-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HZwxv6lPEbWxDJNsL609Hy6LMWxjUA27v0J1enIhUSZop8AgU5Wf3ZsPjz1HCiEI Iw1I3wX/ftHTbeIj5fUHBQ== 0000950144-96-004251.txt : 19960716 0000950144-96-004251.hdr.sgml : 19960716 ACCESSION NUMBER: 0000950144-96-004251 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960703 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960715 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESPONSE ONCOLOGY INC CENTRAL INDEX KEY: 0000763098 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 621212264 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09922 FILM NUMBER: 96594419 BUSINESS ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 BUSINESS PHONE: 9017617000 MAIL ADDRESS: STREET 1: 1775 MORIAH WOODS BLVD CITY: MEMPHIS STATE: TN ZIP: 38117 FORMER COMPANY: FORMER CONFORMED NAME: RESPONSE TECHNOLOGIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: BIOTHERAPEUTICS INC DATE OF NAME CHANGE: 19891221 8-K 1 RESPONSE ONCOLOGY, INC. 8-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported): July 3, 1996 RESPONSE ONCOLOGY, INC. (Exact name of registrant as specified in its charter) TENNESSEE (State or other jurisdiction of incorporation) 0-15416 62-1212264 (Commission File Number) (I.R.S. Employer Identification No.) 1775 MORIAH WOODS BLVD., MEMPHIS TENNESSEE 38117 (Address of principal executive offices, including Zip Code) (901) 761-7000 (Registrant's telephone number, including Area Code) NOT APPLICABLE (Former name or former address, if changed since last report) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. On July 3, 1996, the Registrant acquired (the "Transaction") from the stockholders of Rymer, Zaravinos & Faig, M.D., P.A. (the "Sellers") 100% of the outstanding common stock (the "Acquired Stock") of Rymer, Zaravinos & Faig, M.D., P.A. (the "Acquired Business"). The total consideration (the "Purchase Price") paid for the Acquired Stock was approximately $5.9 million in cash, with the balance being paid by delivery of 117,600 restricted shares of common stock of the Registrant ("Registrant Common Stock"), valued at approximately $1.2 million. The delivery of the Registrant Common Stock as partial consideration for the Acquired Stock has not been registered under the Securities Act of 1933 in reliance upon an exemption from such registration. The Acquired Stock was purchased by the Registrant directly from the Sellers. At the time of the Transaction, the Sellers had no material relationship with the Registrant. The assets of the Acquired Business include medical equipment, accounts receivable, office furnishings and fixtures, rights under a certain lease for certain office space, employee base and expertise, know-how in respect of management of a medical practice in the oncology and hematology specialty, computer systems, accounting books and records and other intangible assets. Such assets were historically used in the conduct by the Acquired Business of a group medical practice in the oncology and hematology specialty. Simultaneous with the consummation of the Transaction, a newly-formed professional association wholly owned by the Sellers and formed to continue the group medical practice theretofore conducted by the Seller (the "New PA") entered into a long-term management services agreement (the "Service Agreement") with the Acquired Business providing for the management by the Acquired Business of the non-medical aspects of the practice thereafter conducted by the New PA. Pursuant to the Service Agreement, the Acquired Business will manage the non-medical aspects of the New PA's business and will permit the New PA to use office space, equipment and other assets owned or leased by the Acquired Business in exchange for an agreed-upon management fee. The cash portion of the Purchase Price was provided from the proceeds of a draw on the Registrant's unsecured acquisition credit facility provided through a syndicate of commercial banks led by NationsBank of Tennessee, N.A. Borrowings under such facility bear interest at a rate equal to LIBOR plus 2 5/8%, and are payable on or before May 31, 1998. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. 1. Pro Forma Balance Sheet and Statement of Operations for Registrant and Acquired Business as of March 31, 1996 and for the year ended December 31, 1995 and the three months ended March 31, 1996. 2. Audited Balance Sheet, Statement of Income, Statement of Shareholders' Equity, and the Statement of Cash Flows, including footnotes as of and for the year ended December 31, 1995 for Rymer, Zaravinos and Faig, M.D., P.A. 3. Exhibit 2(d) Stock Puchase Agreement by and among Response Oncology, Inc. and Stockholders of Rymer, Zaravinos & Faig, M.D., P.A. dated July 1, 1996. 4. Exhibit 10(u) Service Agreement between Response Oncology of Fort Lauderdale, Inc., Southeast Florida Hematology Oncology Group, P.A. and Stockholders of Southeast Florida Hematology Oncology Group, P.A. dated July 1, 1996. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. RESPONSE ONCOLOGY, INC. Dated: July 12, 1996 By: /s/ John A. Good ----------------------------------------- John A. Good, Executive Vice President 4 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION BASIS OF PRESENTATION The accompanying pro forma consolidated balance sheet as of March 31, 1996 and the related pro forma consolidated statements of operations for the year ended December 31, 1995 and the three months ended March 31, 1996 give effect to the acquisitions of Southeast Florida Hematology Oncology Group, P.A. ("the Fort Lauderdale Practice") Jeffrey L. Paonessa, M.D., P.A. ("Paonessa"), Knoxville Hematology Oncology Associates ("KHOA") and Oncology Hematology Group of South Florida, P.A. ("OHG"), (collectively referred to as the "Groups") as if the acquisitions of the Groups had occurred on January 1, 1995. The pro forma information is based on the historical audited financial statements of Response Oncology, Inc. and subsidiaries (the "Company") and the Groups, giving effect to the acquisitions under the purchase method of accounting, and the assumptions and adjustments in the accompanying notes to the pro forma consolidated financial information. The pro forma statements have been prepared by the Company's management based on the audited financial statements of the acquired entities. These pro forma statements may not be indicative of the results that would have occurred if the acquisitions had been in effect on the dates indicated or which may be obtained in the future. The pro forma statements do not reflect the effect of expense reductions and other operational changes, which, in the opinion of the Company, is likely to result in profitable operations for the Groups. The pro forma financial statements should be read in conjunction with the consolidated financial statements and notes of Response Oncology, Inc. and subsidiaries. 5 Response Oncology, Inc. and Subsidiaries Pro Forma Consolidated Balance Sheet March 31, 1996 (Unaudited)
Previous Acquisition Historical Subsequent to Pro Forma Pro Forma Company March 31, 1996 Adjustments Results -------------------------------------------------------- Cash $ 483,191 $ 176,360 $(7,900,565) $(7,241,014) Short-term investments 361,718 361,718 Accounts receivable, net 15,100,543 2,177,305 (198,657) 17,079,191 Supplies 1,090,643 248,981 (139,631) 1,199,993 Prepaids 525,882 3,875 (3,875) 525,882 Advances to affiliated physician groups 3,112,552 3,112,552 Other current assets 2,089,590 277,313 113,685 2,480,588 -------------------------------------------------------- Total current assets 22,764,119 2,883,834 (8,129,043) 17,518,910 Property and equipment, net 3,695,637 1,945,971 (395,971) 5,245,637 Deferred charges, net 325,733 325,733 Intangible assets 11,656,558 11,656,558 Management Service Agreement 22,413,662 22,413,662 Other assets 176,805 176,805 -------------------------------------------------------- Total assets $38,618,852 $ 4,829,805 $13,888,648 $57,337,305 Accounts payable $ 5,696,496 $ 559,759 $ 318,294 $ 6,574,549 Accrued expenses 1,891,482 1,891,482 Notes payable 3,607,711 5,100,000 8,707,711 Capital lease obligations 57,622 46,947 (46,947) 57,622 Current portion of long term note 396,997 1,713,757 (1,713,757) 396,997 -------------------------------------------------------- Total current liabilities 11,650,308 2,320,463 3,657,590 17,628,361 Capital lease obligations 0 48,865 (48,865) 0 Notes Payable 6,265,369 23,131 10,126,869 16,415,369 Deferred tax liability, noncurrent Minority Interest 261,425 261,425 Stockholders' equity 0 Preferred stock 27,833 27,833 Common stock 73,782 1,000 962 75,744 Paid-in capital 60,137,024 2,588,438 62,725,462 Retained earnings (accumulated deficit) (39,796,889) 2,436,346 (2,436,346) (39,796,889) -------------------------------------------------------- Total liabities and stockholders equity $38,618,852 $ 4,829,805 $13,888,648 $57,337,305 ======================================================== Fort Lauderdale Pro Forma Total Practice Adjustments Pro Forma Proforma -------------------------------------------- ------------ Cash $111,737 $(6,270,425) $(6,158,688) $(13,399,702) Short-term investments 0 361,718 Accounts receivable, net 664,966 664,966 17,744,157 Supplies 128,836 (128,836) 0 1,199,993 Prepaids 37,390 (37,390) 0 525,882 Advances to affiliated physician groups 0 3,112,552 Other current assets 166,226 166,226 2,646,814 ---------------------------------------- ------------ Total current assets 942,929 (6,270,425) (5,327,496) 12,191,414 Property and equipment, net 21,217 21,217 5,266,854 Deferred charges, net 0 325,733 Intangible assets 0 11,656,558 Management Service Agreement 11,147,704 11,147,704 33,561,366 Other assets 0 176,805 ---------------------------------------- ------------ Total assets $964,146 $ 4,877,279 $ 5,841,425 $ 63,178,730 Accounts payable $394,008 ($7,730) $ 386,278 $ 6,960,827 Accrued expenses 0 1,891,482 Notes payable 250,000 (250,000) 0 8,707,711 Capital lease obligations 0 57,622 Current portion of long term note 0 396,997 Deferred income taxes 69,386 69,386 69,386 ---------------------------------------- ------------ Total current liabilities 713,394 (257,730) 455,664 18,084,025 Capital lease obligations 0 0 Notes Payable 0 16,415,369 Deferred tax liability, noncurrent 4,209,761 4,209,761 4,209,761 Minority Interest 0 261,425 Stockholders' equity 0 0 Preferred stock 0 27,833 Common stock 501 675 1,176 76,920 Paid-in capital 1,174,824 1,174,824 63,900,286 Retained earnings (accumulated deficit) 250,251 (250,251) 0 (39,796,889) --------------------------------------- ------------ Total liabities and stockholders equity $964,146 $ 4,877,279 $ 5,841,425 $ 63,178,730 ======================================= ============
See accompanying notes to pro forma consolidated financial information. 6 Response Oncology, Inc. and Subsididaries Pro Forma Consolidated Statement of Operations Period Ended March 31, 1996 (Unaudited)
Previous Acquisitions Historical Subsequent to Pro Forma Pro Forma Company March 31, 1996 Adjustments Results ------------------------------------------------------------- Revenue: Net revenue $13,340,885 $ 2,830,230 (b) $16,171,115 Other Income 16,729 $ 80,255 (80,255) 16,729 Net patient service revenue 4,037,206 (4,037,206)(a) 0 ------------------------------------------------------------- Total Revenue 13,357,614 4,117,461 (1,287,231) 16,187,844 Expenses: Operating expenses 10,344,781 2,070,214 (296,990)(a) 12,118,005 General and administrative 1,266,840 150,868 95,766 1,513,474 Depreciation and amortization 570,965 72,889 95,319 (d) 739,173 Interest 192,281 23,328 216,047 (c) 431,656 Provision for doubtful accounts 372,100 0 372,100 ------------------------------------------------------------- Total Expenses 12,746,967 2,317,299 110,142 15,174,408 Earnings before minority interest 610,647 1,800,162 (1,397,373) 1,013,436 Minority interest 94,369 94,369 ------------------------------------------------------------- Net Earnings to common stockholders $ 516,278 $1,800,162 $(1,397,373) $ 919,067 ============================================================= Fort Lauderdale Pro Forma Total Practice Adjustments Pro Forma Pro Forma ---------------------------------------------------------- Revenue: Net revenue $ 768,667 $768,667 $16,939,782 Other Income 16,729 Net patient service revenue $1,184,387 (1,184,387) ---------------------------------------------------------- Total Revenue 1,184,387 (415,720) 768,667 16,956,511 Expenses: Operating expenses 1,147,885 (445,995) 701,890 12,819,895 General and administrative 1,513,474 Depreciation and amortization 3,516 69,239 72,755 811,928 Interest 0 431,656 Provision for doubtful accounts 0 372,100 ---------------------------------------------------------- Total Expenses 1,151,401 (376,756) 774,645 15,949,053 Earnings before minority interest 32,986 (38,964) (5,978) 1,007,458 Minority interest 5,575 (5,575) 0 94,369 ---------------------------------------------------------- Net Earnings to common stockholders $ 27,411 $ (33,389) $(5,978) $ 913,089 ==========================================================
