed to be a security agreement to the extent necessary to
give effect to the foregoing. In addition, BEACON shall cooperate with
ProMedCo-Harrisburg and execute and deliver, and cause each Medical Professional
to execute and deliver, all necessary documents in connection with the pledge of
such accounts receivable to ProMedCo-Harrisburg or at ProMedCo-Harrisburg's
option, its lenders. All collections in respect of such accounts receivable
shall be deposited in a bank account at a bank designated by
ProMedCo-Harrisburg. To the extent BEACON or any Medical Professional comes into
possession of any payments in respect of such accounts receivable, BEACON or
such Medical Professional shall direct such payments to ProMedCo-Harrisburg for
deposit in bank accounts designated by ProMedCo-Harrisburg.
8. INSURANCE AND INDEMNITY
8.1 Insurance to be Maintained by ProMedCo-Harrisburg. Throughout the
term of this Agreement, ProMedCo-Harrisburg will use reasonable efforts to
provide and maintain, as a Clinic Expense, comprehensive professional liability
insurance for all physicians and professional employees of ProMedCo-Harrisburg
and BEACON with limits of not less than $1,200,000 per claim and with aggregate
policy limits of not less than $3,600,000 per physician or employee with a
separate limit for BEACON. ProMedCo-Harrisburg shall provide such insurance
through its national program and will have the right to select the carrier for
such insurance with the approval of the Policy Council, which approval shall not
be unreasonably withheld. BEACON shall be responsible for all liabilities
(including without limitation deductibles and excess liabilities) not paid
within the limits of such policies. ProMedCo-Harrisburg shall also provide and
maintain, as a Clinic Expense, comprehensive general liability insurance and
property insurance covering the Clinic Facility and operations.
8.2 Tail Insurance Coverage. immediately after termination of the
employment relationship with any Physician Shareholder or Physician Employee for
any reason, BEACON shall purchase tail insurance coverage respecting Employee's
professional liability risks during the term of employment.
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8.3 Additional Insured. BEACON and ProMedCo-Harrisburg agree to use
their reasonable efforts to have each other named as an additional insured on
the other's respective professional liability insurance programs at
ProMedCo-Harrisburg's expense.
8.4 Indemnification. BEACON shall indemnify, hold harmless and defend
ProMedCoHarrisburg, its officers, directors and employees, from and against any
and all liability, loss, damage, claim, causes of action, and expenses
(including reasonable attorneys' fees), to the extent not covered by insurance,
caused or asserted to have been caused, directly or indirectly, by or as a
result of the performance of medical services or any other acts or omissions by
BEACON and/or its shareholders, agents, employees and/or subcontractors (other
than ProMedCo-Harrisburg) during the term hereof, including any claim against
ProMedCo-Harrisburg by a BEACON Employee, which claim arises out of such BEACON
Employees' employment relationship with BEACON or as a result of services
performed by such BEACON Employee, and which claim would typically be covered by
worker's compensation. ProMedCo-Harrisburg shall indemnify, hold harmless and
defend BEACON, its officers, directors and employees, from and against any and
all liability, loss, damage, claim, causes of action, and expenses (including
reasonable attomeys' fees), to the extent not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of any intentional acts, negligent acts or omissions by
ProMedCo-Harrisburg and/or its shareholders, agents, employees and/or
subcontractors (other than BEACON) during the term of this Agreement.
9. RESTRICTIVE COVENANTS AND LIQUIDATED DAMAGES
The parties recognize that the services to be provided by
ProMedCo-Harrisburg shall be feasible only if BEACON operates an active medical
practice to which the physicians associated with BEACON devote their full time
and attention. To that end:
9.1 Restrictive Covenants by BEACON. During the term of this Agreement,
except as approved by the Policy Council pursuant to Section 2.2(e) hereof,
BEACON shall not establish, operate or provide physician services at any medical
office, clinic or other health care facility providing services substantially
similar to those provided by BEACON pursuant to this Agreement anywhere within a
radius of 15 miles of the Clinic Facility, or within a radius of 15 miles of any
current or future medical office, clinic or other health care facility from
which BEACON provides medical services.
