SERVICE AGREEMENT
BY AND BETWEEN
SPECIALTY CARE NETWORK, INC.,
VERO ORTHOPAEDICS II, P.A.
AND
XXXXX X. XXXX, M.D.
XXXXX X. XXXXXXX, M.D.
XXXXXX X. XXXXXXX, M.D.
XXXXX X. XXXXXXXX, M.D.
XXXXXXXX XXXXXX, M.D.
Dated as of November 12, 1996
TABLE OF CONTENTS Page
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ARTICLE I.
RELATIONSHIP OF THE PARTIES
1.1. Independent Relationship.........................................1
1.2. Responsibilities of the Parties..................................1
1.3. VERO II Matters..................................................1
1.4. Patient Referrals................................................1
1.5. Professional Judgment............................................2
ARTICLE II.
DEFINITIONS
2.1. Definitions......................................................2
ARTICLE III.
PRACTICE OFFICES TO BE PROVIDED BY COMPANY
3.1. Practice Offices.................................................6
3.2. Use of Practice Offices..........................................6
ARTICLE IV.
DUTIES OF THE POLICY BOARD
4.1. Formation and Operation of the Policy Board......................6
4.2. Duties and Responsibilities of the Policy Board..................6
ARTICLE V.
ADMINISTRATIVE SERVICES TO BE PROVIDED BY COMPANY
5.1. Performance of Management Functions..............................7
5.2. Financial Planning and Goals.....................................7
5.3. Audits and Financial Statements..................................8
5.4. Inventory and Supplies...........................................8
5.5. Management Services and Administration...........................8
5.6. Personnel.......................................................10
5.7. Events Excusing Performance.....................................10
5.8. Compliance with Law and Business Standards......................10
5.9. Quality Assurance...............................................10
5.10. New Medical Services and Additional Practice Offices............10
5.11. Collection of Certain Patient Receipts and Payment of
Clinic Expenses...............................................11
5.12. Other VERO II Accounts..........................................11
5.13. Discounts.......................................................11
ARTICLE VI.
OBLIGATIONS OF VERO II AND PHYSICIAN OWNERS
6.1. Professional Services...........................................11
6.2. Medical Practice................................................11
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6.3. Employment of Physician Employees...............................12
6.4. Professional Dues and Education Expenses........................12
6.5. Professional Insurance Eligibility..............................12
6.6. Events Excusing Performance.....................................12
6.7. Fees for Professional Services..................................12
6.8. Peer Review.....................................................12
6.9. VERO II Employee Benefit Plans..................................12
6.10. Credentialing..................................................13
ARTICLE VII.
RESTRICTIVE COVENANTS AND ENFORCEMENT
7.1. Exclusive Arrangement...........................................14
7.2. Restrictive Covenants...........................................14
7.3. Restrictive Covenants By Future Physician Employees.............15
7.4. Rights of Company...............................................15
7.5. Enforcement.....................................................15
7.6. Modification of Restrictive Covenants...........................15
ARTICLE VIII.
FINANCIAL ARRANGEMENTS
8.1. Service Fees....................................................16
8.2. Payment of Service Fee..........................................18
8.3. Purchase of Accounts Receivable.................................18
8.4. Payment of Clinic Expenses......................................19
ARTICLE IX.
RECORDS
9.1. Patient Records.................................................20
9.2. Records Owned by Company........................................20
9.3. Access to Records...............................................20
9.4. Government Access to Records....................................20
ARTICLE X.
INSURANCE AND INDEMNITY
10.1. Insurance to be Maintained by VERO II..........................20
10.2. Insurance to be Maintained by Company..........................20
10.3. Additional Insureds............................................21
10.4. Indemnification................................................21
ARTICLE XI.
TERM, TERMINATION AND RETIREMENT
11.1. Term of Agreement..............................................21
11.2. Extended Term..................................................21
11.3. Termination by VERO II for Cause...............................22
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11.4. Termination by Company for Cause...............................22
11.5. Early Termination by VERO II or Company Without Cause
Upon Third (3rd) Anniversary of Agreement....................23
11.6. Consequences of VERO II Termination............................23
11.7. Closing of Purchase by VERO II and Effective
Date of Termination..........................................24
11.8. Tail Policy....................................................24
11.9. Restrictions Applicable to Physician Owners....................24
ARTICLE XII.
DAMAGE AND LOSS; CONDEMNATION
12.1. Use of Insurance Proceeds......................................26
12.2. Temporary Space................................................26
ARTICLE XIII.
REPRESENTATIONS AND WARRANTIES OF VERO II AND PHYSICIAN OWNERS
13.1. Validity.......................................................26
13.2. Litigation.....................................................27
13.3. Permits........................................................27
13.4. Authority......................................................27
13.5. Compliance with Applicable Law.................................27
13.6. Health Care Compliance.........................................27
13.7. Fraud and Abuse................................................27
13.8. VERO II Compliance.............................................28
13.9. Rates and Reimbursement Policies...............................28
13.10. Accounts Receivable...........................................28
13.11. Full Disclosure...............................................30
13.12. Exhibits......................................................30
ARTICLE XIV.
REPRESENTATIONS AND WARRANTIES OF COMPANY
14.1. Organization...................................................30
14.2. Authority......................................................30
14.3. Absence of Litigation..........................................30
14.4. Transactions with Affiliates...................................30
ARTICLE XV.
COVENANTS OF VERO II AND PHYSICIAN OWNERS
15.1. Merger, Consolidation and Other Arrangements....................31
15.2. Necessary Authorizations/Assignment of Licenses and Permit......31
15.3. Transaction with Affiliates.....................................31
15.4. Compliance with All Laws........................................31
15.5. Third-Party Payor Programs......................................31
15.6. Change in Business or Credit and Collection Policy..............31
15.7. Treatment of Accounts Receivable................................31
15.8. Security Interest...............................................32
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ARTICLE XVI.
GENERAL PROVISIONS
16.1. Assignment.....................................................32
16.2. Whole Agreement; Modification..................................33
16.3. Notices........................................................33
16.4. Binding on Successors..........................................33
16.5. Waiver of Provisions...........................................33
16.6. Governing Law..................................................33
16.7. No Practice of Medicine........................................33
16.8. Severability...................................................34
16.9. Additional Documents...........................................34
16.10. Attorneys' Fees................................................34
16.11. Time is of the Essence.........................................34
16.12. Confidentiality................................................34
16.13. Contract Modifications for Prospective Legal Events............34
16.14. Remedies Cumulative............................................34
16.15. Language Construction..........................................34
16.16. No Obligation to Third Parties.................................35
16.17. Communications.................................................35
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SERVICE AGREEMENT
THIS SERVICE AGREEMENT ("Agreement") dated as of November 12, 1996, by and
between SPECIALTY CARE NETWORK, INC., a Delaware corporation ("Company"), VERO
ORTHOPAEDICS II, P.A., a Florida corporation, ("VERO II") and XXXXX X. XXXX,
M.D., XXXXX X. XXXXXXX, M.D., XXXXXX X. XXXXXXX, M.D., XXXXX X. XXXXXXXX, M.D.
and XXXXXXXX XXXXXX, M.D. ("Physician Owner[s]"), citizens and residents of
Florida.
W I T N E S S E T H:
WHEREAS, Company is in the business of managing medical clinics and
providing support services to and furnishing orthopedic care medical practices
with the necessary equipment, personnel, supplies and support staff; and
WHEREAS, VERO II and Physician Owners desire to obtain the services of
Company in performing such management functions so as to permit VERO II and
Physician Owners to devote VERO II's and Physician Owners' efforts on a
concentrated and continuous basis to the rendering of medical services to
patients.
NOW THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements herein set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, it
is agreed by the parties as follows:
ARTICLE I.
RELATIONSHIP OF THE PARTIES
1.1. Independent Relationship. VERO II, Physician Owners and Company
intend to act and perform as independent contractors, and the provisions hereof
are not intended to create any partnership, joint venture, agency or employment
relationship between the parties. Notwithstanding the authority granted to
Company herein, Company, VERO II, and Physician Owners agree that VERO II and
Physician Owners shall retain all authority to direct the medical, professional,
and ethical aspects of VERO II's and Physician Owners' medical practice
including but not limited to the admission of new patients and providing care to
indigent patients. Each party shall be solely responsible for and shall comply
with all state and federal laws pertaining to employment taxes, income
withholding, unemployment compensation contributions and other employment
related statutes applicable to that party.
1.2. Responsibilities of the Parties. As more specifically set forth
herein, Company shall provide VERO II with offices and facilities, equipment,
supplies, certain support personnel, management and financial advisory services.
As more specifically set forth herein, VERO II shall be responsible for the
recruitment and hiring of physicians and all issues related to the professional
practice of medicine, medical practice patterns and documentation thereof.
Notwithstanding anything herein to the contrary, no "designated health service,"
as defined in 42 U.S.C. ss. 1395nn, including any amendments or successors
thereto, shall be provided by Company under this Agreement.
1.3. VERO II Matters. Matters involving the internal agreements and
finances of VERO II, including the disposition of professional fee income, tax
planning, and investment planning (and expenses relating solely to these
internal business matters) shall remain the sole responsibility of VERO II.
1.4. Patient Referrals. The parties agree that the benefits to VERO II and
Physician Owners hereunder do not require, are not payment for, and are not in
any way contingent upon the admission, referral or any other arrangement for the
provision of any item or service offered by Company to any of VERO II's patients
in any facility operated by Company.
1.5. Professional Judgment. Each of the parties acknowledges and agrees
that the terms and conditions of this Agreement pertain to and control the
business and financial relationship between and among the parties but do not
pertain
to and do not control the professional and clinical relationship between and
among VERO II, Physician Employees, VERO II Employees, and VERO II's patients.
Nothing in this Agreement shall be construed to alter or in any way affect the
legal, ethical, and professional relationship between and among VERO II,
Physician Owners, Physician Employees, and VERO II's patients, nor shall
anything contained in this Agreement abrogate any right, privilege, or
obligation arising out of or applicable to the physician-patient relationship.
ARTICLE II.
DEFINITIONS
2.1. Definitions. For the purpose of this Agreement, the following
definitions shall apply:
"Account Debtor" means an account debtor or any other Person obligated in
respect of an Account Receivable.
"Accounts Receivable" means, with respect to VERO II, all accounts and any
and all rights to payment of money or other forms of consideration of any kind
now owned or hereafter acquired (whether classified under the Uniform Commercial
Code as accounts, chattel paper, general intangibles or otherwise) for goods
sold or leased or for services rendered by VERO II, including, but not limited
to, accounts receivable, proceeds of any letters of credit naming VERO II as
beneficiary, chattel paper, insurance proceeds, contract rights, notes, drafts,
instruments, documents, acceptances and all other debts, obligations and
liabilities in whatever form from any other Person; provided that, cash, checks
and credit card purchases are not included in the definition of Accounts
Receivable.
"Affiliate" means, with respect to any Person, any entity which directly
or indirectly controls, is controlled by, or is under common control with, such
Person or any Subsidiary of such Person or any Person who is a director, officer
or partner of such Person or any Subsidiary of such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power
to (a) vote ten percent (10%) or more of the securities having ordinary voting
power for the election of directors of such Person, or (b) direct or cause the
direction of management and policies of a business, whether through the
ownership of voting securities, by contract or otherwise and either alone or in
conjunction with others or any group.
"Applicable Law" means all applicable provisions of constitutions,
statutes, rules, regulations, ordinances and orders of all Governmental
Authorities and all orders and decrees of all courts, tribunals and arbitrators,
and shall include, without limitation, Health Care Law.
"Assigned Lease" shall have the meaning as defined in Section 3.1.
"Base Service Fee" shall equal [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxx] per year, payable in monthly payments of [xxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx].
"CHAMPUS" means the Civilian Health and Medical Program of the Uniformed
Services.
"Change in Control" shall mean any transaction pursuant to which Company
(a) consummates the sale of substantially all of the assets of Company to an
entity which is publicly traded in exchange for voting stock in such publicly
traded entity or (b) merges with a publicly traded corporation, entity or
corporation or entity controlled by a publicly traded corporation or entity in a
transaction where unrelated persons own at least fifty-one percent (51%) of the
issued and outstanding securities of the surviving entity or corporation
controlling the merged entity.
"Clinic Expenses" shall have the meaning as defined in Section 8.1.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Company" shall mean Specialty Care Network, Inc., a Delaware corporation,
together with its successors and assigns.
"Company Expenses" shall have the meaning as defined in Section 8.1.7.
"Designated Leased Employees" shall have the meaning as defined in Section
6.9.1.
"Direct Lease" shall have the meaning as defined in Section 3.1.
"Disabled" or "Disability" shall mean that a Physician suffers from a
mental or physical condition resulting in such Physician Employee's inability to
perform the essential functions of his or her job as required by Section 6.1.1
(and as may be described with greater specificity in written job descriptions
prepared and maintained by VERO II and approved by the Policy Board) without
significant risk to the health or safety of others, even with such reasonable
accommodation as may be available under the circumstances, and the Policy Board
may reasonably anticipate that such Physician Employee will remain disabled for
at least two years following the commencement of such disability.
"Excluded Expenses" shall have the meaning as defined in Section 8.1.8.
"Fair Market Value" with respect to Company common stock means (i) the
average closing price for the Company common stock as reported on a securities
exchange or quoted on a national quotation system, if any, upon which the
Company common stock is traded or quoted or (ii) in the event Company's common
stock is not traded on any exchange or quoted on a national quotation system,
the fair market value of the Company common stock shall be determined by an
independent appraiser or investment banker selected by two (2) independent
appraisers or investment bankers (one (1) such firm selected by Company and one
(1) such firm selected by the Physician Owner or the Physician Owners as a group
(as the case may be)). Such valuation may include the consideration of discounts
for marketability, minority ownership and other discounts usual and customary in
the valuation process. Unless otherwise specified herein, the cost of any
appraisal shall be borne equally by Company and the Physician Owner or the
Physician Owners as a group (as the case may be).
"GAAP" shall mean generally accepted accounting principles as set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity or other practices and procedures as may be
approved by a significant segment of the accounting profession. For purposes of
this Agreement, GAAP shall be applied in a manner consistent with the historic
practices used by Company or VERO II as applicable.
"Governmental Authority" means any national, state or local government
(whether domestic or foreign), any political subdivision thereof or any other
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, board, body, agency, bureau or entity or any arbitrator with
authority to bind a party at law.