See accompanying notes to pro forma consolidated financial information. 7 Response Oncology, Inc. and Subsididaries Pro Forma Consolidated Statement of Operations Year Ended December 31, 1995 (Unaudited)
Previous Acquisition Historical Subsequent to Pro Forma Pro Forma Company December 31, 1995 Adjustments Results -------------------------------------------------------------- Revenue: Net revenue $44,297,798 $ 15,174,143 (b) $59,471,941 Other Income 282,011 $ 352,353 (352,353) 282,011 Net patient service revenue 22,619,206 (22,619,206)(a) 0 -------------------------------------------------------------- Total Revenue 44,579,809 22,971,559 (7,797,416) 59,753,952 Expenses: Operating expenses 32,892,728 16,253,432 (3,946,018)(a) 45,200,142 General and administrative 5,512,306 5,512,306 Depreciation and amortization 1,736,055 382,515 835,502 (d) 2,954,072 Interest 16,860 269,114 1,507,268 (c) 1,793,242 Provision for doubtful accounts 2,105,696 77,066 2,182,762 -------------------------------------------------------------- Total Expenses 42,263,645 16,982,127 (1,603,248) 57,642,524 Earnings before minority interest 2,316,164 5,989,432 (6,194,168) 2,111,428 Minority interest 1,806 1,806 -------------------------------------------------------------- Earnings before income taxes 2,314,358 5,989,432 (6,194,168) 2,109,622 Income tax expense 210,000 (210,000)(e) 0 -------------------------------------------------------------- Net earnings 2,314,358 5,779,432 (5,984,168) 2,109,622 Common stock dividend to preferred stockholders 3,825 3,825 -------------------------------------------------------------- Net earnings to common stockholders $ 2,310,533 $ 5,779,432 $ (5,984,168) $ 2,105,797 ============================================================== Fort Lauderdale Pro Forma Total Practice Adjustments Pro Forma Pro Forma ------------------------------------------------ ----------- Revenue: Net revenue $ 3,074,667 (b) $ 3,074,667 $62,546,608 Other Income 0 0 282,011 Net patient service revenue 4,737,546 (4,737,546)(a) 0 0 ------------------------------------------------ ----------- Total Revenue 4,737,546 (1,662,879) 3,074,667 62,828,619 Expenses: Operating expenses 4,591,540 (1,783,981)(a) 2,807,559 48,007,701 General and administrative 0 5,512,306 Depreciation and amortization 14,065 276,958 (d) 291,023 3,245,095 Interest 0 1,793,242 Provision for doubtful accounts 0 2,182,762 ------------------------------------------------ ----------- Total Expenses 4,605,605 (1,507,023) 3,098,582 60,741,106 Earnings before minority interest 131,941 (155,856) (23,915) 2,087,513 Minority interest 0 1,806 ------------------------------------------------ ----------- Earnings before income taxes 131,941 (155,856) (23,915) 2,085,707 Income tax expense 22,298 (22,298) 0 0 ------------------------------------------------ ----------- Net earnings 109,643 (133,558) (23,915) 2,085,707 Common stock dividend to preferred stockholders 0 3,825 ------------------------------------------------ ----------- Net earnings to common stockholders $ 109,643 $ (133,558) $ (23,915) $ 2,081,882 ================================================ =========== See accompanying notes to pro forma consolidated financial information.
8 RESPONSE ONCOLOGY, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The accompanying pro forma consolidated financial information presents the pro forma financial condition of Response Oncology, Inc. and subsidiaries (the "Company") as of March 31, 1996 and the results of their operations for the year ended December 31, 1995 and the three months ended March 31, 1996. On July 3, 1996, the Company acquired from unaffiliated individual sellers 100% of the issued and outstanding general partnership interest ("the Acquired Interests") of Southeast Florida Hematology Oncology Group, P.A. ("the Fort Lauderdale Practice") The accompanying pro forma consolidated balance sheet includes the acquired assets, assumed liabilities and effects of financing, as if the Fort Lauderdale Practice had been acquired on March 31, 1996. The accompanying pro forma consolidated statements of operations reflect the pro forma results of operations, as adjusted, as if all acqusition practices held by the Company had been acquired on January 1, 1995. PRO FORMA CONSOLIDATED BALANCE SHEET The adjustments reflected in the pro forma consolidated balance sheet are to reflect the values of assets acquired and liabilities assumed in connection with the acquisition of the Fort Lauderdale Practice to reflect the issuance of long-term debt and cash payment to complete the acquisition; and to reflect the recording of management service agreements acquired. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS The adjustments reflected in the pro forma consolidated statements of operations are as follows: (a) To eliminate certain revenues and expenses of Paonessa that would not constitute revenue to the Company or be the responsibility of the Company pursuant to the Service Agreement. (b) To accrue net revenue resulting from service agreements related to the acquisition of the Group. Amounts were calculated based upon actual operating results for the period, as adjusted, under the terms of the related service agreement. (c) To reflect interest on the long-term debt issued. Interest was calculated at the annual rates ranging from 5% to 9.5%. (d) To record amortization of the intangible asset related to the service agreements. The assets are amortized over the service agreement period, or 40 years. 9 INDEPENDENT AUDITORS' REPORT The Board of Directors Rymer, Zaravinos and Faig, M.D., P.A.: (d/b/a Southeast Florida Hematology -- Oncology Group) We have audited the accompanying balance sheet of Rymer, Zaravinos and Faig, M.D., P.A. (d/b/a Southeast Florida Hematology Oncology Group) as of January 31, 1996, and the related statements of operating, stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Rymer, Zaravinos and Faig, M.D., P.A. (d/b/a Southeast Florida Hematology Oncology Group) as of January 31, 1996, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. June 14, 1996 10 RYMER, ZARAVINOS AND FAIG, M.D., P.A. (D/B/A SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP) BALANCE SHEETS
JANUARY 31, APRIL 30, 1996 1996 ----------- ----------- (UNAUDITED) ASSETS Current assets: Cash................................................................. $ 111,737 $ 138,658 Accounts receivable, net of allowance for contractual adjustments and uncollectible amounts of $932,000 at January 31, 1996, and $913,000 (unaudited) at April 30, 1996............................ 664,966 770,345 Supplies............................................................. 128,836 60,817 Prepaid expenses..................................................... 19,960 26,557 Deposits............................................................. 17,430 17,430 ----------- ----------- Total current assets......................................... 942,929 1,013,807 ----------- ----------- Furniture and equipment: Furniture and fixtures............................................... 154,724 156,414 Medical equipment.................................................... 96,026 96,026 Transportation equipment............................................. 38,546 38,546 ----------- ----------- 289,296 290,986 Less accumulated depreciation........................................ 268,079 270,588 ----------- ----------- Net furniture and equipment.................................. 21,217 20,398 ----------- ----------- $ 964,146 $ 1,034,205 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses................................ $ 326,089 $ 474,646 Accrued employee compensation........................................ 60,189 4,362 Notes payable........................................................ 250,000 184,065 Due to officers...................................................... 7,730 499 Income taxes payable................................................. 58,574 Deferred income taxes................................................ 69,386 30,117 ----------- ----------- Total current liabilities.................................... 713,394 752,263 ----------- ----------- Stockholders' equity: Common stock, $1 par value per share; Class A, 1 share authorized and issued........................................................ 1 1 Common stock, $1 par value per share; Class B, 500 shares authorized and issued........................................................ 500 500 Retained earnings.................................................... 250,251 281,441 ----------- ----------- Total stockholders' equity................................... 250,752 281,942 Commitments and contingencies ----------- ----------- $ 964,146 $ 1,034,205 ======== =========
See accompanying notes to financial statements. 11 RYMER, ZARAVINOS AND FAIG, M.D., P.A. (D/B/A SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP) STATEMENTS OF OPERATIONS
FOR THE THREE- YEAR ENDED MONTH PERIOD JANUARY 31, ENDED APRIL 1996 30, 1996 ----------- -------------- (UNAUDITED) Net patient revenue.................................................. $ 4,737,546 $1,122,266 Expenses: Supplies........................................................... 1,327,112 406,517 Operating.......................................................... 613,355 215,826 Physicians' compensation........................................... 1,783,981 302,969 Salaries and benefits.............................................. 867,092 143,950 Depreciation....................................................... 14,065 2,509 ----------- -------------- 4,605,605 1,071,771 ----------- -------------- Income before income taxes................................. 131,941 50,495 Provision for income taxes........................................... 52,237 19,305 ----------- -------------- Net income................................................. $ 79,704 $ 31,190 ========= ==========
See accompanying notes to financial statements. 12 RYMER, ZARAVINOS AND FAIG, M.D., P.A. (D/B/A SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP) STATEMENT OF STOCKHOLDERS' EQUITY
TOTAL COMMON RETAINED STOCKHOLDERS' STOCK EARNINGS EQUITY ------ -------- ------------- Balances, January 31, 1995..................................... $501 $170,547 $ 171,048 Net income........................................... -- 79,704 79,704 ------ -------- ------------- Balances, January 31, 1996..................................... 501 250,251 250,752 Net income (unaudited)............................... -- 31,190 31,190 ------ -------- ------------- Balances, April 30, 1996 (unaudited)........................... $501 $281,441 $ 281,942 ====== ======== =========
See accompanying notes to financial statements. 13 RYMER, ZARAVINOS AND FAIG, M.D., P.A. (D/B/A SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP) STATEMENTS OF CASH FLOWS
FOR THE THREE- YEAR ENDED MONTH PERIOD JANUARY 31, ENDED APRIL 1996 30, 1996 ----------- -------------- (UNAUDITED) Cash flows from operating activities: Net income.......................................................... $ 79,704 $ 31,190 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation..................................................... 14,065 2,509 Changes in operating assets and liabilities: Accounts receivables, net...................................... 136,587 (105,379) Supplies....................................................... 13,234 68,019 Deferred income taxes.......................................... 29,939 (39,269) Prepaid expenses............................................... 1,056 (6,597) Accounts payable and accrued expenses.......................... (361,065) 148,557 Income taxes payable........................................... -- 58,574 Accrued employee compensation.................................. (48,830) (55,827) ----------- -------------- Net cash used in operating activities....................... (135,310) 101,777 ----------- -------------- Cash flows from investing activity: Expenditures for furniture and equipment............................ (1,063) (1,690) ----------- -------------- Net cash used in investing activity......................... (1,063) (1,690) ----------- -------------- Cash flows from financing activities: Repayment of notes payable.......................................... (60,000) (65,935) Proceeds from notes payable......................................... 250,000 -- Repayment of debt -- officers....................................... (19,837) (7,231) ----------- -------------- Net cash provided by financing activities................... 170,163 (73,166) ----------- -------------- Net increase in cash........................................ 33,790 26,921 Cash, beginning....................................................... 77,947 111,737 ----------- -------------- Cash, end............................................................. $ 111,737 $ 138,658 ========= ========== Supplemental disclosure of cash flow information: Cash payments for interest.......................................... $ 2,550 $ 4,430 ========= ========== Cash payments for taxes............................................. $ 22,298 $ -- ========= ==========