9.2 Restrictive Covenants By Medical Professionals. BEACON shall obtain
and enforce formal employment agreements from each of its future Medical
Professionals in substantially the form attached as Appendix 2.9C to the Asset
Purchase Agreement pursuant to which each such Medical Professional agrees that
14
during the term of such Medical Professional's employment agreement, and for a
period of two years after any termination of employment with BEACON, such
Medical Professional will not establish, operate or provide physician services
at any medical office, clinic or outpatient and/or ambulatory treatment or
diagnostic facility providing services substantially similar to those provided
by BEACON pursuant to this Agreement within a radius of 15 miles of any medical
office, clinic or other health care facility operated by BEACON from which such
Medical Professional had provided medical services within 24 months prior to
such termination and that ProMedCo-Harrisburg shall have third-party rights to
enforce such agreements. BEACON shall also ensure that any of its current
Medical Professionals whose employment agreements are extended beyond an initial
five year term are subject to the provisions set forth in this paragraph for
such extension.
9.3 Physician Shareholder and Physician Employee Liquidated Damages.
(a) Release from Restrictive Covenants. The restrictive covenants
described in Section 9.2 of this Agreement will provide that the
Medical Professionals (existing Medical Professionals with respect to
renewal terms thereof, and future Medical Professionals with respect
to the initial and renewal terms thereof) may be released from such
restrictive covenants by paying Liquidated Damages in the amount of
$20,000.
(b) Repayment of Consideration in Certain Events. In addition, if a
Medical Professional received a $20,000 payment pursuant to the Beacon
Inducement Agreement to terminate his or her employment with
HealthArnerica and said Medical Professional terminates his or her
employment agreement with BEACON for any reason (other than death or
Total Disability as defined in the employment agreement between such
Medical Professional and BEACON) prior to the fifth anniversary of the
Closing under the Asset Purchase Agreement, or is terminated for
cause, as that term is defined in such employment agreement, by BEACON
prior to the fifth anniversary of the Closing under the Asset Purchase
Agreement, then the Medical Professional shall be required to
reimburse back to ProMedCo-Harrisburg such $20,000. Such payment shall
be passed on to ProMedCo-Harrisburg by BEACON simultaneously with the
payment thereof by the Medical Professional to BEACON. All payments
made to ProMedCo-Harrisburg under this clause (b) shall be first
applied to all costs incurred by ProMedCo-Harrisburg in the
enforcement of the employment agreement for that departing Medical
Professional and in recruiting a replacement Medical Professional for
that departing Medical Professional. The remainder, if any, shall
become an additional service fee to be paid to ProMedCo-Harrisburg
pursuant to Section 7. The accounting treatment of such funds shall be
consistently applied and
15
approved by ProMedCo-Harrisburg's independent certified public
accountants and the Policy Council.
9.4 Enforcement. ProMedCo-Harrisburg and BEACON acknowledge and agree
that since a remedy at law for any breach or attempted breach of the provisions
of this Section 9 shall be inadequate, either party shall be entitled to
specific performance and injunctive or other equitable relief in case of any
such breach or attempted breach, in addition to whatever other remedies may
exist by law. All parties hereto also waive any requirement for the securing or
posting of any bond in connection with the obtaining of any such injunctive or
other equitable relief. If any provision of Section 9 relating to territory or
time described therein shall be declared by a court of competent jurisdiction to
exceed the maximum time period, scope of activity, restricted or geographical
area such court deems reasonable and enforceable under applicable law, the time
period, scope of activity, restricted and/or area of restriction deemed to be
reasonable and enforceable by the court shall thereafter be the time period,
scope of activity, restricted and/or area of restriction applicable to the
restrictive covenant provisions in this Section 9. The invalidity or
non-enforceability of this Section 9 in any respect shall not affect the
validity or enforceability of the remainder of this Section 9 or of any other
provisions of this Agreement unless the invalid or non-enforceable provisions
materially affect the benefits either party would otherwise be entitled to
receive under this Section 9 or any other provision of this Agreement.