"Governmental Receivables" means an Account Receivable of VERO II which
(i) arises in the ordinary course of business of VERO II, (ii) has as its
Third-Party Payor the United States of America or any state or any agency or
instrumentality of the United States of America or any state which makes any
payments with respect to Medicare or Medicaid or with respect to any other
program (including CHAMPUS) established by federal or state law, and (iii) is
required by federal or state law to be paid or to be made to VERO II as a
healthcare provider. Governmental Receivables shall not, however, refer to
amounts payable by private insurers under contract to provide benefits under the
Federal Employee Health Benefit Program.
"Governmental Rules and Regulations" shall have the meaning as defined in
Section 13.7.
"Health Care Law" means any Applicable Law regulating the acquisition,
construction, operation, maintenance or management of a health care practice,
facility, provider or payor, including without limitation, 42 U.S.C. ss.1395nn
and 42 U.S.C. ss. 1320a-7b.
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"Lease" shall mean the Assigned Lease, Direct Leases, and the New Leases,
including all amendments thereto, described in Section 3.1 hereof.
"Leased Premises" shall mean the real property described in the Lease.
"Lender" shall have the meaning as defined in Section 7.2.
"Main Office" shall mean the Leased Premises and all equipment and
facilities owned or operated by Company and utilized by VERO II or any of its
employees within said Leased Premises.
"Medicaid" means any state program pursuant to which health care providers
are paid or reimbursed for care given or goods afforded to indigent persons and
administered pursuant to a plan approved by the Health Care Financing
Administration under Title XIX of the Social Security Act.
"Medicare" means any medical program established under Title XVIII of the
Social Security Act and administered by the Health Care Financing
Administration.
"Merger" shall mean the acquisition of Vero Orthopaedics, Inc. ("VERO")
pursuant to the Merger Agreement.
"Merger Agreement" means that certain Merger Agreement, dated November 12,
1996 by and between Company, VERO and Physician Owners.
"Merger A/R" means the accounts receivable acquired from VERO by Company
pursuant to the Merger Agreement.
"Necessary Authorizations" means with respect to VERO II, all certificates
of need, authorization, certifications, consents, approvals, permits, licenses,
notices, accreditations and exemptions, filings and registrations, and reports
required by Applicable Law, including, without limitation, Health Care Law,
which are required, necessary or reasonably useful to the lawful ownership and
operation of VERO II's business.
"New Lease" shall have the meaning as defined in Section 3.1.
"Office Locations" shall have the meaning as defined in Section 3.1.
"Person" shall mean an individual, corporation, partnership, association,
trust or unincorporated organization, or a government or any agency or political
subdivision thereof including, without limitation, Third-Party Payors.
"Physician Employees" shall mean the term as defined in Section 8.1.6.
"Physician Extender Employees" shall mean the term as defined in Section
8.1.5.
"Physician Owners" shall mean Xxxxxxxx Xxxxxx, M.D. and those Physician
Employees who own an interest, directly or indirectly, in the equity of VERO II.
"Plans" shall have the meaning as defined in Section 6.9.1.
"Policy Board" shall mean a board established pursuant to Section 4.1.
"Practice Net Revenue" shall mean the term as defined in Section 8.1.1.
"Practice Offices" shall mean (i) the Main Office and (ii) all of the
Satellite Offices.
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"Professional Services Revenue" shall mean the term as defined in Section
8.1.2.
"Purchase Price" shall mean the term as defined in Section 8.4.2.
"Purchased A/R" means, with respect to VERO II, the Accounts Receivable
purchased pursuant to Section 8.3 of this Agreement.
"VERO II Operating Account" shall mean that certain operating account
established by VERO II at a bank selected by VERO II in VERO II's sole
discretion as more fully described in Section 5.11.
"VERO II Plan" shall mean the term as defined in Section 6.9.1.
"Satellite Offices" shall mean each location at which one or more of VERO
II's employees provide services as described on Exhibit 2.1 and all equipment
and facilities owned or operated by Company and utilized by any of said persons
at such location.
"Settlement Date" shall mean the term as defined in Section 8.3.3.
"Service Agreement" means this Agreement.
"Subsidiary" means a Person of which an aggregate of 51% or more of the
voting stock of any class or classes or 51% or more of other voting or equity
interests is owned of record or beneficially by another Person, or by one or
more Subsidiaries of such Person.
"Substitute Physician(s)" shall mean the term as defined in Section
11.9.1(b).
"Technical Employees" shall mean the term as defined in Section 8.1.4.
"Third-Party Payors" means each Person which makes payment under a
Third-Party Payor Program, and each Person which administers a Third-Party Payor
Program.
"Third-Party Payor Programs" means Medicare, Medicaid, CHAMPUS, insurance
provided by Blue Cross and/or Blue Shield, managed care plans, and any other
private health care insurance programs and employee assistance programs as well
as any future similar programs.
ARTICLE III.
PRACTICE OFFICES TO BE PROVIDED BY COMPANY
3.1. Practice Offices. (a) Company has received a leasehold interest in
certain offices and locations which comprise the Practice location ("Main
Office") and/or satellite offices ("Satellite Offices") as identified on Exhibit
3.1 (collectively the "Office Locations") through (i) an assignment of any
existing leases on said Office Locations (the "Assigned Leases") or (ii)
entering into a new lease with respect to one or more of the Office Locations
(the "Direct Leases") with a copy of the Assigned Leases and Direct Leases
attached hereto as Exhibit 3.1.
(b) Company agrees to provide offices and facilities at the Office
Locations (or at comparable facilities on the termination of the Assigned Leases
or Direct Leases) to VERO II. Such facilities shall include all personal
property necessary to operate the facility. If any Assigned Leases or Direct
Leases are terminated by their terms, Company shall enter into a lease of a new
facility comparable to the Office Location whose lease is terminated (the "New
Lease") with the consent of the Policy Board. Company shall not enter into a
lease for a new Main Office or Satellite Office for VERO II without the approval
of the Policy Board.
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(c) VERO II agrees to comply with all terms and provisions of the Assigned
Leases, Direct Leases and New Leases.
3.2. Use of Practice Offices. VERO II shall not use or occupy the Main
Office or Satellite Offices for any purpose which is prohibited by the Assigned
Leases, Direct Leases or New Leases, by this Agreement or which is directly or
indirectly forbidden by law, ordinance, or governmental or municipal regulation
or order, or which may be dangerous to life, limb or property, or which would
increase the fire and extending coverage insurance rate in any Practice Office
or contents.
ARTICLE IV.
DUTIES OF THE POLICY BOARD
4.1. Formation and Operation of the Policy Board. The parties shall
establish a Policy Board which shall be responsible for developing management
and administrative policies for the overall operation of any Practice Office.
The Policy Board shall consist of six (6) members. Company shall designate, in
its sole discretion, three (3) members of the Policy Board. VERO II shall
designate, in VERO II's sole discretion, three (3) members of the Policy Board.
Any matter decided by a majority of the members of the Policy Board shall
constitute the decision of the Policy Board with respect to the matter.
4.2. Duties and Responsibilities of the Policy Board. The Policy Board
shall have the following duties and obligations:
4.2.1. Capital Improvements and Expansion. The Policy Board shall review
all requests by VERO II for any renovations, capital improvements, expansions
and new equipment purchases or leases. The Policy Board shall determine whether
such expenditures are appropriate based upon economic feasibility, physician
support, productivity, market conditions, and the annual budget formulated
pursuant to this Agreement. If the Policy Board determines that the acquisition
of additional equipment or facilities is appropriate, then Company shall use its
best efforts to arrange for the financing and acquisition of the property.
Governance issues affecting the Policy Board shall be addressed in accordance
with the rules set forth in Exhibit 4.1.
4.2.2. Annual Budgets. All annual capital and operating budgets prepared
by Company in accordance with Section 5.2 of this Agreement, shall be subject to
the review of the Policy Board.
4.2.3. Marketing. All advertising and other marketing of the services
performed at any Practice Office shall be subject to the prior review and
approval of the Policy Board.
4.2.4. Patient Fees; Collection Policies. As a part of the annual
operating budget in consultation with VERO II and Company, to the extent allowed
by Applicable Law, the Policy Board shall review and advise VERO II as to an
appropriate fee schedule for all physician and ancillary services rendered by
VERO II, which fee schedule shall ultimately be determined by VERO II in VERO
II's sole discretion. In addition, the Policy Board shall approve the credit
collection policies of VERO II.
4.2.5. VERO II and Payor Relationships. Decisions regarding the
establishment or maintenance of relationships with institutional health care
providers and payors, or with parties under arrangements for setting up new
Satellite Offices of VERO II in the future, shall be made by the Policy Board in
consultation with VERO II.
4.2.6. Strategic Planning. The Policy Board shall develop long-term
strategic planning objectives.
4.2.7. Capital Expenditures. The Policy Board shall determine the priority
of major capital expenditures including the procurement of any new or additional
office space for Practice Offices.
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4.2.8. Restrictive Covenants for Physician. The approval of the Policy
Board shall be required for any variations to the restrictive covenants
prescribed for any physician employment contract as set forth in Article VII or
Exhibit 11 of this Agreement.
4.2.9. Grievance Referrals. The Policy Board shall consider and make final
decisions regarding grievances pertaining to matters not specifically addressed
in this Agreement as referred to it by the Physician Employees.
ARTICLE V.
ADMINISTRATIVE SERVICES TO BE PROVIDED BY COMPANY
5.1. Performance of Management Functions. Company shall use its best
efforts to manage the day-to-day operations of the Main Practice Office and any
Satellite Offices in a business-like manner. Company shall provide or arrange
for the services set forth in this Article V, the cost of all of which shall be
included in Clinic Expenses. Company is hereby expressly authorized to perform
its services hereunder in whatever manner it deems reasonably appropriate to
meet the day-to-day requirements of Practice Office operations in accordance
with the general standards approved by the Policy Board and to maintain the
lease agreements for each of the Practice Offices, including, without
limitation, performance of some of the business office functions at locations
other than the Main Practice Office. VERO II will not act in a manner which
would prevent Company from efficiently managing the day-to-day operations of the
Main Practice Office and maintaining the operations of the Satellite Offices in
a business-like manner.
5.2. Financial Planning and Goals. Subject to Section 4.2.2. of this
Agreement, Company shall prepare annual capital and operating budgets reflecting
in reasonable detail anticipated revenues and expenses, and sources and uses of
capital for growth in VERO II's practice and medical services rendered at the
Practice Office. Said budgets shall reflect amounts, if any, allocated for
capital purchases, improvements, expansion and any new leasing arrangements.
Thereafter, but no later than thirty (30) days prior to the end of the fiscal
year, the Policy Board and Company shall agree upon a budget for the upcoming
fiscal year. The budget, as described in Section 4.2.2., shall be binding upon
Company and VERO II. Company shall consult with VERO II and the Policy Board in
the preparation of all budgets. Company and VERO II acknowledge and agree that
once a budget has been approved, neither Company nor VERO II shall make
expenditures or incur expenses in excess of budgeted amounts without the prior
approval of the Policy Board.
5.3. Audits and Financial Statements. Company shall prepare annual
financial statements for the operations of VERO II and, in its sole discretion,
may cause the financial statements to be audited by a certified public
accountant selected by Company. VERO II shall cooperate fully in such audit. The
cost of such audit shall be included in Clinic Expenses. If Company elects to
have the financial statements audited by a certified public accountant with a
big six accounting firm, the resulting audited financial statements shall be
binding on VERO II and Company. If Company elects not to have VERO II's
financial statements so audited, VERO II shall have the option to obtain such an
audit, by a certified public accountant with a mutually acceptable accounting
firm. Company shall fully cooperate in such audit. The cost of such audit shall
be included in Clinic Expenses. In such event, Company and VERO II shall be
bound by the resulting audited financial statements. All parties shall be
entitled to copies of any information provided to or by the auditors by or to
any party. Additionally, Company shall prepare monthly unaudited financial
statements containing a balance sheet and statements of income from Practice
Office operations, which shall be delivered to VERO II within thirty (30)
business days after the close of each calendar month.
5.4. Inventory and Supplies. Except as limited by Section 5.11, Company
shall order and purchase inventory and supplies and such other ordinary,
necessary or appropriate materials which Company shall deem to be necessary in
the operation of the Practice Offices and which are requested by VERO II and are
within the budget for the applicable fiscal period. Company shall not purchase
inventory, goods or supplies from any Affiliate of Company without approval of
the Policy Board and after full disclosure of all terms to the Policy Board.
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5.5. Management Services and Administration.
5.5.1. VERO II hereby appoints Company as VERO II's sole and exclusive
manager and administrator of all day-to-day business functions. VERO II agrees
that the purpose and intent of this Agreement is to relieve VERO II and
Physician Employees to the maximum extent possible of the administrative,
accounting, personnel and business aspects of their practice, with Company
assuming responsibility and being given all necessary authority to perform these
functions. Company agrees that VERO II and only VERO II will perform the medical
functions of VERO II's practice. Company will have no authority, directly or
indirectly, to perform, and will not perform, any medical function. Company may,
however, advise VERO II as to the relationship between VERO II's performance of
medical functions and the overall administrative and business functioning of
VERO II's practice. To the extent that a Company employee assists Physician
Employees in performing medical functions, such employees shall be subject to
the professional direction and supervision of Physician Employees and in the
performance of such medical functions shall not be subject to any direction or
control by, or liability to, Company, except as may be specifically authorized
by Company.
5.5.2. Company shall, on behalf of VERO II, xxxx patients and collect the
professional fees for medical services rendered by VERO II or any Physician
Employee, regardless of when or where such services are rendered. All xxxxxxxx
for Physician Employee's services shall be made in the name of and under the
provider number of VERO II. VERO II hereby appoints Company to be VERO II's true
and lawful attorney-in-fact, for the following purposes: (i) to xxxx patients in
VERO II's name and on VERO II's behalf; (ii) to collect Accounts Receivable
resulting from such billing in VERO II's name and on VERO II's behalf; (iii) to
receive payments from insurance companies, prepayments from health care plans,
and all other Third-Party Payors; (iv) to take possession of and endorse in the
name of VERO II (and/or in the name of an individual physician, such payment
intended for purpose of payment of a physician's xxxx) any notes, checks, money
orders, insurance payments and other instruments received in payment of Accounts
Receivable; and (v) to initiate legal proceedings in the name of VERO II to
collect any accounts and monies owed to VERO II or any Physician Employee, to
enforce the rights of VERO II as creditors under any contract or in connection
with the rendering of any service, and to contest adjustments and denials by any
Governmental Authority (or its fiscal intermediaries) as Third-Party Payors.