See accompanying notes to financial statements. 14 RYMER, ZARAVINOS AND FAIG, M.D., P.A. (D/B/A SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP) NOTES TO FINANCIAL STATEMENTS UNAUDITED INTERIM FINANCIAL INFORMATION The balance sheet as of April 30, 1996 and the related statements of operations, shareholders' equity and cash flows for the three-month period ended April 30, 1996 (1996 interim financial information) have been prepared by Rymer, Zaravinos and Faig, M.D., P.A. (d/b/a Southeast Florida Hematology -- Oncology Group) (the "Company") and are unaudited. In the opinion of the Company, the 1996 interim financial information includes all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the results of the 1996 interim period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from the 1996 interim financial information. The 1996 interim financial information should be read in conjunction with the Company's January 31, 1996 audited financial statements appearing herein. The results for the three months ended April 30, 1996 may not be indicative of operating results for the full year. (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (a) Description of Business The Company was incorporated on May 21, 1979 in the state of Florida. The Company is a medical group practice whose physicians specialize in providing services to patients with cancer. (b) Net Revenue Net revenue primarily consists of charges for patient services rendered by the physicians based on established billing rates less allowance and discounts for patients covered by contractual programs. Payments received under these programs, which are generally based on predetermined rates, are generally less than the established billing rates, and the differences are recorded as contractual allowance or policy discounts. Net patient service revenue is net of contractual adjustments and policy discounts of approximately $2,000,000 for the year ended January 31, 1996 and $632,000 for the three-month period ended April 30, 1996 (unaudited). (c) Accounts Receivable Accounts receivable consists primarily of receivables from patients and third-party payors. In the normal course of providing healthcare services, the Company grants credit to patients, substantially all of whom are resident in the south Florida area. The Company does not generally require collateral or other security in extending credit to patients; however, it routinely obtains assignments of (or is otherwise entitled to receive) patients' benefits payable under their health insurance programs, plans or policies (for example, Medicare, Medicaid, health maintenance organizations, preferred provider organizations and commercial insurance policies). The majority of the Company's net revenue and receivables is from third-party payment programs. At January 31, 1995, approximately 97 percent of total revenue and receivables consists of amounts from Medicare (26 percent), various commercial plans (37 percent) and private pay patients (34 percent). (d) Supplies Supplies consists of pharmaceuticals and medications which are stated at the lower of cost or market on a first-in, first-out basis. 15 RYMER, ZARAVINOS AND FAIG, M.D., P.A. (D/B/A SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (e) Property and Equipment Property and equipment are stated at cost. Depreciation for equipment is calculated using the straight-line method over the estimated useful lives of the assets, as follows:
ESTIMATED USEFUL LIVES ------------ Furniture and fixtures........................................ 7 years Medical equipment............................................. 5-7 years Transportation equipment...................................... 5 years
(f) Income Taxes The Company accounts for income taxes under the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("Statement 109"). Statement 109 requires the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying accounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (g) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (2) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of patients' accounts receivable, investments, accounts payable, notes payable, accrued expenses and accrued employee compensation approximate fair value because of the short maturity of these instruments. (3) EMPLOYEE BENEFIT PLANS The Company has a Qualified Defined Contribution Pension and A Profit Sharing Plan, which covers substantially all employees. Employees become eligible to participate in the plans after one year of full service and have attained the age of 21 years. Under the Defined Contribution Plan, the Company, for each plan year, contributes an amount equal to 8 percent of each participants annual compensation, and 5.7 percent of the participants excess compensation as defined by the plan agreement. Total company contributions for year ended January 31, 1996 and the three-month period ended April 30, 1996 (unaudited) were $88,000 and $-0-, respectively. The contributions to the Profit Sharing Plan are discretionary, which are established by the board of directors. For the year ended January 31, 1996 and the three-month period ended April 30, 1996 (unaudited) the Company did not make any contributions to the Plan. 16 RYMER, ZARAVINOS AND FAIG, M.D., P.A. (D/B/A SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP) NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (4) NOTE PAYABLE The note payable to bank bears interest at a rate of prime plus 1.650 percent and becomes due in January of 1997. The note is secured by the Company's deposits and bank accounts serviced by the lender. (5) INCOME TAXES Income tax expense for the year ended January 31, 1996 and the three-month period ended April 30, 1996 is summarized as follows:
JANUARY 31, APRIL 30, 1996 1996 ----------- ----------- (UNAUDITED) Current: Federal...................................................... $19,585 $ 50,472 State........................................................ 2,713 8,102 ----------- ----------- 22,298 58,574 ----------- ----------- Deferred: Federal...................................................... 25,577 (35,634) State........................................................ 4,362 3,635 ----------- ----------- 29,939 (39,269) ----------- ----------- $52,237 $ 19,305 ======== =========
A reconciliation of the effective income tax rate for the year ended January 31, 1996 and the three-month period ended April 30, 1996 is as follows:
JANUARY 31, APRIL 30, 1996 1996 ----------- ----------- (UNAUDITED) Computed "expected" tax expense (benefit)...................... 35.00 35.00 State income tax, net of federal benefit....................... 3.44 3.23 Change in valuation allowance.................................. -- -- ----------- ----------- Total................................................ 38.44 38.23 ======== =========
The tax effects of temporary differences that give rise to a significant portion of the deferred tax assets and deferred tax liabilities for the year ended January 31, 1996 and the three-month period ended April 30, 1996 are as follows:
JANUARY 31, APRIL 30, 1996 1996 ----------- ----------- (UNAUDITED) Deferred tax liabilities: Revenue and expenses recognized for financial reporting purposes in a different period than for income tax purposes.................................................. $69,386 $30,117 ----------- ----------- Net deferred tax liabilities......................... $69,386 $30,117 ======== =========
Revenue and expenses recognized for financial reporting purposes in a different period than for income tax purposes. 17 EXHIBIT INDEX
Exhibit Number Description of Exhibit ------- ---------------------- 2(d) Stock Purchase Agreement by and among Response Oncology, Inc., and Stockholders of Rymer, Zaravinos & Faig, M.D., P.A. dated July 1, 1996 10(u) Service Agreement between Response Oncology of Fort Lauderdale, Inc., Southeast Florida Hematology Oncology Group, P.A. and Stockholders of Southeast Florida Hematology Oncology Group, P.A. dated July 1, 1996
EX-2.(D) 2 STOCK PURCHASE AGREEMENT 1 ================================================================================ STOCK PURCHASE AGREEMENT BY AND AMONG RESPONSE ONCOLOGY, INC., AND STOCKHOLDERS OF RYMER, ZARAVINOS & FAIG, M.D., P.A. JULY 1, 1996 ================================================================================ 2 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT, dated as of July 1, 1996, by and among RESPONSE ONCOLOGY, INC., a Tennessee corporation (the "Purchaser"), and THE STOCKHOLDERS OF RYMER, ZARAVINOS AND FAIG, M.D., P.A., each of whom, together with his or her state of residence and address, is listed on Exhibit A hereto (collectively, the "Sellers" and, individually, a "Seller"). W I T N E S S E T H: WHEREAS, the Sellers own in the aggregate 100% of the issued and outstanding shares (the "Shares") of the common stock of Rymer, Zaravinos & Faig, M.D., P.A., a Florida professional association (the "Corporation"); and WHEREAS, the Sellers desire to sell and Purchaser desires to purchase the Shares on the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. The following terms, as used herein, have the following meanings: "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including court costs and attorneys' fees and expenses which, in the aggregate, would have a material adverse effect on the financial condition or results of operations of the Corporation or the Purchaser. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act. "Affiliated Group" means any affiliated group within the meaning of Code Section 1504 or any similar group defined under a similar provision of state, local or foreign law. "Applicable Rate" means the corporate base rate of interest announced from time to time by NationsBank of Tennessee, N.A., Nashville, Tennessee plus two percent (2%). "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction of which any Seller has Knowledge that forms or could form the basis for any specified consequence. "Closing" has the meaning set forth in Section 2(c) below. "Closing Date" has the meaning set forth in Section 2(c) below. "Code" means the Internal Revenue Code of 1986, as amended. "Controlled Group of Corporations" has the meaning set forth in Code Section 1563. "Corporation" has the meaning set forth in the first recital above. 1 3 "Deferred Intercompany Transaction" has the meaning set forth in Treasury Regulation Section 1.1502-13. "Employee Benefit Plan" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe benefit plan or program. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Section 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section 3(1). "Environmental, Health, and Safety Laws" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of 1970, the Medical Waste Tracking Act of 1988, the U. S. Public Vessel Medical Waste Anti-Dumping Act of 1988, the Marine Protection, Research and Sanctuaries Act and Human Services, National Institute for Occupational Safety and Health, Infections Waste Disposal Guidelines, Publication No. 88-119, each as amended, together with all other laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning pollution or protection of the environment, public health and safety, or employee health and safety, including laws relating to emissions, discharges, releases, or threatened releases of medical wastes, pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Excess Loss Account" has the meaning set forth in Treasury Regulation Section 1.1502-19. "Extremely Hazardous Substance" has the meaning set forth in Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "Fiduciary" has the meaning set forth in ERISA Sec. 3(21). "Financial Statements" has the meaning set forth in Section 4(f) below. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Group" means Southeast Florida Hematology Oncology Associates, P.A., a Florida professional association wholly owned by the Sellers. "Knowledge" means actual knowledge after reasonable investigation. "Liability" means any liability (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. 2 4 "Most Recent Balance Sheet" means the balance sheet contained within the Most Recent Financial Statements. "Most Recent Financial Statements" has the meaning set forth in Section 4(f) below. "Most Recent Fiscal Month End" has the meaning set forth in Section 4(f) below. "Most Recent Fiscal Year End" has the meaning set forth in Section 4(f) below. "Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37). "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice. "Party" means the Purchaser or any Seller. "PBGC" means the Pension Benefit Guaranty Corporation. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization, or a governmental entity (or any department, agency, or political subdivision thereof). "Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and Code Sec. 4975. "Pro Rata" means one-third (1/3). "Purchase Price" has the meaning set forth in Section 2(a) below. "Purchaser" has the meaning set forth in the initial paragraph of this Stock Purchase Agreement and, after Closing (and as relates to Section 9(b) regarding indemnification), shall mean Response Oncology, Inc. and any subsidiary or affiliate thereof. "Purchaser's Disclosure Letter" has the meaning set forth in Section 3(b) below. "Receivables" means the amount, in dollars, of the Corporation's accounts receivable as of the close of business on the day prior to the Closing Date, net of contractual adjustments, courtesy discounts and other historical adjustments. "Reportable Event" has the meaning set forth in ERISA Sec. 4043. "Response Stock" means the common stock of the Purchaser, $.01 par value per share. "Securities Act" means the Securities Act of 1933, as amended. "Securities Exchange Act" means the Securities Exchange Act of 1934, as amended. "Security Interest" means any mortgage, pledge, lien, encumbrance, charge, or other security interest, other than (a) mechanic's, materialmen's, and similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money liens and liens securing rental payments under capital lease arrangements, and (d) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. 3 5 "Seller" has the meaning set forth in the preface above. "Sellers' Disclosure Letter" has the meaning set forth in Section 3(a) below. "Shares" means all of the issued and outstanding shares of all classes of the Common Stock of the Corporation. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Third Party Claim" has the meaning set forth in Section 9(c) below. 2. PURCHASE AND SALE OF SHARES. (a) Basic Transaction. On and subject to the terms and conditions of this Agreement, the Purchaser agrees to purchase from the Sellers, and the Sellers agree to sell to the Purchaser, all of the Shares for an aggregate price (the "Purchase Price") of Seven Million Three Hundred Fifty Thousand Dollars ($7,350,000.00), plus Receivables and minus Liabilities of the Corporation as of the Closing Date. (b) Payment of Purchase Price. The Purchaser shall pay or satisfy the Purchase Price in the following manner: (i) Five Million Eight Hundred Eighty Thousand Dollars ($5,880,000.00), plus Receivables minus Liabilities in cash to the Sellers at Closing (hereinafter defined), (ii) issuance and delivery of 117,600 shares of Response Stock to the Sellers, with all of the foregoing to be distributed Pro Rata to the Sellers. For purposes of this subsection (b), the Receivables balance as of the Closing Date shall be $760,000. In the event that the Purchaser shall collect more than said Receivables balance after Closing, then the Purchaser shall remit such excess to the Sellers, Pro Rata, upon receipt as additional Purchase Price. In the event that the Purchaser shall collect less than said Receivables balance after Closing, then the amount of Receivables for purposes of this Agreement shall be deemed $760,000. (c) The Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Geiger, Kasdin, Heller, Kuperstein, et. al., 1428 Brickell, 6th Floor, Miami, Florida commencing at 9:00 a.m. local time on July 3, 1996, or such other date as the Purchaser and the Sellers may mutually determine (the "Closing Date"); provided, however, that the Closing Date shall be no later than September 1, 1996. (d) Deliveries at the Closing. At the Closing, (i) the Purchaser will deliver to the Sellers the various certificates, instruments, and documents referred to in Section 8(a) below, (ii) the Sellers will deliver to the Purchaser the various certificates, instruments, and documents referred to in Section 8(b) below. 3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION. 4 6 (a) Representations and Warranties of the Sellers. The Sellers jointly and severally represent and warrant to the Purchaser that the statements contained in this Section 3(a) are correct and complete as of the date of this Agreement with respect to the Sellers, except as set forth in the disclosure letter executed and delivered by the Sellers contemporaneous with this Agreement (the "Sellers' Disclosure Letter""). The Sellers' Disclosure Letter shall be satisfactory to the Purchaser and its counsel and will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 3(a) and Section 4. (i) Authorization of Transaction. Each Seller has the requisite legal capacity and has full power and authority to execute and deliver this Agreement and to perform his obligations hereunder. This Agreement constitutes the valid and legally binding obligation of each Seller, enforceable in accordance with its terms and conditions. No Seller is required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Person in order to consummate the transactions contemplated by this Agreement , or, if any such filing, authorization, consent or approval is required, the same has been or, as of the Closing Date, shall have been made or obtained. This Agreement constitutes the valid and legally binding obligation of each Seller, enforceable in accordance with its terms, subject to applicable bankruptcy, moratorium, insolvency and other laws affecting the rights of creditors and general equity principles. (ii) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which any Seller is subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which any Seller is a party or by which he is bound or to which any of his assets is subject. (iii) Brokers' Fees. The Sellers have no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Purchaser could become liable or obligated. (iv) Shares. Each Seller holds of record and owns beneficially all of the Shares free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), Taxes, Security Interests, options, warrants, purchase rights, contracts, commitments, equities, claims, and demands. No Seller is a party to any option, warrant, purchase right, or other contract or commitment that could require the Seller to sell, transfer, or otherwise dispose of any capital stock of the Corporation (other than this Agreement). No Seller is a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any Shares. (b) Representations and Warranties of the Purchaser. The Purchaser represents and warrants to each Seller that the statements contained in this Section 3(b) are correct and complete as of the date of this Agreement except as set forth in the disclosure letter executed and delivered by the Purchaser contemporaneous with this Agreement (the "Purchaser's Disclosure Letter"). (i) Organization of the Purchaser. The Purchaser is a corporation duly organized, validly existing, and in good standing under the laws of the State of Tennessee. (ii) Authorization of Transaction. The Purchaser has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms, subject to applicable bankruptcy, moratorium, insolvency and other laws affecting the rights of creditors and general equity principles. The Purchaser need not give any 5 7 notice to, make any filing with, or obtain any authorization, consent, or approval of any Person in order to consummate the transactions contemplated by this Agreement, or, if any such filing, authorization, consent or approval is required, the same has been or, as of the Closing Date, shall have been made or obtained. (iii) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Purchaser is subject or any provision of its charter or bylaws or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Purchaser is a party or by which it is bound or to which any of its assets is subject. (iv) Brokers' Fees. The Purchaser has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Seller could become liable or obligated. (v) Investment. The Purchaser is not acquiring the Shares with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. 4. REPRESENTATIONS AND WARRANTIES CONCERNING THE CORPORATION. The Sellers , jointly and severally, represent and warrant to the Purchaser that the statements contained in this Section 4 are true, correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 4), except as set forth in the Sellers' Disclosure Letter. Nothing in the Sellers' Disclosure Letter shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Sellers' Disclosure Letter identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. The Sellers' Disclosure Letter will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Section 4. (a) Organization, Qualification, and Corporate Power. The Corporation is a business corporation duly organized, validly existing, and in good standing under the laws of the State of Florida. The Corporation is duly authorized to conduct business and is in good standing under the laws of each jurisdiction where such qualification is required. The Corporation has full corporate power and authority and all licenses, permits, and authorizations necessary to carry on the business in which it is engaged and to own and use its properties. Paragraph 4(a) of the Sellers' Disclosure Letter lists the directors and officers of the Corporation. The Sellers have delivered to the Purchaser correct and complete copies of the charter and bylaws of the Corporation (as amended to date). The minute book (containing the records of meetings of the stockholders, the board of directors, and any committees of the board of directors), the stock certificate book, and the stock record book of the Corporation are correct and complete. The Corporation is not in default under or in violation of any provision of its charter or bylaws. (b) Capitalization. The entire authorized capital stock of the Corporation consists of one (1) share of Class A common stock, $1.00 par value per share, which is issued and outstanding, and five hundred shares of Class B common stock, $1.00 par value per share, all of which is issued and outstanding. All of the issued and outstanding Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record by the Sellers. There are no outstanding or authorized options, warrants, purchase rights, preemptive rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require the Corporation to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to the Corporation. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of the Corporation. 