9.5 Termination of Restrictive Covenants. Notwithstanding anything to
the contrary contained herein, if this Agreement is terminated pursuant to
Section 10.2 herein, the required employment agreement restrictive covenant,
liquidated damages and enforcement terms and the repayment of consideration term
contained in this Section 9 shall be null and void and of no force or effect.
10. TERM RENEWAL; TERMINATION
10.1 Term and Renewal. The term of this Agreement shall commence on the
Effective Date hereof and shall continue for 40 years, after which it shall
automatically renew for five-year terms unless either party provides the other
party with at least 12 months but not more than 13 months written notice prior
to any renewal date.
10.2 Termination by BEACON. BEACON may terminate this Agreement as
follows:
(i) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by ProMedCo-Harrisburg, or
upon
16
other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by
ProMedCo-Harrisburg, except for the filing of a petition in
involuntary bankruptcy against ProMedCo-Harrisburg which is
dismissed within 30 days thereafter, BEACON may give notice of
the immediate termination of this Agreement.
(ii) In the event ProMedCo-Harrisburg shall materially default in the
performance of any duty or obligation imposed upon it by this
Agreement and such default shall continue for a period of 120 days
after written notice thereof has been given to ProMedCo-Harrisburg by
BEACON; or ProMedCo-Harrisburg shall fail to remit the payments due as
provided in Section 7.2 hereof and such failure to remit shall
continue for a period of 30 days after written notice thereof, BEACON
may terminate this Agreement. Termination of this Agreement pursuant
to this Section 10.2(ii) by BEACON shall require the affirmative vote
of 75% of the Physician Shareholders.
10.3 Termination by ProMedCo-Harrisburg. ProMedCo-Harrisburg may
terminate this Agreement as follows:
(i) In the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by BEACON, or upon other
action taken or suffered, voluntarily or involuntarily, under any
federal or state law for the benefit of debtors by BEACON, except for
the filing of a petition in involuntary bankruptcy against BEACON
which is dismissed within 30 days thereafter, ProMedCo-Harrisburg may
give notice of the immediate termination of this Agreement.
(ii) In the event BEACON shall materially default in the performance of any
duty or obligation imposed upon it by this Agreement or in the event a
majority of the Physicians Shareholders shall materially default in
the performance of any duty or obligation imposed upon them by this
Agreement or by their employment agreements with BEACON, and such
default shall continue for a period of 90 days after written notice
thereof has been given to BEACON and such Physician Shareholders by
ProMedCo-Harrisburg, ProMedCo-Harrisburg may terminate this Agreement.
10.4 Actions After Termination. In the event that this Agreement shall
be terminated, the BEACON Distribution and the ProMedCo-Harrisburg Distribution
shall be paid through the effective date of termination. In addition, the
various rights and remedies herein granted to the aggrieved party shall tie
cumulative and in addition to any others such party may be entitled to by law.
The exercise of one or more rights
17
or remedies shall not impair the right of the aggrieved party to exercise any
other right or remedy, at law. Upon termination of this Agreement, BEACON shall:
10.4.1 Asset Repurchase. Purchase from ProMedCo-Harrisburg at book
value the intangible assets set forth on the Opening Balance Sheet, as adjusted
through the last day of the month most recently ended prior to the date of such
termination in accordance with GAAP to reflect amortization or depreciation of
the intangible assets, which amortization shall be for a period not in excess of
40 years.
10.4.2 Real Estate. Purchase from ProMedCo-Harrisburg all real estate,
if any, associated with the Clinic and owned by ProMedCo-Harrisburg at the then
book value thereof.
10.4.3 Improvements. Purchase all improvements, additions or leasehold
improvements which have been made by ProMedCo-Harrisburg as reflected on
ProMedCo-Harrisburg's books as of the last day of this Agreement and which
relate solely to the performance of its obligations under this Agreement or the
properties subleased by ProMedCo-Harrisburg, if any.
10.4.4 Debts. Assume all ordinary and necessary debt, contracts,
payables and leases which are obligations of ProMedCo-Harrisburg and which
relate principally to the performance of its obligations under this Agreement or
the properties subleased by ProMedCo-Harrisburg, if any.