Except for cash proceeds from the collection of Accounts Receivable purchased
from VERO II by Company, Company shall deposit any cash receipts collected on
behalf of VERO II into the VERO II Operating Account described in Section 5.11.
5.5.3. Company shall design, supervise and maintain possession of all
files and records relating to the operation of VERO II, including but not
limited to accounting, billing, patient medical records, and collection records.
While the Company shall maintain custody, patient medical records shall at all
times be and remain the property of VERO II and shall be located at the Practice
Offices so that they are readily accessible for patient care. The Physician
Employees shall have the obligation to oversee the preparation and maintenance
of patient medical records, and to provide such medical information as shall be
necessary and appropriate to the records' clinical function and to sustain and
ensure the availability of Third-Party Payor reimbursement for services
rendered. The management of all files and records shall comply with applicable
state and federal statutes. Company shall use its best efforts to preserve the
confidentiality of patient medical records and use information contained in such
records only as permitted by law, to the extent necessary to perform the
services set forth herein.
5.5.4. Company shall supply to VERO II necessary clerical, accounting,
bookkeeping and computer services, printing, postage and duplication services,
medical transcribing services and any other ordinary, necessary or appropriate
service for the operation of the Practice Offices.
5.5.5. Subject to the overall guidance of the Policy Board, Company shall
design and implement an adequate and appropriate public relations program on
behalf of VERO II, with appropriate emphasis on public awareness of the
availability of services at the Practice Offices. The public relations program
shall be conducted in compliance with Applicable Law and regulations governing
advertising by the medical profession and applicable canons of principles of
professional ethics of VERO II and Physician Employees of VERO II.
5.5.6. Company shall provide the data necessary for VERO II to prepare
VERO II's annual income tax returns. Company shall have no responsibility for
the preparation of VERO II's federal or state income tax returns or the payment
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of such income taxes. Company shall prepare or cause to be prepared on VERO II's
behalf, necessary employment tax returns. VERO II shall be obligated to pay any
taxes due on such employment tax returns with respect to the Physician Owners.
5.5.7. Company shall assist VERO II in recruiting additional physicians,
carrying out such administrative functions as may be appropriate, such as
advertising for and identifying potential candidates, obtaining credentials, and
arranging interviews; provided, however, VERO II shall interview and make the
ultimate decision as to the suitability of any physician to become associated
with VERO II. All physicians recruited by Company and accepted by VERO II shall
be the sole employees of VERO II, to the extent such physicians are hired as
employees.
5.5.8. Company shall negotiate managed care contracts on behalf of VERO II
and shall administer all managed care contracts in which VERO II participates.
VERO II, at its discretion, shall have the right to enter into or reject such
contracts negotiated by Company.
5.5.9. Company shall arrange for legal and accounting services related to
operations of the Practice Offices and Physician Employee's practice at the
Practice Offices incurred traditionally in the ordinary course of business,
including the cost of enforcing any contract with a Physician Employee
containing restrictive covenants, provided such services shall be approved in
advance by the Policy Board. Notwithstanding the foregoing, VERO II shall have
the authority to arrange for legal and accounting services relating to matters
other than day-to-day management of VERO II; such other matters including but
not limited to issues relating to VERO II governance issues, compensation of
Physician Owners, and issues which arise between VERO II and Company; provided,
however, such fees shall be considered Excluded Expenses.
5.5.10. Company shall provide for the proper cleanliness of the premises,
and maintenance and cleanliness of the equipment, furniture and furnishings
located upon such premises.
5.5.11. Upon receipt of dues, statements or license notices from the
Physician Employees, Company shall make payment for the cost of professional
licensure fees and board certification fees of physicians associated with VERO
II.
5.5.12. Company shall negotiate for and cause premiums to be paid with
respect to the insurance provided for in Section 10.1.
5.6. Personnel. After Company (or a subsidiary of Company) has obtained a
license from the Florida Department of Business and Professional Regulation to
offer staff leasing services pursuant to Chapter 402 of the Florida Statutes
Annotated (prior to Company having obtained such license, the employees
referenced in this sentence shall be employees of VERO II), Company shall
provide Physician Extender Employees and other non-physician professional
support (administrative personnel, clerical, secretarial, bookkeeping and
collection personnel) reasonably necessary for the conduct of the operations at
the Practice Offices. Company shall determine and cause to be paid the salaries
and fringe benefits of all such personnel. Such personnel shall be employees of
Company, with those personnel performing patient care services subject to the
professional direction and supervision of Physician Employees. If VERO II is
dissatisfied with the services of any person, VERO II shall consult with
Company. Company shall in good faith determine whether the performance of that
employee could be brought to acceptable levels through counsel and assistance,
or whether such employee should be terminated. All of Company's obligations
regarding staff shall be governed by the overriding principle and goal of
providing quality medical care. Employee assignments shall be made to assure
consistent and continued rendering of quality medical support services and to
ensure prompt availability and accessibility of individual medical support staff
to physicians in order to develop constant, familiar and routine working
relationships between individual physicians and individual members of the
medical support staff. If VERO II disagrees with an assignment, VERO II may
appeal such assignment to the Policy Board. Company shall maintain established
working relationships wherever possible and Company shall make every effort
consistent with sound business practices to honor the specific requests of VERO
II with regard to the assignment of Company's employees.
5.7. Events Excusing Performance. Company shall not be liable to VERO II
or Physician Owners for failure to perform any of the services required herein
in the event of strikes, lock-outs, calamities, acts of God, unavailability of
- 9 -
supplies or other events over which Company has no control for so long as such
events continue, and for a reasonable period of time thereafter.
5.8. Compliance with Law and Business Standards. Company shall comply with
Applicable Law including, without limitation, Health Care Law including, without
limitation, federal, state, and local laws and regulations affecting billing and
reimbursement, referrals, patient privacy and confidentiality, and management of
hazardous materials and infectious waste. Company shall discharge its
obligations under this Agreement consistent with applicable business and
industry standards and practices.
5.9. Quality Assurance. Company shall assist VERO II in fulfilling VERO
II's obligations to patients to maintain professionally recognized quality of
medical and professional services.
5.10. New Medical Services and Additional Practice Offices. If VERO II
desires to have a new medical service provided at any of the Practice Offices or
desires to establish a new clinic, a proposal of such service or the
establishment of such new clinic shall be submitted to the Policy Board. Should
the Policy Board approve the expansion of service or the establishment of such
new clinic, Company, at its option, shall have the exclusive right to provide
services necessary to support VERO II in VERO II's delivery of such new medical
services at the Practice Office or new clinic, as applicable; provided, however,
if the type of service is an ancillary service that would be improper under any
rules, regulations or laws for Company to offer to VERO II patients, then
Company shall not have the option to provide such service. Should Company
decline to provide the necessary support service for the new service or new
clinic, VERO II shall be entitled to perform such service at VERO II's own
expense and the revenues therefrom shall not be included in the calculation of
Company's service fees under Article VIII of this Agreement; provided, however,
that Company shall have the option to assume performance of the necessary
support services for providing such new service or new clinic by buying out VERO
II's investment in the service at VERO II's Book Value at anytime within
eighteen (18) months of the date such new service is first provided, which Book
Value shall be based on the price of the assets purchased by VERO II less
depreciation accrued to the date of acquisition of such service by Company, as
determined under GAAP.
5.11. Collection of Certain Patient Receipts and Payment of Clinic
Expenses. VERO II agrees to establish and maintain a bank account, which shall
be referred to as the VERO II Operating Account, for the purpose of (a)
depositing proceeds from the sale of VERO II's Accounts Receivable pursuant to
Section 8.3 and (b) paying (i) any Service Fees owed pursuant to Article VIII of
this Agreement, (ii) expenses which are solely the obligation of VERO II
(Excluded Expenses), and (iii) compensation or distributions to Physician
Owners, and the distributions shall be made in that order of payment. VERO II
shall designate a Company employee as a signatory on the VERO II Operating
Account. After the payment of any Service Fees owed pursuant to Article VIII of
this Agreement, and expenses which are solely the obligation of VERO II, VERO II
may withdraw amounts for distributions to Physician Owners.
5.12. Other VERO II Accounts. VERO II shall have the right to open or
create bank accounts in addition to the VERO II Operating Account described in
Section 5.11 of this Agreement.
5.13. Discounts. All discounts on purchases made by Company on behalf of
VERO II shall be passed on to VERO II.
ARTICLE VI.
OBLIGATIONS OF VERO II AND PHYSICIAN OWNERS
6.1. Professional Services.
6.1.1. VERO II, its Physician Owners and Physician Employees shall provide
professional services to patients.
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6.1.2. VERO II, its Physician Owners and Physician Employees shall provide
the professional services to patients described in Section 6.1.1 above in
compliance at all times with ethical standards, laws and regulations applying to
VERO II's professional practice. VERO II shall also make all reports and
inquiries to the National Practitioners Data Bank and/or any state data bank
required by Applicable Law. VERO II shall use its best efforts to determine that
each Physician Employee and Technical Employee associated with VERO II who
provides medical care to patients of VERO II is licensed by the state or states
in which he or she renders professional services. If any disciplinary or medical
malpractice action is initiated against any such individual, VERO II shall
immediately provide Company with copies of any third-party documents (not
otherwise privileged) served on VERO II or letters delivered to VERO II. Such
information shall be deemed confidential information and shall, notwithstanding
such disclosure, remain subject to all privileges and immunities provided by
Applicable Law. Company shall take all steps reasonably necessary to assure that
such privileges and immunities remain intact. VERO II shall carry out a program
to monitor the quality of medical care practiced at the Practice Offices to
promote a high quality of medical care.
6.2. Medical Practice. VERO II shall use and occupy the Practice Offices
exclusively for the practice of medicine and shall comply with all Applicable
Law and standards of medical care. It is expressly acknowledged by the parties
that the medical practice or practices conducted at the Main Office shall be
conducted solely by physicians or medical practitioner associated with VERO II,
and no other physician or medical practitioner shall be permitted to use or
occupy the Main Office without the prior written consent of Company.
6.3. Employment of Physician Employees. VERO II shall have complete
control of and responsibility for the hiring, compensation, supervision,
evaluation and termination of Physician Employees, although at the request of
VERO II, Company shall consult with VERO II respecting such matters. VERO II
shall be responsible, subject to Section 8.4, for the payment of such Physician
Employees' salaries and wages, payroll taxes, Physician Employee benefits and
all other taxes and charges now or hereafter applicable to them. With respect to
physicians, VERO II shall only employ and contract with licensed physicians
meeting applicable credentialing guidelines established by VERO II.
6.4. Professional Dues and Education Expenses. Except to the extent
provided in Section 8.1.3(k), Physician Owners shall be solely responsible for
the cost of membership in professional associations and the cost of continuing
professional education. VERO II shall ensure that each Physician Employee
participates in such continuing medical education as is necessary for such
physician to remain licensed.
6.5. Professional Insurance Eligibility. VERO II shall cooperate in the
obtaining and retaining of professional liability insurance by assuring that all
Physician Employees are insurable and participating in an on-going risk
management program.
6.6. Events Excusing Performance. VERO II and Physician Owners shall not
be liable to Company for failure to perform any of the services required herein
in the event of strikes, lock-outs, calamities, acts of God, unavailability of
supplies or other events over which VERO II has no control for so long as such
events continue, and for a reasonable period of time thereafter.
6.7. Fees for Professional Services. VERO II shall be solely responsible
for legal, accounting and other professional services fees (Excluded Expenses)
incurred by VERO II, except as otherwise determined by the Policy Board.
6.8. Peer Review. VERO II agrees to cooperate with Company in establishing
a system of peer review within and among the provider practices as necessary to
obtain provider contracts. In connection therewith, VERO II agrees to assist in
the formulation of provider guidelines for each treatment or surgical modality,
and agrees to abide by said guidelines, and further agrees to submit to periodic
reviews by a third party to monitor compliance with said guidelines. VERO II
acknowledges that the establishment of provider guidelines may be necessary to
obtain PPO, HMO, IPA and other similar provider contracts, both private and
government funded. To the extent that said provider guidelines must be filed or
registered with any Third-Party Payor, VERO II agrees to cooperate with Company
in making such filings or registrations. It is agreed and acknowledged that all
such peer review guidelines shall be established and monitored by medical
personnel on the staff of VERO II and other practices that are part of the peer
review process, and shall not be promulgated, established
- 11 -
or enforced independently by Company. To the extent possible, all information
obtained through the peer review process shall remain confidential and the
parties shall take all steps reasonably necessary to assure that all privileges
and immunities provided by Applicable Law remain intact.
6.9. VERO II Employee Benefit Plans.
6.9.1. Effective as of the date of the closing under the Merger Agreement,
VERO II shall amend the tax-qualified retirement plan(s) described on Exhibit
6.9.1 (the "VERO II Plan") to provide that employees of Company who are
classified as "leased employees" (as defined in Code Section 414(n)) of VERO II
shall be treated as VERO II employees for purposes described in Code Section
414(n)(3). Not less often than annually, VERO II and Company shall agree upon
and identify in writing those individuals to be classified as leased employees
of VERO II (the "Designated Leased Employees"). VERO II and Company shall
establish mutually agreeable procedures with respect to the participation of
Designated Leased Employees in the VERO II Plan. Such procedures shall be
designed to avoid the tax disqualification of the VERO II Plan, similar plans of
practices similarly situated, (collectively, the "Plans").
6.9.2. If the Policy Board determines that the relationship between
Company and VERO II (and other practices similarly situated) constitutes an
"affiliated service group" (as defined in Code Section 414(m)), Company and VERO
II shall take such actions as may be necessary to avoid the tax disqualification
of the Plans. Such actions may include the amendment, freeze, termination or
merger of the VERO II Plan.
6.9.3. The Plans described on Exhibit 6.9.1 attached hereto are approved
by Company. VERO II shall not enter into any new "employee benefit plan" (as
defined in Section 3(3) of the Employment Retirement Income Security Act of
1974, as amended ("ERISA") without the consent of Company. In addition, VERO II
shall not offer any retirement benefits or make any material retirement payments
other than under the VERO II Plan to any stockholder of VERO II without the
express written consent of Company. Except as otherwise required by law, VERO II
shall not materially amend, freeze, terminate or merge the VERO II Plan without
the express written consent of Company. In the event of either of the foregoing,
Company's consent shall not be withheld if such action would not jeopardize the
qualification of any of the Plans. VERO II agrees to make such changes to the
VERO II Plan, including the amendment freeze, termination or merger of the VERO
II Plan, as may be approved by the Policy Board and Company but only if such
changes are necessary to prevent the disqualification of any of the Plans.