6 8 (c) Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which the Corporation is subject or any provision of the charter or bylaws of the Corporation or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which the Corporation is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). The Corporation is not required to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Person in order for the Parties to consummate the transactions contemplated by this Agreement, or, if any such filing, authorization, consent or approval is required, the same has been or, as of the Closing Date, shall have been made or obtained. (d) Brokers' Fees. The Corporation has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement. (e) Title to Assets. The Corporation has good and marketable title to, or a valid leasehold interest in, all of its properties and assets, free and clear of all Security Interests, and has not sold, transferred, exchanged or conveyed any of its properties and assets since the date of the Most Recent Balance Sheet except for properties and assets disposed of in the Ordinary Course of Business since the date of the Most Recent Balance Sheet. (f) Financial Statements. Attached as collective Paragraph 4(f) to the Sellers' Disclosure Letter are the following financial statements (collectively the "Financial Statements"): as of and for the fiscal year ended January 31, 1996 (the "Most Recent Fiscal Year End") for the Corporation; and (the "Most Recent Financial Statements") as of and for the three (3) months ended April 30, 1996 (the "Most Recent Fiscal Month End") for the Corporation. The Financial Statements (i) are materially accurate, correct and complete based on the income tax basis of accounting; (ii) are prepared on the income tax basis of accounting in accordance with the books of account and records of the Corporation; and (iii) fairly present the assets, liabilities and equity and revenues and expenses, income tax basis, of the Corporation for the periods presented. (g) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent Fiscal Year End, there has not been any material adverse change in the business, financial condition, operations, results of operations, or future prospects of the Corporation. Without limiting the generality of the foregoing, since that date: (i) the Corporation has not sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business; (ii) the Corporation has not entered into any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) either involving more than $25,000.00 or outside the Ordinary Course of Business; (iii) no party (including the Association) has accelerated, terminated, modified, or canceled any agreement, contract, lease, or license (or series of related agreements, contracts, leases, and licenses) involving more than $25,000.00 to which the Corporation is a party or by which the Corporation or its properties are bound; (iv) the Corporation has not created, suffered or permitted to attach or be imposed any Security Interest upon any of its assets, tangible or intangible; (v) the Corporation has not made any capital expenditure (or series of related capital expenditures) either involving more than $25,000.00 or outside the Ordinary Course of Business; 7 9 (vi) the Corporation has not made any capital investment in, any loan to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions) either involving more than $25,000.00 or outside the Ordinary Course of Business; (vii) the Corporation has not issued any note, bond, or other debt instrument or security or created, incurred, assumed, or guaranteed any indebtedness for borrowed money or capitalized lease obligation; (viii) the Corporation has not delayed or postponed the payment of accounts payable and other Liabilities outside the Ordinary Course of Business; (ix) the Corporation has not canceled, compromised, waived, or released any right or claim (or series of related rights and claims) either involving more than $25,000.00 or outside the Ordinary Course of Business; (x) the Corporation has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; (xi) there has been no change made or authorized in the charter or bylaws of the Corporation; (xii) the Corporation has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital stock; (xiii) the Corporation has not declared, set aside, or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased, or otherwise acquired any of its capital stock; (xiv) the Corporation has not experienced any damage, destruction, or loss (whether or not covered by insurance) to its property; (xv) the Corporation has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees outside the Ordinary Course of Business; (xvi) the Corporation has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (xvii) the Corporation has not granted any increase in the base compensation of any of its directors, officers, and employees outside the Ordinary Course of Business; (xviii) the Corporation has not adopted, amended, modified, or terminated any bonus, profit-sharing, incentive, severance, or other plan, contract, or commitment for the benefit of any of its directors, officers, and employees (or taken any such action with respect to any other Employee Benefit Plan); (xix) the Corporation has not made any other change in employment terms for any of its directors, officers, and employees outside the Ordinary Course of Business; (xx) the Corporation has not made or pledged to make any charitable or other capital contribution outside the Ordinary Course of Business; 8 10 (xxi) there has not been any other occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Corporation; and (xxii) the Corporation has not committed to any of the foregoing. (h) Undisclosed Liabilities. The Corporation has no Liability (and there is no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against the Corporation that may result in any Liability), except for (i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto); (ii) Liabilities which have arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business and (iii) Liabilities described with particularity in Paragraph 4(h) of the Sellers' Disclosure Letter (and, with respect to each Liability described in items (i) through (iii) immediately above, none of which results from, arises out of, relates to, is in the nature of, or was caused by any breach of contract, breach of warranty, tort, malpractice, infringement, or violation of law). (i) Legal Compliance. The Corporation and its respective predecessors and Affiliates have complied with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. (j) Tax Matters. (i) The Corporation has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all respects. All Taxes owed by the Corporation (whether or not shown on any Tax Return) through the Closing Date have been duly paid or accrued. The Corporation is not the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where the Corporation does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of either the Corporation that arose in connection with any failure (or alleged failure) to pay any Tax. (ii) The Corporation has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. (iii) Neither the Sellers nor any director or officer (or employee responsible for Tax matters) of the Corporation expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of the Corporation either (A) claimed or raised by any authority in writing or (B) as to which the Sellers or the directors and officers (and employees responsible for Tax matters) of the Corporation have Knowledge. Paragraph 4(j) of the Sellers' Disclosure Letter lists all federal, state, local, and foreign income Tax Returns filed with respect to the Corporation for taxable periods ended on or after December 31, 1992, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Sellers have delivered to the Purchaser correct and complete copies of all examination reports and statements of deficiencies assessed against or agreed to by the Corporation since December 31, 1991. (iv) The Corporation has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (v) The Corporation has not filed a consent under Code Section 341(f) concerning collapsible corporations. The Corporation has not made any payment, is not obligated to make any payment, or is not a party to any agreement that under certain circumstances could obligate it to make any payments that will 9 11 not be deductible under Code Section 280G. The Corporation has not been a United States real property holding corporation within the meaning of Code Sec. 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii). The Corporation has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code Section 6662. The Corporation is not a party to any Tax allocation or sharing agreement. The Corporation (A) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return or (B) has no Liability for the Taxes of any Person (other than of the Corporation under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (vi) Paragraph 4(j) of the Sellers' Disclosure Letter sets forth the following information with respect to the Corporation as of the most recent practicable date: (A) the depreciation schedule attached to the Corporation's most recent tax return; and (B) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax, or excess charitable contribution. (k) Real Property. The Corporation does not own any real property and has not executed and delivered or otherwise entered into any contract to purchase any real property. As of the Closing Date, the Purchaser and a owners comprised of the Sellers have executed and delivered a new lease for the office facilities at 5700 North Federal Highway, Suite 5, Fort Lauderdale, Florida 33308. (l) Tangible Assets. The Corporation owns or leases all buildings, machinery, equipment, and other tangible assets necessary for the conduct of its business as presently conducted. The Corporation has received with respect to all such buildings, machinery, and equipment all approvals of governmental authorities (including licenses, permits and certificates of need) required in connection with the operation thereof, and the same have been operated and maintained in accordance with applicable laws, rules, and regulations (m) Inventory. The inventory of the Corporation consists of medical supplies and pharmaceuticals, all of which is merchantable and fit for the purpose for which it was procured or manufactured. (n) Contracts. Paragraph 4(n) of the Sellers' Disclosure Letter lists the following contracts and other agreements to which the Corporation is a party: (i) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $25,000.00 per annum; (ii) any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year, result in a loss to the Corporation, or involve consideration in excess of $25,000.00; (iii) any agreement concerning a partnership or joint venture; (iv) any agreement (or group of related agreements) under which the Corporation has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in excess of $25,000.00 or under which it has imposed a Security Interest on any of its assets, tangible or intangible; (v) any agreement concerning confidentiality or noncompetition; (vi) any agreement with either the Sellers or their Affiliates (other than the Association); 10 12 (vii) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance, or other plan or arrangement for the benefit of its current or former directors, officers, and employees; (viii) any collective bargaining agreement; (ix) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation in excess of $25,000.00 or providing severance benefits; (x) any agreement under which the Corporation has advanced or loaned any amount to any of its directors, officers, and employees outside the Ordinary Course of Business; (xi) any agreement under which the consequences of a default or termination could have an adverse effect on the business, financial condition, operations, results of operations, or future prospects of the Corporation; or (xii) any other agreement (or group of related agreements, except contracts with third party payors) the performance of which involves consideration in excess of $25,000.00. The Sellers have delivered to the Purchaser a correct and complete copy of each written agreement in the possession of the Sellers or the Corporation listed in Paragraph 4(n) of the Sellers' Disclosure Letter (as amended to date), and each written agreement in the possession of the Corporation with third party payors, and a written summary setting forth the terms and conditions of each oral agreement referred to in Paragraph 4(n) of the Sellers' Disclosure Letter. With respect to each such agreement: (1) the agreement is legal, valid, binding, enforceable, and in full force and effect; (2) the agreement will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (3) no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default, or permit termination, modification, or acceleration, under the agreement; and (4) no party has repudiated any provision of the agreement. (o) Accounts Receivable. All accounts receivable of the Corporation are valid receivables subject to no setoffs or counterclaims except contractual adjustments within arrangements with third-party reimbursers and other adjustments customarily made by the Corporation's third party reimbursers. (p) Powers of Attorney. There are no outstanding powers of attorney executed on behalf of the Corporation. (q) Insurance. Paragraph 4(q) of the Sellers' Disclosure Letter sets forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, medical malpractice, and