10.4.5 Equipment; Inventories; Accounts Receivable; etc. Purchase from
ProMedCo-Harrisburg at book value as reflected on ProMedCo-Harrisburg's books as
of the last day of this Agreement:
(i) Equipment. All of the equipment acquired by
ProMedCo-Harrisburg pursuant to the Asset Purchase Agreement,
including all replacements and additions thereto made by
ProMedCo-Harrisburg with the approval of the Policy Council
pursuant to the performance of its obligations under this
Agreement;
(ii) Inventory. All stock, including inventory and supplies,
tangibles and intangibles of ProMedCo-Harrisburg relating to
BEACON operations;
(iii) Accounts Receivable. All uncollected accounts receivable
theretofore purchased by ProMedCo-Harrisburg pursuant to
Section 7.4 hereof at the book value thereof on
ProMedCo-Harrisburg's books; and
18
(iv) Other Assets. All other assets of ProMedCo-Harrisburg relating
to the operations of BEACON.
10.4.6 Closing of Repurchase. BEACON shall pay cash for the repurchased
assets. The amount of the purchase price shall be reduced by the amount of debt
and liabilities of ProMedCo-Harrisburg assumed by BEACON and shall be reduced by
any payment ProMedCo-Harrisburg has failed to make under this Agreement. BEACON
and any physician associated with BEACON shall execute such documents as may be
required to assume the liabilities set forth in Section 10.4.4 and to remove
ProMedCo-Harrisburg from any liability with respect to such repurchased assets
and with respect to any property leased or subleased by ProMedCo-Harrisburg. The
closing date for the repurchase shall be determined by BEACON, but shall in no
event occur later than 180 days from the date of the notice of termination. The
termination of this Agreement shall become effective upon the closing of the
sale of the assets and BEACON shall be released from the Restrictive Covenants
provided for in Section 9 on the closing date. From and after any termination,
each party shall provide the other party with reasonable access to books and
records then owned by it to permit such requesting party to satisfy reporting
and contractual obligations which may be required of it.
11. DEFINITIONS
For the purposes of this Agreement, the following definitions shall
apply:
11.1 Asset Purchase Agreement shall mean the Asset Purchase Agreement
dated as of August 12, 1997 between BEACON ProMedCo and ProMedCo-Harrisburg.
11.2 BEACON Capitation Allocation shall mean payments made to BEACON
for the provision of health care services delivered by BEACON Employees
directly.
11.3 BEACON Employees shall mean all Physician Shareholders, Physician
Employees, Physician Extenders and Technical Employees at the relevant dates.
11.4 BEACON Inducement Agreement shall mean the Beacon Inducement
Agreement of even date herewith between BEACON and HealthAmerica.
11.5 Capitated Revenues shall mean payments made to BEACON by an HMO or
other payor in return for the provision of health care services to enrollees or
subscribers of the HMO or other payor regardless of whether or not the services
are provided directly by BEACON providers. Such payments may be for primary care
services only in the form of a primary care capitation amount, or a global
capitation covering a full range of services such as hospital and pharmaceutical
costs. Any administrative fees negotiated with the payor are also included in
Capitated Revenues. Fee-for-services payments to BEACON would not be included as
Capitated Revenues unless the fees generated therefrom are associated with a
capitated arrangement
19
where a non-covered service is provided and billed separately. Managed care
patient co-payments are not included as Capitated Revenues.
11.6 Clinic shall mean the medical care services, including, but not
limited to the practice of medicine, and all related healthcare services
provided by BEACON and the BEACON Employees, utilizing the management services
of ProMedCo-Harrisburg and the Clinic Facility, regardless of the location where
such services are rendered.