6.9.4. Expenses incurred in connection with the VERO II Plan or other VERO
II employee benefit plans, including, without limitation, the compensation of
counsel, accountants, corporate trustees, and other agents shall be included in
Clinic Expenses.
6.9.5. The contribution and administration expenses for the Designated
Leased Employees shall be included in VERO II's operating budget. VERO II and
Company shall not make employee benefit plan contributions or payments to VERO
II for their respective employees in excess of such budgeted amounts unless
required by law or the terms of the VERO II Plan. Company shall make
contributions or payments with respect to the VERO II Plan or other VERO II
employee benefit plans, as a Clinic Expense, on behalf of eligible Designated
Leased Employees, and other eligible VERO II employees. In the event a VERO II
Plan or other VERO II employee benefit plan is terminated, Company shall be
responsible, as a Clinic Expense, for any funding liabilities related to
eligible Designated Leased Employees; provided, however, Company shall only be
responsible for the funding of any liability accruing after the date of the
Merger Agreement.
6.9.6. Company shall have the sole and exclusive authority to adopt, amend
or terminate any employee benefit plan for the benefit of its employees,
regardless of whether such employees are Designated Leased Employees, unless
such actions would require the amendment, freeze or termination of the VERO II
Plan to avoid disqualification of the VERO II Plan, in which case any such
action would be subject to the express prior written consent of the Policy
Board. Company shall have the sole and exclusive authority to appoint the
trustee, custodian and administrator of any such plan.
6.9.7. In the event that any "employee welfare benefit plan" (as defined
in ERISA Section 3(l)) maintained or sponsored by VERO II must be amended,
terminated, modified or changed as a result of VERO II or Company being deemed
- 12 -
to be a part of an affiliated service group, the Policy Board will replace such
plan or plans with a plan or plans that provides those benefits approved by the
Policy Board. It shall be the goal of the Policy Board in such event to provide
substantially similar or comparable benefits if the same can be provided at a
substantially similar cost to the replaced plan.
6.10. Credentialing. To the extent permitted by applicable law, Company
shall assist VERO II in the credentialing of each Physician Employee, each
Technical Employee and each Physician Extender Employee.
ARTICLE VII.
RESTRICTIVE COVENANTS AND ENFORCEMENT
The parties recognize that the services to be provided by Company shall be
feasible only if VERO II operates an active medical practice to which both VERO
II and the physicians associated with VERO II devote their full time and
attention. To that end:
7.1. Exclusive Arrangement. During the term of this Agreement, Company
shall be VERO II's and Physician Owners' sole provider of the management
services described in this Agreement and neither VERO II, Physician Owners nor
any of VERO II's or Physician Owners' employees shall provide such management
services during the term of this Agreement. VERO II and the Physician Owners
agree that during the term of this Agreement, neither VERO II nor Physician
Owners will enter into any similar agreements with any physician practice
management company or entity. VERO II and the Physician Owners further agree
that during the term of this Agreement, they will not engage, directly or
indirectly, as a principal owner, shareholder (other than a holder of fewer than
5% of the outstanding shares of a publicly-traded company), partner, joint
venturer, agent, equity owner, or in any other capacity whatsoever, in any
corporation, partnership, joint venture, or other business association or entity
that operates ambulatory surgery centers or provides management services of the
nature provided by Company pursuant to this Agreement, within Indian River
County, Florida or contiguous counties or any location within seventy-five (75)
miles of the Main Clinic or any future facility that replaces the Main Clinic
(wherever located) or any Satellite Office utilized by VERO II at any time
during the term of this Agreement.
7.2. Restrictive Covenants.
7.2.1. By Current Physician Employees. VERO II shall obtain and enforce
formal agreements from current Physician Employees, other than Technical
Employees, pursuant to which the Physician Employees agree not to establish,
operate or provide physician services at any medical office, clinic or
outpatient and/or ambulatory treatment or diagnostic facility providing services
substantially similar to those provided by VERO II, except on VERO II's behalf,
within Indian River County, Florida or contiguous counties or any location
within seventy-five (75) miles during the first five (5) years of the term of
this Agreement or fifty (50) miles thereafter of the Main Office or any future
facility that replaces the Main Office (wherever located at such time) or any
Satellite Office thereafter at the time of termination of employment with VERO
II and for a period of twenty-four (24) months after any termination of
employment with VERO II. Such agreements shall be a condition to employment and
shall be in a form satisfactory to Company and shall provide that Company is a
third-party beneficiary to such agreements and that such third-party beneficiary
rights may be assigned to Company's lender ("Lender"). This Section 7.2 shall
relate solely to Physician Employees who are not also Physician Owners.
7.2.2. By Current and Future Physician Owners. On the earlier of one
hundred eighty (180) days from the effective date of this Agreement, or on
thirty (30) days after written request by Company, which such written request
includes a reasonable explanation or basis for the request, VERO II shall obtain
and enforce formal restrictive covenants with current and future Physician
Owners, the terms of which shall be substantially similar to the provisions of
Exhibit 11. Such agreements shall provide that Company is a third-party
beneficiary to such agreements. VERO II agrees to enforce the restrictive
covenants. The cost and expense of such enforcement shall be a Clinic Expense,
and all damages and other amounts recovered thereby shall be included in
Professional Services Revenue. In the event that after a request by Company,
VERO II does not pursue any remedy that may be available to it by reason of a
breach or default of a restrictive covenant,
- 13 -
upon the request of Company, VERO II shall assign to Company such causes of
action and/or other rights it has related to such breach or default and shall
cooperate with and provide reasonable assistance to Company with respect
thereto; in which case, all costs and expenses incurred in connection therewith
shall be borne by Company and shall be included in Company Expenses, and Company
shall be entitled to all damages and other amounts recovered thereby. The above
described restrictive covenants between VERO II and Physician Owners shall be in
addition to and not in place of the restrictive covenants described in Exhibit
11 between Company and the Physician Owners.
7.3. Restrictive Covenants By Future Physician Employees. VERO II shall
obtain and enforce formal agreements from each future Physician Employee other
than Technical Employees, hired or contracted, pursuant to which such physicians
agree not to establish, operate or provide physician services at any medical
office, clinic or outpatient and/or ambulatory treatment or diagnostic facility
providing services substantially similar to those provided by VERO II except on
VERO II's behalf, within Indian River County, Florida or contiguous counties or
any location within seventy-five (75) miles during the first five (5) years of
the term of this Agreement or fifty (50) miles thereafter of the Main Office or
any future facility that replaces the Main Office (wherever located at such
time) or any Satellite Office at the time of termination of said Physician
Employee's contract with VERO II and for a period of twenty-four (24) months
thereafter. Such agreements shall be a condition to employment and shall be in a
form satisfactory to Company and shall provide that Company is a third-party
beneficiary to such agreements and that such third-party beneficiary rights may
be assigned to any Lender. This Section 7.3 shall relate solely to Physician
Employees who are not also Physician Owners. The terms and conditions of Exhibit
11 shall govern restrictive covenants relating to Physician Owners.
7.4. Rights of Company. Except as limited below, Company shall at all
times during the term of this Agreement and thereafter have the right to enter
into additional service agreements with other physicians and practices
regardless of where such physicians and/or practices are located providing for
management services and facilities to such physicians and/or practices.
Notwithstanding the foregoing, and except as set forth in Section 11.9.3, in the
event that Company desires to enter into a Service Agreement with another
practice located within seventy-five (75) miles during the first five (5) years
of the term of this Agreement or fifty (50) miles thereafter of VERO II's Main
Office or any Satellite Office, then the Policy Board must first approve Company
entering into such agreement. In the event that the individuals representing
Company on the Policy Board can reasonably demonstrate that entering into such
agreement will not have a material adverse effect on VERO II's practice
operations, earnings or cash flow, then the individuals representing VERO II
shall consent to Company entering into such agreement.
7.5. Enforcement. VERO II acknowledges and agrees that since a remedy at
law for any breach or attempted breach of the provisions of this Article VII
shall be inadequate, Company shall be entitled to specific performance and
injunctive or other equitable relief in case of any such breach or attempted
breach in addition to whatever other remedies may exist by law. All parties
hereto also waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other equitable relief.
If any provision of Article VII relating to the restrictive period, scope of
activity restricted and/or the territory described therein shall be declared by
a court of competent jurisdiction to exceed the maximum time period, scope of
activity restricted or geographical area such court deems reasonable and
enforceable under Applicable Law, the time period, scope of activity restricted
and/or area of restriction held reasonable and enforceable by the court shall
thereafter be the restrictive period, scope of activity restricted and/or the
territory applicable to the restrictive covenant provisions in this Article VII.
In addition, breach of the provisions of this Article VII may trigger certain
rights of Company to redeem a Physician Owner's Company common stock pursuant to
the terms of Article VIII of that certain stockholders agreement between Company
and its stockholders (the "Stockholders Agreement").
7.6. Modification of Restrictive Covenants. Upon the termination of
employment of a Physician Owner or Physician Employee, the Policy Board shall
have the authority to release or reduce in whole or in part the terms of the
restrictive covenants, including but not limited to the mileage radius
limitations set forth above in Sections 7.2 and 7.3. In the event that the
individuals representing VERO II on the Policy Board can reasonably demonstrate
that a modification to the restrictive covenant will not have a material adverse
effect on Company's or VERO II's practice operations, earnings or cash flow,
then the individuals representing Company shall consent to the proposed
modifications.
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ARTICLE VIII.
FINANCIAL ARRANGEMENTS
8.1. Service Fees. During the first thirty-six (36) months of the term of
this Agreement, Company shall receive a service fee equal to (a) the greater of
(i) [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] or (ii) the Base Service
Fee, plus (b) the amount of Clinic Expenses. Upon the expiration of the first
thirty-six (36) months of the term of this Agreement, Company shall receive a
service fee equal to [xxxxxxxxxxxxxxxxxxxxxxxxx]of Practice Net Revenue plus the
amount of Clinic Expenses. In the event that a Physician Owner ceases to
practice medicine during the first thirty-six (36) months of the term of this
Agreement, such Physician Owner shall be personally liable for any reduction in
VERO II's service fees payable as further described under Section 11.9.1 of this
Agreement. In the event that a Physician Owner either dies or becomes Disabled
during such thirty-six (36) month period, VERO II, or the applicable Physician
Owner, as the case may be, shall be entitled to satisfy the amount owed by
transferring to Company an amount of Company common stock having a Fair Market
Value equal to the amount owed or paying to Company cash in the amount owed (or
a combination thereof).
8.1.1. "Practice Net Revenue" shall mean Professional Services Revenue,
less Clinic Expenses.
8.1.2. "Professional Services Revenue" shall mean all fees actually
recorded each month (net of any amounts reimbursed to any patients or
Third-Party Payors during the applicable month and net of any adjustments for
contractual allowances, Medicaid, worker's compensation, employee/dependent
health care benefit programs, professional courtesies and other activities that
do not generate a collectible fee) by or on behalf of VERO II as a result of
professional medical services personally furnished to patients and other fees or
income generated in their capacity as Physician Employees and Technical
Employees, and any revenue from the sale of any goods.
8.1.3. "Clinic Expenses" shall mean all operating and non-operating
expenses of VERO II arising hereunder unless expressly provided otherwise,
including, without limitation:
(a) salaries, benefits and other direct costs of all Clinic
employees including Company's employees and Physician Extender Employees
as defined in Section 8.1.5 working at the Practice Offices and salaries,
payroll taxes and employee benefits paid to Physician Employees (other
than Physician Owners) under Section 6.3 and to Technical Employees as
defined in Section 8.1.4,
(b) obligations of Company under Leases provided for herein under
Article III,
(c) the expenses and charges incurred for the Practice Offices,
including without limitation utilities, telephone, etc.,
(d) personal property and intangible taxes assessed against
Company's assets utilized by VERO II in the Practice Offices from and
after the date of this Agreement,
(e) interest expense on indebtedness incurred by Company to (i)
satisfy the obligations of VERO II, if any, assumed under the Merger
Agreement, (ii) provide working capital for Company's performance of any
of its obligations to VERO II hereunder, or (iii) purchase equipment,
(f) malpractice insurance premiums, disability insurance premiums to
cover accommodations to the Practice Offices under the definition of
"Disabled" or "Disability," and fire, workers compensation and general
liability insurance premiums and life insurance premiums, during the first
three (3) years of this Agreement, for life insurance on the lives of
Physician Owners, with VERO II as the death beneficiary,
(g) the cost of any goods purchased for resale,
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(h) the depreciation, as determined under GAAP, for any equipment or
depreciable property owned by Company and used in VERO II's Office
Locations by VERO II to be billed to VERO II on a monthly basis and paid
to Company at the same time Company pays for VERO II's Accounts Receivable
pursuant to Section 8.3,
(i) direct costs of all employees or consultants of Company engaged
to provide services at or in connection with VERO II or who actually
provide services at or in connection with the Clinic for improved
performance, such as quality assurance, reasonable expenses required for
physician accommodations under the definition of "Disabled" or
"Disability," materials management, purchasing program, change in coding
analysis, physician recruitment; provided, however, only the portion of
expenses related to such employee or consultant, without xxxx-up, that is
allocable in a fair and reasonable manner to work approved by the Policy
Board which is performed at or for the benefit of VERO II shall be
included in Clinic Expenses,
(j) expenses related to professional meetings, seminars, dues,
medical books and professional licensing fees for Physician Employees
(other than Physician Owners) provided, however, that such amount shall
not exceed $10,000 during any calendar year for any Physician Employee
(other than Physician Owners). If the cost incurred for such professional
meetings, seminars, dues, medical books and professional licensing fees
exceeds $10,000 during any calendar year, then the Physician Employee
incurring such cost shall be solely liable for the overage;
(k) expenses related to professional meetings, seminars, dues,
medical books and professional licensing fees for Physician Owners;
provided, however, that such amount shall not exceed $10,000 during any
calendar year for any Physician Owner. If the cost incurred for such
professional meetings, seminars, dues, medical books and professional
licensing fees exceeds $10,000 during any calendar year, then the
Physician Owner incurring such cost shall be solely liable for the
overage; and
(l) any and all other ordinary and necessary expenses incurred by
VERO II or approved by the Policy Board and reasonably incurred by the
Company for the direct benefit of VERO II in carrying out their respective
obligations under this Agreement.
Clinic Expenses shall not include Excluded Expenses or Company Expenses.
Excluded Expenses shall be the sole obligation of VERO II. Company Expenses
shall be the sole obligation of Company.
8.1.4. "Technical Employees" shall mean individuals who provide billable
services on behalf of VERO II and are employees of VERO II.