workers' compensation coverage and bond and surety arrangements) to which the Corporation has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past five (5) years: (i) the name, address, and telephone number of the agent; (ii) the name of the insurer, the name of the policyholder, and the name of each covered insured; (iii) the policy number and the period of coverage; (iv) the scope (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and 11 13 (v) a description of any retroactive premium adjustments or other loss-sharing arrangements. With respect to each such insurance policy: (A) the policy is in full force and effect; (B) the policy will continue to be in full force and effect on identical terms following the consummation of the transactions contemplated hereby unless and until canceled by the Purchaser; (C) neither the Corporation nor any other party to the policy is in breach or default (including with respect to the payment of premiums or the giving of notices), and no event has occurred which, with notice or the lapse of time, would constitute such a breach or default, or permit termination, modification, or acceleration, under the policy; and (D) no party to the policy has repudiated any provision thereof. The Corporation has been covered during the past five (5) years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during the aforementioned period. Paragraph 4(q) of the Sellers' Disclosure Letter describes any self-insurance arrangements affecting the Corporation. (r) Litigation. Section 4(r) of the Sellers' Disclosure Letter sets forth each instance in which either the Corporation (i) is subject to any outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a party or is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. None of the actions, suits, proceedings, hearings, and investigations set forth in Section 4(r) of the Sellers' Disclosure Letter could result in any material adverse change in the business, financial condition, operations, results of operations, or future prospects of the Corporation . Neither the Sellers nor the directors and officers (and employees with responsibility for litigation matters) of the Corporation has any reason to believe that any such action, suit, proceeding, hearing, or investigation may be brought or threatened against the Corporation . (s) Employees. To the best of the Sellers' Knowledge, no physician, key employee, or group of employees has any plans to terminate employment with the Corporation . The Corporation is not a party to or bound by any collective bargaining agreement, nor has it experienced any strikes, grievances filed pursuant to any work rules of any organized labor organization, claims of unfair labor practices, or other collective bargaining disputes. To the best of the Sellers' Knowledge, the Corporation has not committed any unfair labor practice. To the best of the Sellers' Knowledge, no organizational effort is presently being made or threatened by or on behalf of any labor union with respect to employees of the Corporation. (t) Employee Benefits. (i) Paragraph 4(t) of the Sellers' Disclosure Letter lists each Employee Benefit Plan that the Corporation maintains or to which the Corporation contributes or has contributed prior to closing. (A) Each such Employee Benefit Plan (and each related trust, insurance contract, or fund) complies in form and in operation in all respects with the applicable requirements of ERISA, the Code, and other applicable laws. (B) All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each such Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (C) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each such Employee Benefit Plan which is an Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each such Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of the Corporation. All premiums or 12 14 other payments for all periods ending on or before the Closing Date have been paid with respect to each such Employee Benefit Plan which is an Employee Welfare Benefit Plan. (D) Each such Employee Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Code Sec. 401(a) and has received, within the last two years, a favorable determination letter from the Internal Revenue Service. (E) The market value of assets under each such Employee Benefit Plan which is an Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or exceeds the present value of all vested and nonvested Liabilities thereunder determined in accordance with PBGC methods, factors, and assumptions applicable to an Employee Pension Benefit Plan terminating on the date for determination. (F) The Sellers have delivered to the Purchaser correct and complete copies of the plan documents and summary plan descriptions, the most recent determination letter received from the Internal Revenue Service, the most recent Form 5500 Annual Report, and all related trust agreements, insurance contracts, and other funding agreements which implement each such Employee Benefit Plan. (ii) With respect to each Employee Benefit Plan that the Corporation maintains or ever has maintained or to which it contributes, ever has contributed, or ever has been required to contribute: (A) There have been no Prohibited Transactions with respect to any such Employee Benefit Plan. No Fiduciary has any Liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any such Employee Benefit Plan. No action, suit, proceeding, hearing, or investigation with respect to the administration or the investment of the assets of any such Employee Benefit Plan (other than routine claims for benefits) is pending or threatened. Neither the Sellers nor the directors and officers (and employees with responsibility for employee benefits matters) of the Corporation has any Knowledge of any Basis for any such action, suit, proceeding, hearing, or investigation. (iii) The Corporation does not contribute to, has never contributed to, and has not been required to contribute to any Multiemployer Plan or has any Liability (including withdrawal Liability) under any Multiemployer Plan. (iv) The Corporation does not maintain, has never maintained, has never contributed, and has not been required to contribute to any Employee Welfare Benefit Plan providing medical, health, or life insurance or other welfare-type benefits for retired or terminated employees (either current or future), their spouses, or their dependents (other than in accordance with Code Sec. 4980B). (u) Guaranties. The Corporation is not a guarantor or is not otherwise liable for any Liability or obligation (including indebtedness) of any other Person. (v) Environment, Health, and Safety. (i) Each of the Sellers, the Corporation and their respective Affiliates has complied with all Environmental, Health, and Safety Laws, and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand, or notice has been filed or commenced against any of them alleging any failure so to comply. Without limiting the generality of the preceding sentence, each of the Sellers, the Corporation and their respective Affiliates has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied 13 15 with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all Environmental, Health, and Safety Laws. (ii) The Corporation has no Liability (and none of the Sellers, the Corporation and their respective Affiliates has handled or disposed of any substance, arranged for the disposal of any substance, exposed any employee or other individual to any substance or condition, or owned or operated any property or facility in any manner that could form the Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand against the Corporation giving rise to any Liability) for damage to any site, location, or body of water (surface or subsurface), for any illness of or personal injury to any employee or other individual, or for any reason under any Environmental, Health, and Safety Law. (iii) All properties and equipment used in the business of the Sellers, the Corporation and their respective Affiliates have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous Substances. (w) Healthcare Compliance. To the best of the Sellers' knowledge, neither the Corporation nor any physician associated with or employed by the Corporation 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. Section 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 government agency. To the best of the Sellers' knowledge, no Physician associated with or employed by the Corporation has made any referral of any patient to any entity in which such Physician or a member of his or her immediate family has any ownership or investment interest or with which such Physician or family member has any financial relationship in violation of 42 U.S.C. Section 1395 nn of any state law prohibiting referrals to such entities. The Corporation and/or each physician employed thereby is 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 and, to the best of the Sellers' Knowledge, no condition exists or event has occurred which in itself or with the giving of notice or the lapse of time or both would result in the suspension, revocation, impairment, forfeiture or non-renewal of any such third party payor program. The Corporation is in full compliance with the requirements of all such third party payor programs applicable thereto. (x) Fraud and Abuse. To the best of the Sellers' knowledge, the Corporation and persons and entities providing professional services for the Corporation have not engaged in any activities which are prohibited under 42 U.S.C. Section 1320a-7b, or the regulations promulgated thereunder pursuant to such statutes, or related state or local statutes or regulations, or which are prohibited by rules of professional conduct, including but not limited to the following: (i) 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; (ii) 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; (iii) 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 its own behalf or on behalf of another, with intent to fraudulently secure such benefit or payment; and (iv) 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 14 16 such remuneration (A) 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 (B) 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. (y) Facility Compliance. The Corporation is duly licensed, and the Corporation and its clinics, offices and facilities are lawfully operated in accordance with the requirements of all applicable laws and certificates of need and has all necessary authorizations and certificates of need for their use and operation, all of which are in full force and effect. There are no outstanding notices of deficiencies relating to the Corporation or any physician employed thereby 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, the Corporation has no Knowledge or reason to believe that such necessary authorizations may be revoked or not renewed in the ordinary course. (z) Disclosure. The representations and warranties contained in this Section 4 and in the Sellers' Disclosure Letter do not contain any untrue or misleading statement of a fact. 5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing. (a) General. Each of the Parties will use his or its best efforts to take all action and to do all things necessary in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction of the closing conditions set forth in Section 7 below). (b) Notices and Consents. The Sellers will cause the Corporation to give any notices to third parties, and will cause the Corporation to use its best efforts to obtain any third-party consents, that may be required by law or the terms of any contract to which the Sellers may be subject or that the Purchaser may request in connection with the transaction contemplated by this Agreement. Each of the Parties will (and the Sellers will cause the Corporation to) give any notices to, make any filings with, and use its best efforts to obtain any authorizations, consents, and approvals of governments and governmental agencies required to consummate the transaction contemplated by this Agreement. (c) Operation of Business. The Sellers will not cause or permit the Corporation to engage in any practice, take any action, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, the Sellers will not cause or permit the Corporation to (i) declare, set aside, or pay any dividend or make any distribution with respect to its capital stock or redeem, purchase, or otherwise acquire any of its capital stock or (ii) otherwise engage in any practice, take any action, or enter into any transaction of the sort described in Section 4(g) above. (d) Preservation of Business. The Sellers will cause the Corporation to keep its properties substantially intact, including its present physical facilities, working conditions, and relationships with lessors, licensors, suppliers, and employees. (e) Full Access. The Sellers will permit, and the Sellers will cause the Corporation to permit, representatives of the Purchaser to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Corporation, to all premises, properties, personnel, books, records (including Tax records), contracts, and documents of or pertaining to the Corporation. In that regard, the Sellers will cause the Corporation to permit the independent accountants for the Purchaser to conduct such audits of the financial statements of the Corporation as the Purchaser shall elect or be required to obtain, and shall cause the accounting personnel of the Corporation to assist such accountants in the preparation for and conduct of such audit. 