11.7 Clinic Expenses shall mean the amount of all expenses
incurred in the operation of the Clinic including, without limitation:
(i) Salaries, benefits (including contributions under any ProMedCo benefit
plan), and other direct costs of all employees of ProMedCo-Harrisburg
and Technical Employees attributable to BEACON;
(ii) Direct costs, including benefits, of all employees or consultants of
ProMedCo or affiliates of ProMedCo-Harrisburg who, with approval of
the Policy Council, provides service at or in connection with BEACON
required for improved performance, such as work management,
purchasing, information systems, charge and coding analysis, managed
care sales, negotiating and contracting, financial analysis, and
business office consultation; provided, however, only that portion of
such employee's or consultant's costs without ▇▇▇▇-up by ProMedCo that
is allocable to Clinic will be a Clinic Expense;
(iii) Obligations of ProMedCo-Harrisburg or ProMedCo under leases or
subleases related to Clinic operations;
(iv) Interest Expense funds provided to ProMedCo-Harrisburg by
ProMedCo or any outside source to finance or refinance any of
ProMedCo-Harrisburg's obligations hereunder or services
provided hereunder;
(v) Personal property and intangible taxes assessed against
ProMedCo-Harrisburg's assets used in connection with the
operation of Clinic commencing on the date of this Agreement;
(vi) Malpractice insurance expenses for ProMedCo-Harrisburg's
operations and for the BEACON Employees, as well as any
deductibles and non-insured expenses relating to malpractice
claims;
20
(vii) Other expenses incurred by ProMedCo-Harrisburg in
carrying out its obligations under this Agreement;
and
(viii) Amortization of intangible asset value resulting from
the employment of, merger with, or other acquisition
of, additional physicians in the BEACON service area
approved by the Policy Council.
11.8 Clinic Expenses shall not include:
(i) Corporate overhead charges or any other expenses of ProMedCo
or any corporation affiliated with ProMedCo other than the
kind of items listed above;
(ii) Any federal or state income taxes;
(iii) Any expenses which are expressly designated herein as
expenses or responsibilities of BEACON and/or BEACON
Employees other than Technical Employees;
(iv) Any amortization expense resulting from the amortization of
expenses incurred as shown on ProMedCo's financial statements,
in connection with the acquisition and execution of the Asset
Purchase Agreement and the execution of this Agreement; and
(v) Interest expense on indebtedness incurred by
ProMedCo-Harrisburg or ProMedCo to finance the consideration
paid under the Asset Purchase Agreement.
(vi) Any liabilities, judgments or settlements assessed against
BEACON or Physician Shareholders in excess of any insurance
policy limits.
(vii) The direct expenses associated with management of Risk Pool
Surpluses.
11.9 Clinic Facility shall mean clinic facilities located at (i) ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇ 171 10, (ii) ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, (iii) ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, (iv) ▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ and (v) any substitute facility or additional facility
location, whether within or without the Harrisburg, Pennsylvania area, as
approved by the Policy Council.
11.10 Distribution Funds shall mean those amounts remaining after
Clinic Expenses have been deducted from Net Clinic Revenue.
11.11 Effective Date shall mean 12:01 a.m. on the date hereof
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11.12 HealthArnerica shall mean HealthAmerica Pennsylvania, Inc., a
Pennsylvania corporation.
11.13 Medical Professional shall mean Physician Shareholders,
Physician Employees and Physician Extenders.
11.14 Managed Care Surpluses shall mean Net Capitated Revenues less (i)
Outside Medical Expenses and (11) Risk Management Expenses; provided however in
the event the Alliance4Health NetSource Agreement with HealthAmerica of
Pennsylvania, Inc., effective October 1, 1996, pursuant to which HealthAmerica
is entitled to receive 100% of the difference between the realized percentage of
premium and medical expenses, as set forth in the Alliance4Health NetSource
Agreement, is still in effect, then:
Managed Care Surpluses shall mean the total surplus or deficit
resulting from Clinic operations under such Alliance4Health NetSource
Agreement. For purposes of this alternative definition "total surplus
or deficit" shall mean the realized percent of premium for those
members who have selected a Clinic physician less any "medical
expenditures" as defined in the Alliance4Health NetSource Agreement. In
addition, Managed Care Surpluses shall include surpluses from risk
sharing arrangements entered into with any other payors.