8.1.5. "Physician Extender Employees" shall mean Physician Assistants,
Nurse Practitioners, and other such persons who are employees of Company, but
excluding any Technical Employees.
8.1.6. "Physician Employees" shall mean only those individuals who are
doctors of medicine (including Physician Owners) and who are employed by VERO II
or are otherwise under contract with VERO II to provide professional services to
patients seen in the Main Office or Satellite Offices and are duly licensed to
provide professional medical services in the state or states in which he or she
renders professional services under this Agreement.
8.1.7. "Company Expenses" shall mean, pursuant to GAAP applied on a
consistent basis:
(a) Any corporate overhead charges of Company and other items
incurred by Company that are not incurred specifically for the purpose of
providing services to VERO II or are not directly attributable to VERO II,
as reasonably determined by Company, including, without limitation,
salaries and benefits of executive officers of Company, except as
otherwise provided for in the definition of Clinic Expenses;
(b) Any amortization of any intangible asset resulting from the
Merger;
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(c) Any depreciation attributable to increases in the book value of
tangible depreciable assets resulting from the Merger;
(d) Any legal and accounting expenses incurred by Company in
connection with the Merger; and
(e) All taxes of Company, including, but not limited to, state and
federal income taxes and franchise taxes, but excluding state and federal
employee taxes related to employees who provide services for VERO II,
property taxes on assets used by VERO II and other taxes specifically
included in Clinic Expenses.
8.1.8. "Excluded Expenses" shall be the sole obligation of VERO II and
shall mean, pursuant to GAAP applied on a consistent basis:
(a) Any salaries or other distributions made to Physician Owners
whether for professional fee income or otherwise;
(b) Any federal, state or other taxes associated therewith;
(c) Except as provided in Section 8.1.3(k), expenses of Physician
Owner's to maintain licensure or meet continuing education requirements,
including related travel expense; and
(d) Any other items specifically designated as Excluded Expenses
elsewhere in this Agreement including but not limited to those items
listed on Exhibit 8.1.8(d).
8.2. Payment of Service Fee. The amounts to be paid to Company under this
Article VIII shall be payable monthly, at the time that Company pays VERO II for
the Accounts Receivable previously purchased by Company as described in Section
8.3 below. The amount payable shall be estimated based upon the previous month's
operating results of VERO II. Adjustments to the estimated payments shall be
made to reconcile actual cumulative amounts due under this Article VIII, by the
end of the following month during each calendar year. Upon preparation of annual
financial statements as provided in Section 5.3, final adjustments to the
service fee for the preceding year shall be made and any additional payments
owing to Company or VERO II shall then be made to the party owed the additional
sum of money. The adjustment and any amount owed shall be calculated and paid
within ninety (90) days following the close of Company's fiscal year.
8.3. Purchase of Accounts Receivable.
8.3.1. VERO II hereby agrees to sell and assign to Company and Company
agrees to buy, all of VERO II's Accounts Receivable each month during which this
Agreement is in existence which are owing to VERO II arising out of the delivery
of medical, surgical, diagnostic or other professional medical goods or
services. Accounts Receivable shall not include, and Company shall not purchase,
any cash, checks or receivables created by credit cards. Company shall bear the
risk of collection and any overage or underage resulting from any purchased
Accounts Receivable.
8.3.2. The purchase price for each Accounts Receivable (the "Purchase
Price") will be equal to the face amount of the Accounts Receivable recorded
each month, less any non-allowed contractual adjustments and net of any reserve
for uncollectible Accounts Receivables based on the historical experience of the
practice as determined by the Company. It is the intent of the parties that the
Purchase Price reflect the actual net realizable value of the Accounts
Receivable.
8.3.3. VERO II will sell all Accounts Receivable to Company, such purchase
to be deemed to be made on the fifteenth (15th) day of the month following the
month in which such Accounts Receivable are created. Company shall pay for the
Accounts Receivable not later than the fifteenth (15th) day of each month
following the month in which the Accounts Receivable is created (the "Settlement
Date"). Company shall pay VERO II for all Accounts Receivable purchased by
check, wire transfer or intrabank transfer to the VERO II Operating Account
described in Section 5.11. The purchase of Accounts Receivable shall be
evidenced by sending Company (i) a copy of each invoice with respect to each
Third-Party Payor on the Accounts Receivable then being purchased; and (ii) any
other information or documentation (including all required Uniform
- 17 -
Commercial Code releases or financing statements) Company may reasonably need to
identify the Accounts Receivable and obtain payment from the Account Debtors;
provided that such failure to send such documents shall not affect the
obligation of VERO II to sell such Accounts Receivable or Company to buy such
Accounts Receivable. As consideration for the purchase of Accounts Receivable by
Company pursuant to this Section 8.3, Company promises to pay and shall be
obligated to pay for such Accounts Receivable at the time and in the manner
provided below. To the extent permissible by Applicable Law, VERO II will be
deemed to have sold to Company all of VERO II's right, title and interest in
such Accounts Receivable and in any proceeds thereof, and Company will be the
sole and absolute owner thereof and will own all of VERO II's rights and
remedies represented by such Accounts Receivable (including, without limitation,
rights to payment from the respective Account Debtors on such Accounts
Receivable), and Company will have obtained all of VERO II's rights under all
guarantees, assignments and securities with respect to each such Accounts
Receivable.
8.3.4. Upon expiration or termination of this Agreement for any reason,
(i) all Accounts Receivable purchased by Company shall remain the property of
Company and (ii) all Accounts Receivable purchased and not paid for at such
expiration or termination shall be paid for by the 10th of the following month
but effective as of the effective date of such expiration or termination date,
less the amount of any service fee earned by Company pursuant to Section 8.1 of
this Agreement.
8.3.5. In connection with the initial purchase of Accounts Receivable by
Company, VERO II will execute such financing statements or amendments under the
UCC (naming Company as secured party and Lender as assignee) as Company may
reasonably request with respect to any Accounts Receivable that may be purchased
pursuant to this Agreement.
8.3.6. VERO II agrees to cooperate with Company in the collection of the
Accounts Receivable sold by VERO II, transferred pursuant to Section 8.3. At the
option of and upon the request of Company, VERO II shall execute any and all
documentation necessary for the transfer of amounts constituting Accounts
Receivables and/or the establishment of lockboxes in accordance with the
provisions of Exhibit 8.3.6 attached hereto.
8.3.7. All Accounts Receivable of VERO II purchased by Company ("Purchased
A/R") pursuant to this Section 8.3 hereof will, as such Purchased A/R are
purchased, be treated as Professional Service Revenues for accounting and
financial purposes.
8.4. Payment of Clinic Expenses. All Clinic Expenses shall be incurred in
the name of Company, unless VERO II is required by law to incur such expenses,
in which case Company shall indemnify VERO II against any such expenses. Company
shall pay all Clinic Expenses as they become due; provided, however, that
Company may, in the name and on behalf of VERO II, contest in good faith any
claimed Clinic Expense to which there is any dispute regarding the nature,
existence or validity of such claimed Clinic Expense. Upon receipt of VERO II's
service fee, Company shall be required to deposit into the VERO II Operating
Account described in Section 5.11 an amount of money necessary for VERO II to
pay the compensation and benefits associated with the Technical Employees and
Physician Employees (other than Physician Owners) employed by VERO II.
ARTICLE IX.
RECORDS
9.1. Patient Records. Upon termination of this Agreement and unless
otherwise provided herein, VERO II shall retain all patient medical records
maintained by VERO II or Company in the name of VERO II. VERO II shall, at VERO
II's option, be entitled to retain copies of financial and accounting records
relating to all services performed by VERO II. All parties agree to maintain the
confidentiality of patient identifying information and not to disclose such
information except as may be required or permitted by Applicable Law.
9.2. Records Owned by Company. All records relating in any way to the
operation of the Practice Offices which are not the property of VERO II under
the provisions of Section 9.1 above, shall at all times be the property of
Company.
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9.3. Access to Records. During the term of this Agreement, and thereafter,
VERO II or VERO II's designee shall have reasonable access during normal
business hours to VERO II's and Company's financial records, which relate to the
operation of VERO II including, but not limited to, records of collections,
expenses and disbursements as kept by Company in performing Company's
obligations under this Agreement, and VERO II may copy at VERO II's expense any
or all such records.
9.4. Government Access to Records. To the extent required by Section
1861(v)(1)(I) of the Social Security Act, each party shall, upon proper request,
allow the United States Department of Health and Human Services, the Comptroller
General of the United States, and their duly authorized representatives access
to this Agreement and to all books, documents, and records necessary to verify
the nature and extent of the costs of services provided by either party under
this Agreement, at any time during the term of this Agreement and for an
additional period of four (4) years following the last date services are
furnished under this Agreement. If either party carries out any of its duties
under this Agreement through an agreement between it and an individual or
organization related to it or through a subcontract with an unrelated party,
that party to this Agreement shall require that a clause be included in such
agreement to the effect that until the expiration of four (4) years after the
furnishing of services pursuant to such agreement, the related organization
shall make available, upon request by the United States Department of Health and
Human Services, the Comptroller General of the United States, or any of their
duly authorized representatives, all agreements, books, documents, and records
of such related organization that are necessary to verify the nature and extent
of the costs of services provided under that agreement.
ARTICLE X.
INSURANCE AND INDEMNITY
10.1. Insurance to be Maintained by VERO II. Throughout the term of this
Agreement, VERO II shall maintain comprehensive professional liability and
worker's compensation insurance for VERO II and all employees of VERO II in
amounts approved by the Policy Board. Not in limitation of the foregoing, VERO
II shall maintain excess general liability umbrella coverage with a One Million
Dollars ($1,000,000) limit as currently maintained by VERO II (with deductible
provisions not to exceed $25,000 per occurrence), the cost of which shall be
paid by Company as a Clinic Expense. In lieu of the foregoing, Company may
provide as a Clinic Expense group insurance for malpractice and/or worker's
compensation insurance. Notwithstanding the foregoing, in the event that Company
procures such group insurance for malpractice and/or worker's compensation
insurance, VERO II must first approve the amount of coverage, the carrier and
the terms of any such coverage for VERO II.
10.2. Insurance to be Maintained by Company. Throughout the term of this
Agreement, Company shall provide and maintain, as a Clinic Expense,
comprehensive professional liability insurance and worker's compensation
insurance as required by Applicable Law for all professional employees of
Company who work at the Practice Offices with limits as determined reasonable by
Company, comprehensive general liability and property insurance covering the
Practice Offices' premises and operations. The deductible provisions on the
personal liability shall not exceed $25,000 per occurrence and the commercial
general liability insurance shall be in amounts customarily maintained by other
businesses in the same or similar business as Company.
10.3. Additional Insureds. VERO II and Company agree to use their best
efforts to have each other named as an additional insured on the other's
respective professional liability insurance programs at Company's expense.
Further, on any insurance where Company will be named as an additional insured,
VERO II will assist Company to obtain appropriate riders to insure payment of
any party indemnified by Company.
10.4. Indemnification. VERO II shall indemnify, hold harmless and defend
Company, its officers, directors and employees, from and against any and all
liability, loss, damage, claim, causes of action, and expenses (including
reasonable attorneys' fees), caused or asserted to have been caused, directly or
indirectly, by or as a result of the performance of any intentional acts,
negligent acts or negligent omissions (other than for any claims for (or in
connection with) malpractice arising from the performance or nonperformance of
medical services) by VERO II and/or VERO II's Physician Owners, agents,
employees and/or subcontractors (other than Company) during the term hereof.
Company shall indemnify, hold
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harmless and defend VERO II, the Physician Owners, VERO II's officers, directors
and employees, from and against any and all liability, loss, damage, claim,
causes of action, and expenses (including reasonable attorneys' fees), caused or
asserted to have been caused, directly or indirectly, by or as a result of the
performance of any intentional acts, negligent acts or negligent omissions by
Company and/or its shareholders, agents, employees and/or subcontractors (other
than VERO II and the Physician Owners) during the term of this Agreement.
Neither Company nor VERO II shall have any obligation to indemnify the other
party unless the claim for indemnification is based upon a liability, loss or
damage resulting in the indemnified party making payments to a third party.
Pursuant to the terms of the Stockholders Agreement, Company may have the right
to redeem a Physician Owner's Company common stock to satisfy a Physician
Owner's indemnification obligations.
In the event that either party makes a claim for indemnification under
either the Merger Agreement or this Service Agreement, then the claiming party
shall have the right, to the extent it is owed indemnifications, to pay amounts
owed to the other party under this Agreement into an escrow account (established
pursuant to an escrow agreement to be agreed upon by the parties) to be held by
the escrow agent in an interest bearing account until a determination by either
(i) the parties, (ii) a court of proper jurisdiction or (iii) agreed upon panel
of arbitrators, has been made regarding the claiming party's right to
indemnification. In the event that the claiming party is entitled to
indemnification, then such escrowed funds shall be paid to the claiming party in
partial or complete satisfaction of such indemnification obligation. Any excess
funds remaining in the escrow account after the payment of the indemnification
obligation or any funds held in the escrow account if it is determined that no
indemnification obligation is owed shall be paid to the other party.
ARTICLE XI.
TERM, TERMINATION AND RETIREMENT
11.1. Term of Agreement. This Service Agreement shall be effective upon
the closing of the Merger Agreement, and shall expire on October 31, 2036 unless
earlier terminated pursuant to the terms hereof. Notwithstanding the foregoing,
for purposes of computing the Service Fee for the month of November of 1996
only, the Service Agreement shall be effective upon November 1, 1996.
11.2. Extended Term. Unless earlier terminated as provided for in this
Agreement, the term of this Agreement shall be automatically extended for
additional terms of five (5) years each, unless either party delivers to the
other party, not less than one hundred eighty (180) days prior to the expiration
of the preceding term, written notice of such party's intention not to extend
the term of this Agreement.
11.3. Termination by VERO II for Cause. VERO II may terminate this
Agreement without breach as follows:
11.3.1. In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by Company, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by Company, except for the filing of a petition in
involuntary bankruptcy against Company which is dismissed within thirty (30)
days thereafter, VERO II may give notice of the immediate termination of this
Agreement.
11.3.2. In the event Company shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement and such default
shall continue for a period of sixty (60) days after written notice thereof has
been given to Company by VERO II; or Company shall fail to remit the payments
due as provided in Article VIII hereof and such failure to remit shall continue
for a period of thirty (30) days after written notice thereof, VERO II may
terminate this Agreement.