15 17 (f) Notice of Developments. The Sellers will give prompt written notice to the Purchaser of any material adverse development of which any of them learns which would constitute or otherwise cause a breach of any of the representations and warranties in Section 4 above. Each Party will give prompt written notice to the others of any material adverse development causing a breach of any of his or its own representations and warranties in Section 3 above. No disclosure by any Party pursuant to this Section 5(f), however, shall be deemed to amend or supplement the Sellers' Disclosure Letter or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. (g) Exclusivity. For so long as this Stock Purchase Agreement shall remain in effect, the Sellers will not (and the Sellers will not cause or permit the Corporation to) (i) solicit, initiate, or encourage the submission of any proposal or offer from any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets of, the Corporation (including any acquisition structured as a merger, consolidation, or share exchange) or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. The Sellers will not vote their Shares in favor of any such acquisition structured as a merger, consolidation, or share exchange. The Sellers will notify the Purchaser immediately if any Person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. (h) Release from Personal Guaranties. The Purchaser shall use its best efforts to obtain the release of each Seller from any personal guarantee of any obligation of the Corporation. Failure of the Purchaser to obtain any such release shall not be a breach of this Agreement or otherwise, without the existence of a separate breach hereof, excuse any Seller from performance hereunder. 6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the period following the Closing. (a) General. In case at any time after the Closing any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party may reasonably request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under Section 9 below). The Sellers acknowledge and agree that from and after the Closing the Purchaser will be entitled to possession of all documents, books, records (including Tax records), agreements, and financial data of any sort relating to the Corporation. (b) Litigation Support. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Corporation or any Seller, each of the other Parties will cooperate with him or it and his or its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 9 below). (c) Transition. The Sellers will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, or other business associate of the Corporation from maintaining the same business relationships with the Corporation or the Group after the Closing as it maintained with the Corporation prior to the Closing. The Sellers will refer all inquiries relating to the businesses of the Corporation to the Purchaser from and after the Closing. (d) Name Change. At the time of Closing, the Purchaser shall cause the name of the Corporation to be changed to something distinguishable, within the meaning of the corporation statutes of the state of Florida, from 16 18 the name of the Corporation and shall execute, deliver and/or cause to be filed such documents or instruments that may be necessary to permit the Group to change its name to and to do business under the name "Southeast Florida Hematology Oncology Group, P.A." (e) Custody of Patient Records. The Purchaser shall maintain custody of all existing records, files, charts, x-ray files and similar data pertaining to each patient in accordance with Applicable Laws and canons of professional ethics. 7. CONDITIONS PRECEDENT TO OBLIGATION TO CLOSE. (a) Conditions to Obligation of the Purchaser. The obligation of the Purchaser to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 3(a) and Section 4 above shall be true and correct in all material respects at and as of the Closing Date; (ii) the Sellers shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (iii) the Sellers shall have caused the Corporation to make all filings, give all notices and procure all of the third party consents and authorizations specified in Section 5(b) above; (iv) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, (C) affect adversely the right of the Purchaser to own the Shares and to control the Corporation, or (D) affect adversely the right of the Corporation to own its assets and to operate its businesses (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (v) the Sellers and the Corporation shall have delivered to the Purchaser a certificate to the effect that each of the conditions specified above in Section 7(a)(i)-(iv) is satisfied in all respects; (vi) the Purchaser shall have received the resignations, effective as of the Closing, of each director and officer of the Corporation other than those whom the Purchaser shall have specified in writing at least five business days prior to the Closing; (vii) the Purchaser shall have received from Geiger, Kasdin, Heller, Kuperstein, Chames & Weil, P.A., counsel to the Sellers and the Corporation, an opinion as to matters customarily addressed in opinions of counsel in transactions such as that described herein, which opinion shall be in form and substance reasonably acceptable to the Purchaser and its counsel; and (viii) all actions to be taken by the Sellers in connection with consummation of the transactions contemplated hereby and all certificates, opinion, instruments, and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to the Purchaser. The Purchaser may waive any condition specified in this Section 7(a) if it executes a writing so stating at or prior to the Closing. 17 19 (b) Conditions to Obligation of the Sellers. The obligation of the Sellers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction of the following conditions: (i) the representations and warranties set forth in Section 3(b) above shall be true and correct in all material respects at and as of the Closing Date; (ii) the Purchaser shall have performed and complied with all of its covenants hereunder in all material respects through the Closing; (iii) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect); (iv) the Purchaser shall have delivered to the Sellers a certificate to the effect that each of the conditions specified above in Section 7(b)(i)-(iii) is satisfied in all respects; and (v) all actions to be taken by the Purchaser in connection with consummation of the transactions contemplated hereby and all certificates, instruments, and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Sellers. The Sellers may waive any condition specified in this Section 7(b) if they execute a writing so stating at or prior to the Closing. 8. DELIVERIES AT CLOSING. (a) Documents to be Delivered by the Purchaser. At the Closing, the Purchaser shall deliver the following instruments and documents to the Sellers or other appropriate party: (i) certificates representing 117,600 shares of Response Stock issuable to the Sellers pursuant to Section 2(b) above; (ii) the certificate described in Section 7(b)(iv) above; and (iii) such other documents as the Sellers may reasonably request to affect the transactions contemplated by this Agreement. (b) Documents to be Delivered by the Seller. At the Closing, the Sellers shall deliver the following instruments and documents to the Purchaser: (i) stock certificates representing all of the Shares, endorsed in blank or accompanied by duly executed assignment documents; (ii) a certificate of existence from the Florida Secretary of State evidencing the existence and good standing of the Corporation, dated not more than five (5) days prior to the Closing Date; (iii) all consents necessary regarding the transaction contemplated by this Agreement; 18 20 (iv) the opinion of counsel to the Sellers, in a form reasonably satisfactory to the Purchaser's counsel, required by Section 7(a)(vii) above; (v) the Certificate described in Section 7(a)(v) above; and (vi) such other documents as the Purchaser may reasonably request to affect the transactions contemplated by this Agreement. 9. REMEDIES FOR BREACHES OF THIS AGREEMENT. (a) Survival of Representations and Warranties. All of the representations and warranties of the Parties contained in this Agreement shall survive the Closing hereunder (even if the damaged Party knew or had reason to know of any misrepresentation or breach of warranty at the time of Closing) and continue in full force and effect for a period of three (3) years thereafter (subject to reduction by any applicable statutes of limitations); provided, however, that with respect to Federal and state tax matters, such survival period shall be equal to the statute of limitations (without regard to any extension by the Purchaser following Closing) for assessment of additional taxes. (b) Indemnification Provisions for Benefit of the Purchaser. In the event any of the Sellers breaches (or in the event any third party alleges facts that, if true, would mean the Seller has breached) in a manner that materially adversely affects the Purchaser any of such Seller's representations, warranties, and covenants contained herein and, provided that the Purchaser makes a written claim for indemnification against the Seller pursuant to Section 9(c)(i) below, then the Sellers , jointly and severally, agree to indemnify the Purchaser from and against the entirety of any Adverse Consequences the Purchaser may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Purchaser may suffer after the end of any applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach (or the alleged breach), or otherwise; provided, however, that if an event for which the Purchaser shall be entitled to indemnification is directly attributable to a particular Seller or disproportionately among the Sellers, then the Purchaser shall first seek satisfaction of any indemnification obligation hereunder from those Sellers to whom such event is attributable, and shall seek satisfaction from the other Sellers only after every reasonable effort shall have been made to recover in the manner hereinabove described.. (c) Matters Involving Third Parties. (i) If any third party shall notify the Purchaser with respect to any matter (a "Third Party Claim") which may give rise to a claim for indemnification under this Section 9, then the Purchaser shall promptly notify the Sellers thereof in writing; provided, however, that no delay on the part of the Purchaser in notifying the Sellers shall relieve the indemnitor from any obligation hereunder unless (and then solely to the extent) the indemnitor thereby are prejudiced. (ii) The Sellers will have the right to defend the Purchaser against the Third Party Claim with counsel of its choice satisfactory to the Purchaser so long as (A) they notify the Purchaser in writing within 15 days after the Purchaser has given notice of the Third Party Claim that the Sellers will indemnify the Purchaser from and against the entirety of any Adverse Consequences the Purchaser may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim, (B) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, , and (C) the Sellers conduct the defense of the Third Party Claim actively and diligently. (iii) So long as the Sellers are conducting the defense of the Third Party Claim in accordance with Section 9(c)(ii) above, (A) the Purchaser may retain separate co-counsel at its sole cost and expense and 19 21 participate in the defense of the Third Party Claim, (B) the Purchaser will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Sellers (not to be withheld unreasonably), and (C) the Sellers