11.15 Net Capitated Revenues shall mean Capitated Revenues less the
BEACON Capitation Allocation.
11.16 Net Clinic Revenues shall mean BEACON's gross ▇▇▇▇▇▇▇▇, including
ancillaries and any other revenues that have historically been recorded by
BEACON or HealthArnerica as well as non-real estate revenues historically
recorded by BEACON or HealthArnerica, less any adjustments such as uncollectible
accounts, discounts, contractual adjustments, Medicare allowances, Medicaid
allowances, and professional courtesies ("adjustments"). This specifically
excludes Capitated Revenues, but does include Beacon Capitation Allocation.
11.17 Opening Balance Sheet shall mean the balance sheet of
ProMedCo-Harrisburg as of the Effective Date (as defined in the Asset Purchase
Agreement), prepared in accordance with GAAP (except for the absence of certain
note information), and substantially in the form of the attached Exhibit B
subject to adjustments in the Consideration (as defined in the Asset Purchase
Agreement).
22
11.18 Outside Medical Expenses shall mean health care costs for
services not provided by BEACON directly or through subcontract arrangements
with other providers.
11.19 Physician Employees shall mean any physician employed by BEACON
and providing medical services to patients on behalf of BEACON, who are not
Physician Shareholders.
11.20 Physician Extenders shall mean all non-physician professional
employees who provide direct patient care for which a billed charge is
generated.
11.21 Physician Shareholders shall mean any physician who is a
shareholder of BEACON, both as of the date of this Agreement (which said
Physician Shareholders are parties to this Agreement) and at any future point in
time.
11.22 ProMedCo shall mean ProMedCo Management Company, a
Delaware corporation which is sole shareholder of ProMedCo-Harrisburg.
11.23 ProMedCo-Harrisburg Distribution shall mean 15% of Distribution
Funds plus 50% of Managed Care Surpluses.
11.24 Risk Management Expenses shall mean ProMedCo's expenses
associated with the management of capitation risk including contracting,
utilization management, information systems, quality, measurements, reporting
and similar expenses.
11.25 Technical Employees shall mean technicians who provide services
in the diagnostic areas of BEACON's practice, such as employees of the Clinic
laboratory, radiology technicians and cardiology technicians. All Technical
Employees shall be BEACON employees.
12. GENERAL PROVISIONS
12.1 Independent Contractor. It is acknowledged and agreed that BEACON
and ProMedCo-Harrisburg are at all times acting and performing hereunder as
independent contractors. ProMedCo-Harrisburg shall neither have nor exercise any
control or direction over the methods by which BEACON or the BEACON Employees
practice medicine. The sole function of ProMedCo-Harrisburg hereunder is to
provide all management services in a competent, efficient and satisfactory
manner. ProMedCo-Harrisburg shall not, by entering into and performing its
obligations under this Agreement, become liable for any of the existing
obligations, liabilities or debts of BEACON unless otherwise specifically
provided for under the terms of this
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Agreement. ProMedCo-Harrisburg will in its management role have only an
obligation to exercise reasonable care in the performance of the management
services. Except as contemplated in Section 8.4 hereof, neither party shall have
any liability whatsoever for damages suffered on account of the willful
misconduct or negligence of any employee, agent or independent contractor of the
other party. Each party shall be solely responsible for compliance with all
state and federal laws pertaining to employment taxes, income withholding,
unemployment compensation contributions and other employment related statutes
regarding their respective employees, agents and servants.
12.2 Proprietary Property.
12.2.1 Each party agrees that the other party's proprietary property
(which term shall not include information or other material generally available
in the public domain) shall not be possessed, used or disclosed otherwise than
may be necessary for the performance of this Agreement. Each party acknowledges
that its violation of this Agreement would cause the other party irreparable
harm, and may (without limiting the other party's remedies for such breach) been
joined at the instance of the other party. Each party agrees that upon
termination of this Agreement for any reason, absent the prior written consent
of the other party, it shall have no right to and shall cease all use of the
other party's proprietary property, and shall return all such proprietary
property of the other party in its possession to the other party.