11.3.3. In the event Company shall, intentionally or in bad faith,
misapply funds or assets of VERO II or commit a similar act which cause material
harm to VERO II, VERO II may terminate this Agreement.
- 20 -
11.3.4. In the event that Company shall intentionally or in bad faith
violate Applicable Law resulting in a direct, continuing material adverse effect
on the operations, earnings and cash flow of VERO II, VERO II may terminate this
Agreement.
11.4. Termination by Company for Cause. Company may terminate this
Agreement without breach as follows:
11.4.1. In the event of the filing of a petition in voluntary bankruptcy
or an assignment for the benefit of creditors by VERO II, or upon other action
taken or suffered, voluntarily or involuntarily, under any federal or state law
for the benefit of debtors by VERO II, except for the filing of a petition in
involuntary bankruptcy against VERO II which is dismissed within thirty (30)
days thereafter, Company may give notice of the immediate termination of this
Agreement.
11.4.2. In the event VERO II shall materially default in the performance
of any duty or obligation imposed upon it by this Agreement, and such default
shall continue for a period of ninety (90) days after written notice thereof has
been given to VERO II by Company, Company may terminate this Agreement.
11.4.3. In the event VERO II's Medicare or Medicaid Number shall be
terminated or suspended as a result of the action or inaction of VERO II or a
Physician Employee, and such termination or suspension shall continue for thirty
(30) days, Company may give notice of the immediate termination of this
Agreement, unless VERO II shall at that time be acting in good faith (and shall
provide reasonable evidence of the action being taken) to reverse such
termination or suspension. Notwithstanding any good faith effort on the part of
VERO II to reverse such termination or suspension, if such termination or
suspension shall not be reversed within ninety (90) days after occurrence,
Company shall have the right to terminate this Agreement immediately.
11.4.4 In the event this Agreement is terminated by Company pursuant to
Section 11.4.1, Section 11.4.2, or Section 11.4.3, Company, at its option, may
require VERO II to purchase from Company all assets, both tangible and
intangible, owned by Company and used or made available for VERO II's use for
the fair market value of such assets on a going concern basis, without regard to
this Agreement. In addition thereto, VERO II shall assume all debt (including
any balance of any remaining debt incurred by the Company to acquire the assets
under the Merger Agreement) and all contracts, payables and leases which are
obligations of Company which relate to the Company's obligations which are
performed at the Office Locations under this Agreement. The fair market value of
the assets shall be determined by an independent appraiser selected by two (2)
independent accountants practicing with "big six" accounting firms, one (1)
selected by VERO II and one (1) selected by Company and neither of which is
providing or has for a period of two (2) years provided services to Company or
VERO II. In addition to the payment for the practice assets, in the event
Company terminates this Agreement pursuant to Section 11.4.1, Section 11.4.2 or
Section 11.4.3 within the first five (5) years of the term of this Agreement,
then VERO II's Physician Owners shall (i) pay to Company an amount of money
equal to the Fair Market Value, as of the date of termination, of
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] by Company to VERO II
pursuant to the Merger Agreement or (ii) surrender to Company for cancellation
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] by Company to VERO II pursuant to the Merger
Agreement. All expenses of any appraisal shall be paid by VERO II. In the event
that Company terminates this Agreement pursuant to Sections 11.4.1 through
11.4.3, inclusive, and Company requires VERO II to purchase the practice assets,
then upon the closing of the purchase of the assets, VERO II and its Physician
Employees shall be released from the restrictive covenants provided for under
Exhibit 11 of this Agreement. In addition, termination of this Agreement may
trigger certain rights of Company to redeem a Physician Owner's Company common
stock pursuant to the terms of Article VIII of the Stockholders Agreement.
11.5. Early Termination by VERO II or Company Without Cause Upon Third
(3rd) Anniversary of Agreement. Either party may terminate this Agreement
without cause upon written notice delivered to the other party not less than
nine (9) months or more than ten (10) months or more prior to the end of the
third (3rd) anniversary of the date of this Agreement if the Company has not
filed a registration statement with the United States Securities and Exchange
Commission; provided, however, if the Company files a registration statement,
for an underwritten public offering, with the United States Securities and
Exchange Commission before the end of the date of the third (3rd) anniversary of
this Agreement, then such termination shall be ineffective, and this Agreement
shall continue in force unless otherwise terminated pursuant to the other
provisions of Article XI of this Agreement. In the event that such registration
statement is not effective within one hundred twenty
- 21 -
(120) days from filing, then the early termination rights described in the first
sentence of this Section 11.5 shall be again exercisable; provided, further,
that if such registration statement was filed during the above described notice
period for early termination, then such period shall be extended for thirty (30)
days from and after the date such early termination rights again become
exercisable. Notwithstanding any other provision of this Agreement to the
contrary, the termination rights set forth in this Section 11.5 shall
immediately terminate and no longer be effective upon a Change in Control of the
Company. Upon a termination pursuant to this Section 11.5, VERO II shall tender
to Company all of the stock issued to VERO II by Company pursuant to the Merger
Agreement, and Company shall return to VERO II the facilities and all assets,
both tangible and intangible, used or made available for VERO II's use in the
Practice Office. VERO II shall assume all debt (including any balance of any
remaining debt incurred by the Company to acquire the assets under the Merger
Agreement) and all contracts, payables and leases which are obligations of
Company and which relate to Company's obligations which are performed at the
Office Locations under this Agreement. The Company and VERO II shall cooperate
to structure any exchange consummated pursuant to this Section 11.5 in a manner
designed to minimize the aggregate tax consequences to the parties arising from
the exchange. Closing of the exchange pursuant to this Section 11.5 shall occur
effective as of the third (3rd) anniversary of this Agreement.
11.6. Consequences of VERO II Termination. In the event that this
Agreement is terminated by VERO II under the terms of Section 11.3 or is
terminated on any other basis (other than (i) because of the normal expiration
of its term set forth in Section 11.1, (ii) by Company for cause as set forth in
Section 11.4 or (iii) by early termination as set forth in Section 11.5), then
upon such termination, VERO II shall purchase from Company all assets, both
tangible and intangible, owned by Company and used or made available for VERO
II's use for the fair market value of such assets on a going concern basis
without regard to this Agreement. In addition thereto, VERO II shall assume all
debt (including any balance of any remaining debt incurred by the Company to
acquire the assets under the Merger Agreement) and all contracts, payables and
leases which are obligations of Company which relate to the Company's
obligations which are performed at the Office Locations under this Agreement.
The fair market value of the assets shall be determined by an independent
appraiser selected by two (2) independent accountants practicing with "big six"
accounting firms, one (1) selected by VERO II and one (1) selected by Company
and neither of which is providing or has for a period of two (2) years provided
services to Company or VERO II. Termination of this Agreement by VERO II or a
Physician Owner may trigger Company's right to redeem all of Company common
stock owned by the Physician Owner as provided for in Section 8.1 (a) of the
Stockholders Agreement.
11.7. Closing of Purchase by VERO II and Effective Date of Termination.
VERO II shall, except as provided below in this Section 11.7, pay cash for the
practice assets purchased pursuant to the provisions of this Section 11. The
amount of the purchase price shall be reduced, but not below zero (0), by the
amount of debt and liabilities of Company assumed by VERO II and shall also be
reduced by any payment Company has failed to make under this Agreement, provided
that such payments or obligations are not otherwise accounted for in the
liabilities assumed by VERO II in connection with the purchase described herein.
The closing date for the purchase shall be determined by VERO II, but shall in
no event occur later than one hundred eighty (180) days from the date of the
notice of termination. The termination of this Agreement shall become effective
upon the closing of the sale of the assets and VERO II and Company shall be
released from the restrictive covenants provided for in Article VII on the
closing date. Company shall give VERO II credit towards the purchase price of
the assets for the Fair Market Value of any Company common stock tendered to the
Company in exchange for such assets. In the event that VERO II terminates this
Agreement pursuant to Sections 11.3.1 through 11.3.4, inclusive, or Sections
11.5, 11.6 or 11.7, then upon the closing of the purchase of the assets, VERO II
and its Physician Employees shall, except as VERO II may so elect to limit
through separate agreements with Physician Owners and Physician Employees, be
released from the restrictive covenants provided for under Article VII or
Exhibit 11 of this Agreement.
11.8. Tail Policy. VERO II shall obtain continuing liability insurance
coverage under either a "tail policy" or a "prior acts policy" with the same
limits and deductibles as set forth in Section 10.1 upon the termination of this
Agreement, or upon a physician's termination of his or her affiliation with VERO
II.
11.9. Restrictions Applicable to Physician Owners. The Physician Owners
hereby acknowledge that the Merger and the terms and conditions of this
Agreement were determined based upon numerous factors, including the Physician
Owners continuing to practice medicine in the future. In connection therewith,
each Physician Owner agrees as follows:
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11.9.1. Early Retirement. If at any time prior to the fifth (5th)
anniversary of this Agreement, a Physician Owner desires to retire from the
practice of medicine, such Physician Owner shall be obligated as follows:
(a) to give Company at least twelve (12) months prior written notice
of the intent to retire; provided, however, that once such retiring
physician has located a replacement physician satisfying the requirements
of Section 11.9.1(b), Company shall waive the remaining months of said
twelve (12) month notice period, and such retirement shall be effective
upon the earlier of twelve (12) months from the date of notice or
commencement of the replacement physician's employment;
(b) to locate a physician or physicians (which may be Physician
Employees), reasonably acceptable to the Policy Board, to replace such
Physician Owner under this Agreement (all costs of locating such
replacement physicians shall be paid by such Physician Owner (the
"Substitute Physician(s)");
(c) to pay to Company any loss of service fees payable under this
Agreement for the remainder of the first five (5) years of this Agreement.
Any loss for any periods of less than twelve (12) months shall be
calculated on an annualized and prorated basis. For purposes of this
Section 11.9.1(c), the amount of the loss shall be calculated as follows:
(i) The Policy Board shall calculate the retiring Physician
Owner's contribution to the payment of VERO II's service fees
during the twelve (12) month period preceding the retiring
Physician Owner's notice of intent to retire.
(ii) In the event the Substitute Physician(s) were Physician
Employees prior to the date upon which notice of intent to
retire was given pursuant to Section 11.9.1(a), the Policy
Board shall calculate such Physician Employee(s) contribution
to the payment of VERO II's service fees during the twelve
month period preceding the notice of intent to retire.
(iii) On each successive anniversary date of this Agreement (through
the fifth anniversary date) following the effective date of
such retirement, the Policy Board shall determine the amount
of service fees generated by the Substitute Physicians between
either (x) the effective date of retirement or (y) the
immediately preceding anniversary date, as applicable, and
such successive anniversary date.
(iv) If the Substitute Physician(s) were Physician Employees prior
to date upon which the notice of intent to retire was given,
the amount of loss shall equal the difference between (i) the
amount calculated pursuant to Section 11.9.1(c)(i) plus the
amount calculated pursuant to Section 11.9.1(c)(ii) and (ii)
the amount calculated pursuant to Section 11.9.1(c)(iii).
(v) If the Substitute Physician(s) were not Physician Employees
prior to the date upon which the notice of intent to retire
was given, the amount of loss shall equal the difference
between (i) the amount calculated pursuant to Section
11.9.1(c)(i) and (ii) the amount calculated pursuant to
Section 11.9.1(c)(iii).
The Policy Board will provide the amount of the loss to the retiring Physician
Owner within thirty (30) days of the applicable anniversary date of this
Agreement and such amount shall be paid by such retiring Physician Owner to
Company within fifteen (15) days of the date of the delivery of the notice of
the amount of loss;
(d) to (i) pay to Company an amount of money equal to the Fair
Market Value, as of the date of retirement, of [xxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxx] by the Company to the retiring Physician Owner pursuant
to the Merger Agreement or (ii) surrender to Company for cancellation
[xxxxxxxxxxxxxxxxxxxxxxxx] by Company to the retiring Physician Owner
pursuant to the Merger Agreement. (All expenses of any appraisal shall be
paid by such Physician Owner.); and
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(e) to honor and comply with the restrictive covenants provided for
under Exhibit 11.
11.9.2. Retirement. If at any time after the fifth (5th) anniversary of
this Agreement, a Physician Owner desires to retire, or assume full-time
teaching responsibilities, such Physician Owner shall notify Company in writing
at least twelve (12) months prior to the effective date of such retirement or
start of teaching position; provided, however, that
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] of the Physician Owners can retire or assume
full time teaching responsibilities within any twelve (12) month period;
provided, further, that if such retiring physician elects to, and has located a
replacement physician, Company shall waive the remaining months of said twelve
(12) month notice period, and such retirement shall be effective upon the
earlier of twelve (12) months from the date of notice or commencement of the
replacement physician's employment. Upon such retirement or start of teaching
position, such Physician Owner shall have no further obligations under this
Agreement; provided, however, the restrictive covenants provided for under
Exhibit 11 shall remain in force. In fulfilling any such full-time teaching
responsibilities, such Physician Owner would be permitted to attend patients in
a manner normal and customary for such faculty position, provided, however, such
services must be incident to the academic/teaching aspects of the institution,
and not incident to the regular examination of patients for a fee whether billed
in the name of the institution or the name of the attending physician. It is not
the intent of the Parties to permit a retired physician to conduct a medical
practice through an academic institution.
11.9.3. Physician Owner Change in Practice/Group Affiliation. In the event
that a Physician Owner leaves the employment of or terminates his or her
affiliation with VERO II, then the terminating Physician Owner may join or
establish another group/practice which has or will enter into a Service
Agreement with Company upon such terminating Physician Owner's affiliation with
such new group/practice. Upon entering into such new Service Agreement, the
terminating Physician Owner shall, except as limited by separate employment
agreements between VERO II and Physician Owners, be released from any obligation
under this Service Agreement. Company shall have the right to enter into such
new Service Agreement without satisfying the requirements of paragraph G of
Exhibit 11. In the event that (i) VERO II consents to Company entering into the
new Service Agreement, (ii) entering into the new Service Agreement will not
adversely affect the operations and earnings of Company, and (iii) the new
group/practice can satisfy the representations and warranties set forth in
Article XIII of this Agreement, then Company will not unreasonably withhold or
refrain from entering into a new Service Agreement with the terminating
Physician Owner's new group/practice. Except as set forth herein, in the event
that the Physician Owner affiliates with a new group/practice that is not a
party to a Service Agreement with Company, then Company, at its option, may
terminate this Agreement solely with respect to the terminating Physician Owner,
and the provisions of Exhibit 11 shall apply. In the event that Company does not
enter into a new Service Agreement, then Company shall terminate this Agreement
with respect to such Physician Owner, and the terminating Physician Owner shall
be obligated as described in Sections 11.9.1(a), and 11.9.1(e) of this
Agreement; provided, however, if such termination is within the first five (5)
years of the term of this Agreement, the terminating Physician Owner shall also
be obligated as described in Sections 11.9.1.(a), 11.9.1.(b), 11.9.1.(c),
11.9.1.(d) and 11.9.1.(e).