12.2.2 ProMedCo-Harrisburg shall be the sole owner and holder of all
right, title and interest, to all intellectual property furnished by it under
this Agreement, including, but not limited to the trade name ProMedCo," all
computer software, copyright, services ▇▇▇▇ and trademark right to any material
or documents acquired, prepared, purchased or furnished by ProMedCo-Harrisburg
pursuant to this Agreement. BEACON shall have no right, title or interest in or
to such material and shall not, in any manner, distribute or use the same
without the prior written authorization of ProMedCo-Harrisburg, provided,
however, that the foregoing shall not restrict BEACON from distributing managed
care information brochures and materials without the prior written approval of
ProMedCo-Harrisburg provided no Proprietary Property of ProMedCo-Harrisburg is
contained therein. Notwithstanding the preceding, however, ProMedCo-Harrisburg
agrees that BEACON shall be entitled to use on a nonexclusive and
nontransferable basis for the term of this Agreement the name "BEACON Family
Practice" as may be necessary or appropriate in the performance of BEACON's
services and obligations hereunder.
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12.3 Cooperation. Each of the parties shall cooperate fully with the
other in connection with the performance of their respective duties and
obligations under this Agreement.
12.4 Licenses, Permits and Certificates. ProMedCo-Harrisburg and BEACON
shall each obtain and maintain in effect, during the term of this Agreement, all
licenses, permits and certificates required by law which are applicable to their
respective performance pursuant to this Agreement.
12.5 Compliance with Rules, Regulations and Laws. ProMedCo-Harrisburg
and BEACON shall comply with all federal and state laws and regulations in
performance of their duties and obligations hereunder. Neither party, nor their
employees or agents, shall take any action that would jeopardize the other
party's participation, if applicable, in any federal or state health Program
including Medicare and Medicaid. ProMedCo-Harrisburg and BEACON shall take
particular care to ensure that no employee or agent of either party takes any
action intended to violate Section 1128B of the Social Security Act with respect
to soliciting, receiving, offering or paying any remuneration (including any
kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash
or in kind in return for referring an individual to a person for the furnishing
or arranging for the furnishing of any item or service for which payment may be
made in whole or in part under Title XVIII or XIX of the Social Security Act, or
for purchasing, leasing, ordering, or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part under Title XVIII or XIX of the Social Security Act.
12.6 Generally Accepted Accounting Principles (GAAP). All financial
statements and calculations contemplated by this Agreement will be prepared or
made in accordance with generally accepted accounting principles consistently
applied unless the parties agree otherwise in writing.
12.7 Notices. Any notices required or permitted to be given hereunder
by either party to the other may be given by personal delivery in writing or by
registered or certified mail, postage prepaid, with return receipt requested.
Notices shall be addressed to the parties at the addresses appearing on the
signature page of the Agreement, but each party may change such party's address
by written notice given in accordance with this section. Notices delivered
personally will be deemed communicated as of actual receipt; mailed notices will
be deemed communicated as of three days after mailing.
12.8 Attorneys' Fees. ProMedCo-Harrisburg and BEACON agree that the
prevailing party in any legal dispute among the parties hereto shall be entitled
to payment of its reasonable attorneys' fees by the other party.
12.9 Severability. If any provision of this Agreement is held by a
court of competent jurisdiction or applicable state or federal law and their
implementing
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regulations to be invalid, void or unenforceable, the remaining provisions will
nevertheless continue in full force and effect.
12.10 Arbitration. Any controversy or claim arising out of or relating
to this Agreement or the breach thereof will be settled by binding arbitration
in accordance with the rules of commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. Such
arbitration shall occur within Dauphin County, Pennsylvania, unless the parties
mutually agree to have such proceedings in some other locale. The arbitrator(s)
may in any such proceeding award reasonable attorneys' fees and costs to the
prevailing party.
12.11 Construction of Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania.
The parties agree that the terms and provisions of this Agreement embody their
mutual interest and agreement and that they are not to be construed more
liberally in favor of, nor more strictly against, any party hereto.
12.12 Assignment and Delegation. ProMedCo-Harrisburg shall have the
right to assign its rights hereunder to any person, firm or corporation
controlling, controlled by or under common control with ProMedCo-Harrisburg and
to any lending institution, for security purposes or as collateral, from which
ProMedCo-Harrisburg or ProMedCo obtains financing for itself and as agent.
Except as set forth above, neither ProMedCo-Harrisburg nor BEACON shall have the
right to assign their respective rights and obligations hereunder without the
written consent of the other party. BEACON may not delegate any of BEACON's
duties hereunder, except as expressly contemplated herein; however,
ProMedCo-Harrisburg may delegate some or all of ProMedCo-Harrisburg's duties
hereunder to the extent it concludes, in its sole discretion, that such
delegation is in the mutual interest of the parties hereto.
12.13 Confidentiality. The terms of this Agreement and in particular
the provisions regarding compensation, are confidential and shall not be
disclosed except as necessary to the performance of this Agreement or as
required by law.
12.14 Waiver. The waiver of any provision, or of the breach of any
provision of this Agreement must be set forth specifically in writing and signed
by the waiving party. Any such waiver shall not operate or be deemed to be a
waiver of any prior or future breach of such provision or of any other
provision.
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12.15 Headings. The subject headings of the articles and sections of
this Agreement are included for purposes of convenience only and shall not
affect the construction or interpretation of any of its provisions.
12.16 No Third Party Beneficiaries. Nothing in this Agreement, express
or implied, is intended or shall be construed to confer upon any person, firm or
corporation other than the parties hereto and their respective successors or
assigns, any remedy or claim under or by reason of this Agreement or any term,
covenant or condition hereof, as third party beneficiaries or otherwise, and all
of the terms, covenants and conditions hereof shall be for the sole and
exclusive benefit of the parties hereto and their successors and assigns.
12.17 Time is of the Essence. Time is hereby expressly declared to be
of the essence in this Agreement.
12.18 Modifications of Agreement for Prospective Legal Events. In the
event any state or federal laws or regulations, now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or by agreement of legal counsel for both
parties in such a manner as to indicate that the structure of this Agreement may
be in violation of such laws or regulations, or in the event the Pennsylvania
Board of Medical Examiners or other authority with legal jurisdiction shall,
solely by virtue of this Agreement, initiate an action to revoke, suspend, or
restrict the license of any physician retained by BEACON to practice medicine in
the: Commonwealth of Pennsylvania, BEACON and ProMedCo-Harrisburg shall amend
this Agreement as necessary. To the maximum extent possible, any such amendment
shall preserve the underlying economic and financial arrangements between BEACON
and ProMedCo-Harrisburg. In the event it is not possible to amend this Agreement
to preserve in all material respects the underlying economic and financial
arrangements between BEACON and ProMedCo-Harrisburg, this Agreement may tie
terminated by written notice by either party within 90 days from date of such
interpretation or action, termination to be effective no sooner than the earlier
of 180 days from the date notice of termination is given or the latest possible
date specified for such termination in any regulatory order or notice.
Termination pursuant to this Section 12.18 by BEACON shall require the
affirmative vote of a majority of Physician Shareholders.
12.19 Whole Agreement Modification. A contract in which the amount
involved exceeds $50,000 in value is not enforceable unless the Agreement is in
writing and signed by the party to be bound or by that party's authorized
representative. The rights and obligations of the parties hereto shall be
determined solely from written agreements. Documents and instruments, and any
prior oral agreements between the parties are superseded by and merged into such
writings. This Agreement (As amended in writing from time to time), the
exhibits, and the schedules delivered pursuant hereto
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represent the final agreement between the parties hereto and may not be
contradicted by evidence of prior, contemporaneous, or subsequent oral
agreements by the parties. There are no unwritten oral agreements between the
parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
P.B. MANAGEMENT COMPANY, INC.
By:
Name:
Title:
Address: ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
BEACON MEDICAL GROUP, P.C.
By:
Name:
Title:
Address:
Acknowledgment and Agreement by Physician Shareholders
to abide by the terms of the Service Agreement
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Date Date
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