11.9.4. Death or Disability. In the event that a Physician Owner dies or
becomes disabled, then the Physician Owner shall have no continuing obligations
under this Agreement; provided, however, in the event of disability, the
restrictive covenants described in Exhibit 11 shall remain in force.
ARTICLE XII.
DAMAGE AND LOSS; CONDEMNATION
12.1. Use of Insurance Proceeds. All insurance or condemnation proceeds
payable by reason of any physical loss of any of the improvements comprising the
facilities or the furniture, fixtures and equipment used by the Practice
Offices, shall be available for the reconstruction, repair or replacement, as
the case may be, of any damage, destruction or loss. The Policy Board, in
consultation with VERO II, shall review and approve such reconstruction, repair
or replacement.
12.2. Temporary Space. In the event of substantial damage to or the
condemnation of a significant portion of the facilities, Company shall use its
best efforts to provide temporary facilities until such time as the facilities
can be restored or replaced.
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ARTICLE XIII.
REPRESENTATIONS AND WARRANTIES OF VERO II AND PHYSICIAN OWNERS
VERO II and Physician Owners represent, warrant, covenant and agree with
Company that:
13.1. Validity. VERO II is a Florida corporation. VERO II has the full
power and authority to own VERO II's property, to carry on VERO II's business as
presently being conducted, to enter into this Agreement, and to consummate the
transactions contemplated hereby. Each Physician Owner is an adult citizen and
resident of the State of Florida. Each Physician Owner has the full power and
authority to own his or her property, carry on his or her business as presently
being conducted, to enter into this Agreement, and to consummate the
transactions contemplated hereby.
13.2. Litigation. Except as disclosed pursuant to the Merger Agreement,
there is no suit, action, proceeding at law or in equity, arbitration,
administrative proceeding or other proceeding pending, or threatened against, or
affecting VERO II or any Physician Employee, or to the best of VERO II's and
each Physician Owner's knowledge, any provider or other health care professional
associated with or employed by VERO II as pertains to any claim involving the
providing of health care related services, and to the best of VERO II's and each
Physician Owner's knowledge there is no basis for any of the foregoing.
13.3. Permits. VERO II and all health care professionals associated with
or employed by VERO II have all permits and licenses and other Necessary
Authorizations required by all Applicable Law, except where failure to secure
such licenses, permits and other Necessary Authorizations does not have a
material adverse effect; have made all regulatory filings necessary for the
conduct of VERO II's business; and are not in violation of any of said
permitting or licensing requirements.
13.4. Authority. The execution of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action, and this Agreement is a valid and binding Agreement of VERO II and each
Physician Owner, enforceable in accordance with its terms. VERO II and each
Physician Owner have obtained all third-party consents necessary to enter into
and consummate the transaction contemplated by this Agreement. Neither the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby, nor compliance by VERO II or any Physician Owner with any
of the provisions hereof, will:
13.4.1. violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under any license, agreement or other
instrument or obligation to which either VERO II or any Physician Owner is a
party;
13.4.2. violate any order, writ, injunction, decree, statute, rule or
regulation applicable to either VERO II or any Physician Owner.
13.5. Compliance with Applicable Law. To the best of VERO II's and each
Physician Owner's knowledge and belief, VERO II and each Physician Owner has
operated in compliance with all federal, state, county and municipal laws,
ordinances and regulations applicable thereto and neither VERO II nor any
provider associated with or employed by VERO II has received payment or any
remuneration whatsoever to induce or encourage the referral of patients or the
purchase of goods and/or services as prohibited under 42 U.S.C. ss. 1320a-7b(b),
or otherwise perpetrated any Medicare or Medicaid fraud or abuse, nor has any
fraud or abuse been alleged within the last five (5) years by any Governmental
Authority, a carrier or a Third-Party Payor.
13.6. Health Care Compliance. VERO II is presently participating in or
otherwise authorized to receive reimbursement from or is a party to Medicare,
Medicaid, and other Third-Party Payor Programs. All necessary certifications and
contracts required for participation in such programs are in full force and
effect and have not been amended or otherwise modified, rescinded, revoked or
assigned as of the date hereof, and no condition exists or to the knowledge of
VERO II no event has occurred which in itself or with the giving of notice or
the lapse of time or both would result in the suspension,
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revocation, impairment, forfeiture or non-renewal of any such Third-Party Payor
Program. VERO II is in full compliance with the material requirements of all
such Third-Party Payor Programs applicable thereto.
13.7. Fraud and Abuse. VERO II and persons and entities providing
professional services for VERO II, have not, to the knowledge of VERO II and
each Physician Owner, after due inquiry, engaged in any activities which are
prohibited by or are in violation of the rules, regulations, policies, contracts
or laws pertaining to any Third-Party Payor Program, or which are prohibited by
rules of professional conduct ("Governmental Rules and Regulations"), including
but not limited to the following: (a) knowingly and willfully making or causing
to be made a false statement or representation of a material fact in any
application for any benefit or payment; (b) knowingly and willfully making or
causing to be made any false statement or representation of a material fact for
use in determining rights to any benefit or payment; (c) failing to disclose
knowledge by a claimant of the occurrence of any event affecting the initial or
continued right to any benefit or payment on VERO II's own behalf or on behalf
of another, with intent to fraudulently secure such benefit or payment; or (d)
knowingly and willfully soliciting or receiving any remuneration (including any
kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in
cash or in kind or offering to pay or receive such remuneration (i) in return
for referring an individual to a person for the furnishing or arranging for the
furnishing or any item or service for which payment may be made in whole or in
part by Medicare or Medicaid, or (ii) in return for purchasing, leasing, or
ordering or arranging for or recommending purchasing, leasing, or ordering any
good, facility, service or item for which payment may be made in whole or in
part by Medicare or Medicaid.
13.8. VERO II Compliance. VERO II has all licenses necessary to operate
the Practice Offices in accordance with the requirements of all Applicable Law
and has all Necessary Authorizations for the use and operation, all of which are
in full force and effect. There are no outstanding notices of deficiencies
relating to VERO II issued by any Governmental Authority or Third-Party Payor
requiring conformity or compliance with any Applicable Law or condition for
participation of such Governmental Authority or Third-Party Payor, and after
reasonable and independent inquiry and due diligence and investigation, VERO II
has neither received notice nor has any knowledge or reason to believe that such
Necessary Authorizations may be revoked or not renewed in the ordinary course.
13.9. Rates and Reimbursement Policies. The jurisdiction in which VERO II
is located does not currently impose any restrictions or limitations on rates
which may be charged to private pay patients receiving services provided by VERO
II. VERO II does not have any rate appeal currently pending before any
Governmental Authority or any administrator of any Third-Party Payor Program.
VERO II has no knowledge of any Applicable Law which has been enacted,
promulgated or issued within the eighteen (18) months preceding the date of this
Agreement or any such legal requirement proposed or currently pending in the
jurisdiction in which VERO II is located which could have a material adverse
effect on VERO II or may result in the imposition of additional Medicaid,
Medicare, charity, free care, welfare, or other discounted or government
assisted patients at VERO II or require VERO II to obtain any necessary
authorization which VERO II does not currently possess.
13.10. Accounts Receivable. With respect to the Purchased A/R, as of the
date of purchase:
13.10.1. All documents and agreements relating to the Purchased A/R that
have been delivered to Company with respect to such Accounts Receivable are true
and correct; VERO II has billed the applicable Account Debtor and VERO II has
delivered or caused to be delivered to such Account Debtor all requested
supporting claim documents with respect to such Accounts Receivable; all
information set forth in the xxxx and supporting claim documents is true and
correct, and, if any error has been made, VERO II will promptly correct the same
and, if necessary, rebill or, if requested by Company, cooperate with Company to
rebill such Accounts Receivable.
13.10.2. The Purchased A/R are exclusively owned by VERO II and there is
no security interest or lien in favor of any third party, or the recording or
filing against VERO II, as debtor, covering or purporting to cover any interest
of any kind in any Accounts Receivable, except as has been released by each
party holding such adverse interest in the Accounts Receivable. Upon payment of
the Purchase Price with respect to the Purchased A/R and with respect to
Governmental Receivables, to the extent permissible by law, all right, title and
interest of VERO II with respect thereto shall be vested in
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Company, free and clear of any lien, security interest, claim or encumbrance of
any kind, and VERO II agrees to defend the same against the claims of all
Persons.
13.10.3. The Purchased A/R (i) are payable, in an amount not less than
their face amount, as adjusted pursuant to the provisions of Section 8.3.2, by
the Account Debtor identified by VERO II as being obligated to do so, (ii) are
based on an actual and bona fide rendition of services or sale of goods to the
patient by VERO II in the ordinary course of business, (iii) are denominated and
payable only in lawful currency of the United States, and (iv) are accounts or
general intangibles within the meaning of the UCC of the state in which VERO II
has its principal place of business, or are rights to payment under a policy of
insurance or proceeds thereof, and are not evidenced by any instrument or
chattel paper. There are no payors other than the Account Debtor identified by
VERO II as the payor primarily liable on any Purchased A/R.
13.10.4. The Purchased A/R are not (i) subject to any action, suit,
proceeding or dispute (pending or threatened), set-off, counterclaim, defense,
abatement, suspension, deferment, deductible, reduction or termination by the
Account Debtors other than routine adjustments and disallowances made in the
ordinary course of business, to the extent of such adjustments and
disallowances, (ii) past or within sixty (60) days of, the statutory limit for
collection applicable to the Account Debtor, (iii) subject to an invoice which
provides for payment more than forty-five (45) days from the date of such
invoice, (iv) an account which arises out of a sale or other transaction by or
between VERO II to an Affiliate of VERO II, (v) from an Account Debtor who is
also a creditor of VERO II, (vi) an account in which the Account Debtor has
commenced a voluntary case, or an involuntary proceeding has been instituted,
under the federal bankruptcy laws, as now constituted or hereafter amended, or
made an assignment for the benefit or creditors, or if a decree or order for
relief has been entered by a court having jurisdiction in the premises in
respect to the Account Debtor, (vii) an account of which the goods giving rise
to such Accounts Receivable have not been shipped and delivered to and accepted
by the Account Debtor or the services giving rise to such Accounts Receivable
have not been performed by VERO II and accepted by the Account Debtor or the
Accounts Receivable otherwise does not represent a final sale, (viii) is
evidenced by an instrument or chattel paper unless such instrument or chattel
paper is delivered to Company with all appropriate endorsements in favor of
Company, or (ix) other than a complete bona fide transaction which requires no
further act under any circumstances on the part of VERO II to make the Accounts
Receivable payable by the Account Debtor.
13.10.5. VERO II does not have any guaranty of, letter of credit providing
credit support for, or collateral security for, the Purchased A/R, other than
any such guaranty, letter of credit or collateral security as has been assigned
to Company, and any such guaranty, letter of credit or collateral security is
not subject to any lien in favor of any other person.
13.10.6. The goods or services provided and reflected by the Purchased A/R
were medically necessary for the patient in the opinion of VERO II and the
patient received such goods or services.
13.10.7. The face amount of the Accounts Receivable for the services
constituting the basis for the Purchased A/R are consistent with the usual,
customary and reasonable fees charged by other similar medical service providers
in VERO II's community for the same or similar service.
13.10.8. Each Account Debtor with respect to the Purchased A/R (i) is not
currently the subject of any bankruptcy, insolvency or receivership proceeding,
nor is it generally unable to make payments on its obligations when due, (ii) is
located in the United States, and (iii) is one of the following: (x) a party
which in the ordinary course of its business or activities agrees to pay for
healthcare services received by individuals, including, without limitation,
Medicare, Medicaid, governmental bodies, commercial insurance companies and
non-profit insurance companies (such as Blue Cross and Blue Shield entities)
issuing health, personal injury, workers compensation or other types of
insurance; (y) employers or unions which self-insure for employee or member
health insurance, prepaid healthcare organizations, preferred provider
organizations, health maintenance organizations or any other similar person, or
(z) a Third-Party Payor of the type described in the definition of Governmental
Receivables.
13.10.9. The proceeds of the sale of the Purchased A/R will be used for
the business and commercial purposes of VERO II. The sale of the Purchased A/R
hereunder is made in good faith and without actual intent to hinder, delay or
defraud present or future creditors of VERO II.
- 27 -
13.10.10. Except with respect to Governmental Receivables, the insurance
policy, contract or other instrument obligating an Account Debtor to make
payment with respect to the Purchased A/R (i) does not contain any provision
prohibiting the transfer of such payment obligation from the patient to VERO II,
or from VERO II to Company, (ii) has been duly authorized by VERO II and to the
knowledge of VERO II has been duly authorized by the Account Debtor and,
together, with the Purchased A/R, constitutes the legal, valid and binding
obligation of the Account Debtor in accordance with its terms, (iii) together
with the applicable Purchased A/R, does not contravene in any material respect
any requirement of law applicable thereto, and (iv) was in full force and effect
and applicable to the patient at the time the services constituting the basis
for the Purchased A/R were performed.
The Purchased A/R are purchased without recourse, except for the
representations, warranties and covenants made by VERO II and the Physician
Owners with respect thereto. None of the foregoing representations and
warranties with respect to the Purchased A/R shall be deemed to constitute a
guaranty by VERO II that the Purchased A/R will be collected by Company. VERO II
shall not be responsible for any damages for any breach of a representation or
warranty under this Section 13.10 until Company has suffered a loss on the
purchase of VERO II's Accounts Receivable. Damages for such breach shall be
limited to the amount of Company's loss on the purchase of such Accounts
Receivable.
13.11. Full Disclosure. When considered in the context of all information
contained herein, to the knowledge of VERO II no representation or warranty made
by VERO II in this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
13.12. Exhibits. All the facts recited in Exhibits annexed hereto shall be
deemed to be representations of fact by VERO II as though recited in this
Article XIII.
ARTICLE XIV.
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company represents, warrants, covenants and agrees with VERO II as
follows:
14.1. Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Company
has the full power to own its property, to carry on its business as presently
conducted, to enter into this Agreement and to consummate the transactions
contemplated hereby.
14.2. Authority. Company has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, as well as the
consummation of the transactions contemplated hereby. The execution and delivery
of this Agreement do not, and the consummation of the transactions contemplated
hereby will not, violate any provisions of the charter or the bylaws of Company
or any indenture, mortgage, deed of trust, lien, lease, agreement, arrangement,
contract, instrument, license, order, judgment or decree or result in the
acceleration of any obligation thereunder to which Company is a party or by
which it is bound.
14.3. Absence of Litigation. No action or proceeding by or before any
court or other Governmental Authority has been instituted or is, to the best of
Company's knowledge, threatened with respect to the transactions contemplated by
this Agreement.
14.4. Transactions with Affiliates. Company shall not enter into any
transaction or series of transactions, whether or not related or in the ordinary
course of business, with any Affiliate of VERO II or Company, other than on
terms and conditions substantially as favorable to Company as would be
obtainable by Company at the time in a comparable arm's-length transaction with
a person not an Affiliate.
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ARTICLE XV.
COVENANTS OF VERO II AND PHYSICIAN OWNERS
15.1. Merger, Consolidation and Other Arrangements. VERO II shall not
incorporate, merge or consolidate with any other entity or individual or
liquidate or dissolve or wind-up VERO II's affairs or enter into any
partnerships, joint ventures or sale-leaseback transactions or purchase or
otherwise acquire (in one or a series of related transactions) any part of the
property or assets (other than purchases or other acquisitions of inventory,
materials and equipment in the ordinary course of business) of any other person
or entity.
15.2. Necessary Authorizations/Assignment of Licenses and Permits. VERO II
and each Physician Owner shall maintain all licenses, permits, certifications,
or other Necessary Authorizations and shall not assign or transfer any interest
in any license, permit, certificate or other Necessary Authorization granted to
it by any Governmental Authority, nor shall VERO II or any Physician Owner
assign, transfer, or remove or permit any other individual or entity to assign,
transfer or remove any records of VERO II or any Physician Owner, including
without limitation, patient records, medical and clinical records (except for
removal of such patient records required under any Applicable Law).
15.3. Transaction with Affiliates. Neither VERO II nor any Physician Owner
shall enter into any transaction or series of transactions, whether or not
related or in the ordinary course of business, with any Affiliate of VERO II or
Company, other than on terms and conditions substantially as favorable to VERO
II or the Physician Owner, as would be obtainable by VERO II or the Physician
Owner at the time in a comparable arms-length transaction with a person not an
Affiliate.
15.4. Compliance with All Laws. VERO II and each Physician Owner shall use
their best efforts to comply with all laws and regulations relating to VERO II's
practice and the operation of any facility, including, but not limited to, all
state, federal and local laws relating to the acquisition or operation of a
health care practice. Furthermore, neither VERO II nor any Physician Owner shall
intentionally violate any Governmental Rules and Regulations.
15.5. Third-Party Payor Programs. VERO II shall maintain VERO II's
compliance with the requirements of all Third-Party Payor Programs in which VERO
II is currently participating or authorized to participate.
15.6. Change in Business or Credit and Collection Policy. VERO II shall
not make any change in the character of VERO II's business or in the credit and
collection policy, which change would, in either case, impair the collectibility
of any Purchased A/R or any Merger A/R or otherwise modify, amend or extend the
terms of any such account other than in the ordinary course of business.
15.7. Treatment of Accounts Receivable. VERO II will (i) treat transfers
to Company of Accounts Receivable hereunder as a sale for all purposes,
including tax and accounting (and shall accurately reflect such sale in its
financial statements), and will advise all persons who inquire about the
ownership of such Accounts Receivable that they have been sold to Company; (ii)
not treat any such Accounts Receivable as an asset on VERO II's books and
records; (iii) record in VERO II's books, records and computer files pertaining
thereto that such Accounts Receivable have been sold to Company; (iv) pay all
taxes, if any, relating to the transfer of such Accounts Receivable after the
same have been purchased by Company; (v) not impede or interfere with Company's
collection of such Accounts Receivable; (vii) not amend, waive or otherwise
permit or agree to any deviation from the terms or conditions of such Accounts
Receivable; (viii) use all reasonable efforts to obtain all consents from
patients which are required by law in order for Company, or any servicing entity
retained by Company, to secure information needed to obtain or to expedite
payment from the respective Account Debtors; and (ix) have billed such Accounts
Receivable on the same bases and using the same policies and practices that it
has used in the past unless Company has been advised in writing of a change
prior to the purchase of such Accounts Receivable. Company or its designated
representatives from time to time may verify the Accounts Receivable, inspect,
check, take copies or extracts from VERO II's books, records and files, and VERO
II will make the same available to Company or such representatives at any
reasonable time for such purposes.
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15.8. Security Interest. If, contrary to the mutual intent of VERO II and
Company, any purchase of Purchased A/R is not characterized as a sale, VERO II
shall, effective as of the date hereof, be deemed to have granted (and VERO II
does hereby grant) to Company a first priority security interest in and to any
and all of the Purchased A/R and the proceeds thereof to secure the repayment of
all amounts advanced to VERO II hereunder with accrued interest thereon, and
this Agreement shall be deemed to be a security agreement. With respect to such
grant of a security interest, Company may at its option exercise from time to
time any and all rights and remedies available to it under the UCC or otherwise.
VERO II agrees that five (5) days shall be reasonable prior notice of the date
of any public or private sale or other disposition of all or part of the
Purchased A/R. VERO II represents and warrants that the location of VERO II's
principal place of business, and all locations where VERO II maintains records
with respect to its accounts are set forth under its name in Section 16.3
hereof. VERO II agrees to notify Company in writing thirty (30) days prior to
any change in any such location. The exact name of VERO II is as set forth at
the beginning of this Agreement, and except as set forth on the signature page
hereof, VERO II has not changed its name in the last five (5) years, and during
such period VERO II did not use, nor does VERO II now use, any fictitious or
trade name. VERO II shall notify Company in writing thirty (30) days prior to
any change in any such name.
ARTICLE XVI.
GENERAL PROVISIONS
16.1. Assignment. Company shall have the right to assign its rights
hereunder to any person, firm or corporation under common control with Company
and to any lending institution from which Company obtains financing, including
but not limiting the restrictive covenants included in Article VII (covenant not
to compete), for security purposes or as collateral. VERO II agrees to, and
acknowledges, Company's right to assign Company's rights under this Agreement to
any Lender and further agrees that upon receipt of written notice from such
Lender, VERO II shall pay to Lender or cause to be paid to Lender all amounts
which are otherwise payable to Company pursuant to the terms of this Agreement,
including, without limitation, all service fees, and other Clinic Expenses and,
until such amounts are delivered to Lender, hold payments in trust for Lender.
Except as set forth above, neither Company nor VERO II shall have the right to
assign their respective rights and obligations hereunder without the written
consent of the other party. Without limiting the foregoing, VERO II acknowledges
that, as collateral for certain obligations, Company has assigned all of its
rights hereunder to NationsBank of Tennessee, N.A. as Agent (the "Agent") for
itself and other banks and institutional lenders from time to time (collectively
the "Banks") and has granted the Agent for the benefit of the Banks a lien and
security interest upon all real and personal property used in the operation of
the Office Locations (the "Pledged Assets"). As an inducement for the Banks to
extend or continue the extension of credit to Company, VERO II (i) acknowledges
that the collateral assignment to the Agent covers all rights of Company
hereunder, including, but not limited to, rights arising from warranties and
representations made by VERO II, rights to enforce covenants made by VERO II,
and rights to receive all payments due Company; (ii) agrees to regard the Agent
as the owner of any or all of the assigned rights upon written notice to VERO II
of this election from the Agent; (iii) agrees that neither the Agent nor any of
the Banks has obligation for the performance of the duties of Company hereunder,
and shall not assume any such duty by the exercise of rights as a secured
lender; (iv) agrees to give the Agent written notice of any material default
hereunder on Company's part at the address of 0 XxxxxxxXxxx Xxxxx, Xxxxxxxxx,
Xxxxxxxxx 00000, Attn: Xxxxx Xxxxx, and to allow at least thirty (30) days
thereafter for the cure of such default before VERO II terminates this
Agreement; (v) agrees that the rights of VERO II under this Agreement,
including, but not limited to, the right to the use of the Pledged Assets, are
and shall be junior to any security interest that the Agent and the Banks, their
successors or assigns may have in the Pledged Assets at any time; (vi) agrees
that the benefits of the above undertakings in favor of the Agent and Banks
shall further extend to all successors and assigns of the Agent and Banks,
provided that any notices given by VERO II under this Section shall be given to
the Agent at the foregoing address unless VERO II has received written notice of
a change thereof; and (vii) agrees that this Section may not be modified, and no
provision of this Section may be waived, absent the written approval of the
Agent.
16.2. Whole Agreement; Modification. This Agreement supersedes all prior
agreements between the parties and there are no other agreements or
understandings, written or oral, between the parties regarding this Agreement,
the Exhibits and the Schedules, other than as set forth herein. This Agreement
shall not be modified or amended except by a written document executed by both
parties to this Agreement.
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16.3. Notices. All notices required or permitted by this Agreement shall
be in writing and shall be deemed to have been given (i) when received if given
in person, (ii) on the date of acknowledgment of receipt if sent by telex,
facsimile or other wire transmission, (iii) one business day after being sent by
overnight delivery service, or (iv) three days after being deposited in the
United States mail, certified or registered mail, postage prepaid, addressed as
follows:
To Company: Specialty Care Network, Inc.
00 Xxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx Xxxxx
With a copy to: Baker, Donelson, Bearman & Xxxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxx, Esq.
To VERO II: Vero Orthopaedics II, P.A.
0000 00xx Xxxxxx
Xxxx Xxxxx, Xxxxxxx 00000
Attention:__________________
With a copy to: Clem, Polackwich, Vocelle & Xxxxxx
Univest Bldg., Suite 501
0000 X. Xxxxxx Xxxxx Xxxx.
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, III
or to such other address as either party shall notify the other.
16.4. Binding on Successors. Subject to Section 16.1, this Agreement shall
be binding upon the parties hereto, and their successors, assigns, heirs and
beneficiaries.
16.5. Waiver of Provisions. Any waiver of any terms and conditions hereof
must be in writing, and signed by the parties hereto. The waiver of any of the
terms and conditions of this Agreement shall not be construed as a waiver of any
other terms and conditions hereof.
16.6. Governing Law. The validity, interpretation and performance of this
Agreement shall be governed by and construed in accordance with the laws of the
State of Florida.
16.7. No Practice of Medicine. The parties acknowledge that Company is not
authorized or qualified to engage in any activity which may be construed or
deemed to constitute the practice of medicine. To the extent any act or service
required of Company in this Agreement should be construed or deemed by any
Governmental Authority or court to constitute the practice of medicine, the
performance of said act or service by Company shall be deemed waived and
unenforceable to the minimum extent required to comply with Applicable Law.
16.8. Severability. The provisions of this Agreement shall be deemed
severable and if any portion shall be held invalid, illegal or unenforceable for
any reason, the remainder of this Agreement shall be effective and binding upon
the parties.
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16.9. Additional Documents. Each of the parties hereto agrees to execute
any document or documents that may be requested from time to time by any other
party to implement or complete such party's obligations pursuant to this
Agreement.
16.10. Attorneys' Fees. If legal action is commenced by any party to
enforce or defend its rights under this Agreement, the prevailing party in such
action shall be entitled to recover its costs and reasonable attorneys' fees in
addition to any other relief granted.
16.11. Time is of the Essence. Time is hereby expressly declared to be of
the essence in this Agreement.
16.12. Confidentiality. No party hereto shall disseminate or release to
any third party any information regarding any provision of this Agreement, or
any financial information regarding the other (past, present or future) that was
obtained by the other in the course of the negotiations of this Agreement or in
the course of the performance of this Agreement, including, but not limited to,
any information relating to the internal operations of VERO II, VERO II fees or
the terms of any of the managed care contracts, without the other party's
written approval; provided, however, the foregoing shall not apply to
information which (i) is generally available to the public other than as a
result of a breach of confidentiality provisions; (ii) becomes available on a
non-confidential basis from a source other than the other party or its
affiliates or agents, which source was not itself bound by a confidentiality
agreement; (iii) which is required to be disclosed by law or pursuant to court
order (Company shall provide VERO II with copies of any information regarding
VERO II provided by Company to any third party); or (iv) except for disclosure
to its bank, underwriters or lenders, or its advisors to the extent required by
Section 9.4, or as required in connection with reports on filings with the SEC
or State Departments of Securities.
16.13. Contract Modifications for Prospective Legal Events. If any state
or federal laws or regulations, now existing or enacted or promulgated after the
effective date of this Agreement, are interpreted by judicial decision, a
regulatory agency or legal counsel in such a manner as to indicate that the
structure of this Agreement may be in violation of such laws or regulations,
VERO II and Company shall amend this Agreement as necessary. To the maximum
extent possible, any such amendment shall preserve the underlying economic and
financial arrangements between and among VERO II and Company.
16.14. Remedies Cumulative. No remedy set forth in this Agreement or
otherwise conferred upon or reserved to any party shall be considered exclusive
of any other remedy available to any party, but the same shall be distinct,
separate and cumulative and may be exercised from time to time as often as
occasion may arise or as may be deemed expedient.
16.15. Language Construction. The language in all parts of this Agreement
shall be construed, in all cases, according to VERO II's fair meaning, and not
for or against either party hereto. The parties acknowledge that each party and
its counsel have reviewed and revised this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement.
16.16. No Obligation to Third Parties. Except as provided in Section 16.1,
none of the obligations and duties of Company or VERO II under this Agreement
shall in any way or in any manner be deemed to create any obligation of Company
or of VERO II to, or any rights in, any person or entity not a party to this
Agreement.
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16.17. Communications. VERO II and Company agree that good communication
between the parties is essential to the successful performance of this
Agreement, and each pledges to communicate fully and clearly with the other on
matters relating to the successful operation of VERO II's practice at the
Practice Offices.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
COMPANY:
SPECIALTY CARE NETWORK, INC.
By:________________________________________
Title:_____________________________________
VERO II:
VERO ORTHOPAEDICS II, P.A.
By:________________________________________
Title:_____________________________________
PHYSICIAN OWNERS:
____________________________________________
Xxxxx X. Xxxx, M.D.
____________________________________________
Xxxxx X. Xxxxxxx, M.D.
____________________________________________
Xxxxxx X. Xxxxxxx, M.D.
____________________________________________
Xxxxx X. Xxxxxxxx, M.D.
____________________________________________
Xxxxxxxx Xxxxxx, M.D.
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