will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Purchaser. (iv) In the event any of the conditions in Section 9(c)(ii) above is or becomes unsatisfied, however, (A) the Purchaser may defend against, and consent to the entry of any judgment or enter into any settlement with respect to, the Third Party Claim in any manner it may deem appropriate (and the Purchaser need not consult with, or obtain any consent from, the Seller in connection therewith), (B) the Sellers will reimburse the Purchaser promptly and periodically for the costs of defending against the Third Party Claim (including attorneys' fees and expenses), and (C) the Sellers will remain responsible for any Adverse Consequences the Purchaser may suffer resulting from, arising out of, relating to, in the nature of, or caused by the Third Party Claim to the fullest extent provided in this Section 9. (d) Determination of Adverse Consequences. The Parties shall take into account the time cost of money (using the Applicable Rate as the discount rate) in determining Adverse Consequences for purposes of this Section 9. All indemnification payments under this Section 9 shall be deemed adjustments to the Purchase Price. (e) Other Indemnification Provisions. The foregoing indemnification provisions are in addition to, and not in derogation of, any statutory, equitable, or common law remedy any Party may have for breach of representation, warranty, or covenant. The Sellers hereby agree that they will not make any claim for indemnification against the Corporation by reason of the fact that they were directors, officers, employees, or agents of the Corporation or were serving at the request thereof as a partner, trustee, director, officer, employee, or agent of another entity (whether such claim is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses, or otherwise and whether such claim is pursuant to any statute, charter document, bylaw, agreement, or otherwise) with respect to any action, suit, proceeding, complaint, claim, or demand brought by the Purchaser against the Sellers (whether such action, suit, proceeding, complaint, claim, or demand is pursuant to this Agreement, applicable law, or otherwise). 10. TERMINATION. (a) Termination of Agreement. Certain of the Parties may terminate this Agreement as provided below: (i) the Purchaser and the Sellers may terminate this Agreement by mutual written consent at any time prior to the Closing; (ii) the Purchaser may terminate this Agreement by giving written notice to the Sellers at any time prior to the Closing (A) in the event any of the Sellers has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Purchaser has notified the Seller of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach or (B) if the Closing shall not have occurred on or before October 1, 1996, by reason of the failure of any condition precedent under Section 7(a) hereof (unless the failure results primarily from the Purchaser itself breaching any representation, warranty, or covenant contained in this Agreement); and (iii) the Sellers may terminate this Agreement by giving written notice to the Purchaser at any time prior to the Closing (A) in the event the Purchaser has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, any of the Sellers has notified the Purchaser of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach or (B) if the Closing shall not have occurred on or before October 1, 1996 by reason of the failure of any condition precedent under Section 7(b) hereof (unless the failure results primarily from any 20 22 of the Sellers themselves breaching any representation, warranty, or covenant contained in this Agreement). (b) Effect of Termination. If any Party terminates this Agreement pursuant to Section 10(a) above, all rights and obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party. 11. MISCELLANEOUS. (a) Press Releases and Public Announcements. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement without the prior written approval of the Purchaser and the Seller; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its best efforts to advise the other Parties prior to making the disclosure). (b) Arbitration of Disputes; Legal Fees. Any dispute arising under this Stock Purchase Agreement shall be submitted by the parties to binding arbitration pursuant to the Florida Uniform Arbitration Act, with any such arbitration proceeding being conducted in accordance with the rules of the American Arbitration Corporation. Any arbitration panel presiding over any arbitration proceeding hereunder is hereby empowered to render a decision in respect of such dispute, to award costs and expenses (including reasonable attorney fees) as it shall deem equitable and to enter its award in any court of competent jurisdiction. Each of the Parties submits to the jurisdiction of any state or federal court sitting in Fort Lauderdale, Broward County, Florida for purposes of enforcement of any arbitration award hereunder. Each Party also agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or other security that might be required of any other Party with respect thereto. (c) No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. (d) Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. (e) Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the Purchaser and the Seller; provided, however, that the Purchaser may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder (in any or all of which cases the Purchaser nonetheless shall remain responsible for the performance of all of its obligations hereunder). (f) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. (g) Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (h) Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: 21 23 If to the Seller: Copy to: William Rymer, M.D. Stanley H. Kuperstein, Esq. 5700 North Federal Highway, Suite 5 Geiger, Kasdin, Heller & Kuperstein, P.A. Fort Lauderdale, Florida 33308 1428 Brickell Ave., 6th Floor Miami, Florida 33131 If to the Purchaser: Copy to: Joseph T. Clark John A. Good, Esq. Response Oncology, Inc. Response Oncology, Inc. 1775 Moriah Woods Blvd. 1775 Moriah Woods Blvd. Memphis, Tennessee 38117 Memphis, Tennessee 38117 Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. (i) Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Florida without giving effect to any choice or conflict of law provision or rule (whether of the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Florida. (j) Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by the Purchaser and the Sellers. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (k) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. (l) Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. (m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. 22 24 (n) Specific Performance. Each of the Parties acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter, in addition to any other remedy to which they may be entitled, at law or in equity. * * * * * 23 25 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [as of] the date first above written. PURCHASER: Response Oncology, Inc. By:_______________________________________________ Title:____________________________________________ SELLERS: __________________________________________________ William Rymer, M.D. __________________________________________________ Theodore Zaravinos, M.D. __________________________________________________ Douglas Faig, M.D. 24 EX-10.(U) 3 SERVICE AGREEMENT 1 CONFIDENTIAL TREATMENT REQUESTED BY RESPONSE ONCOLOGY, INC. - ------------------------------------------------------------------------------- SERVICE AGREEMENT BY AND AMONG RESPONSE ONCOLOGY OF FT. LAUDERDALE, INC. SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP, P.A. AND STOCKHOLDERS OF SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY ASSOCIATES, P.A. July 1, 1996 - ------------------------------------------------------------------------------- 2 SERVICE AGREEMENT THIS SERVICE AGREEMENT dated as of July 1, 1996 by and among RESPONSE ONCOLOGY OF FT. LAUDERDALE, INC., a Florida corporation ("Response"), SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP, P.A., a Florida professional association (the "Provider") and THE STOCKHOLDERS OF SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY ASSOCIATES, P.A. (the "Stockholders"). RECITALS: WHEREAS, Response is in the business of owning certain assets of and managing and operating medical clinics, and providing support services to and furnishing medical practices with the necessary facilities, equipment, personnel, supplies and support staff to operate a medical practice; WHEREAS, the Provider desires to retain Response to perform the practice management functions described herein in order to permit the Provider and its employees to devote substantially full time and efforts on a concentrated and continuous basis to the rendering of medical services to patients; NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, effective July 1, 1996, the Provider, the Stockholders and Response agree to the terms and conditions provided in this Agreement. ARTICLE 1. RELATIONSHIP OF THE PARTIES 1.1. Independent Relationship. The Provider and Response intend to act and perform as independent contractors, and the provisions hereof are not intended to create any partnership, joint venture, agency or employment relationship between the parties. Notwithstanding the authority granted to Response herein, Response and the Provider agree that the Provider shall retain the authority to direct the medical, professional, and ethical aspects of its medical practice. The Provider shall have absolute control over all matters pertaining to physician compensation, benefits, vacation, leave time, office hours, call schedules and other physician-related matters. Each party shall be solely responsible for and shall comply with all state and federal laws pertaining to employment taxes, income withholding, unemployment compensation contributions and other employment related statutes applicable to that party. 1.2. Responsibilities of the Parties. As more specifically set forth herein, Response shall provide the Provider with offices and facilities, equipment, supplies, support personnel, and management and financial advisory services. As more specifically set forth herein, the Provider shall be responsible for the recruitment and hiring of Physicians and all issues related to medical practice patterns and documentation thereof. Notwithstanding anything herein to the contrary, no "designated health service" as defined in 42 U.S.C. Section 1395nn, including any amendments or successors thereto, shall be provided by Response under this Agreement. 1.3. Provider's Matters. Matters involving the internal agreements and finances of the Provider, including the distribution of professional fee income among individual Physician Stockholders (as hereinafter defined), tax planning, and pension and investment planning (and expenses relating solely to these internal business matters), and hiring, firing and licensing of Non-Physician Employees (hereinafter defined) shall remain the sole responsibility of the Provider and the individual Physician Stockholders. 1 3 1.4. Patient Referrals. The parties agree that the benefits to the Provider hereunder do not require, are not payment for, and are not in any way contingent upon the admission, referral or any other arrangement for the provision of any item or service offered by Response to any of the Provider's patients in any facility or laboratory controlled, managed or operated by Response. 1.5. Professional Judgment. Each of the parties acknowledges and agrees that the terms and conditions of this agreement pertain to and control the business and financial relationship between and among the parties but do not pertain to and do not control the professional and clinical relationship between and among the Provider, the Provider's employees, and the Provider's patients. Nothing in this Agreement shall be construed to alter or in any way affect the legal, ethical and professional relationship between and among the Provider and the Provider's patients, nor shall anything contained in this Agreement abrogate any right, privilege, or obligation arising out of or applicable to the physician-patient relationship. ARTICLE 2. DEFINITIONS 2.1. Definitions. For the purposes of this Agreement, the following definitions shall apply: Financial and Accounting Definitions: (a) "Account Debtor" shall mean an account debtor or any other Person obligated in respect of an Account Receivable. (b) "Accounts Receivable" shall mean, with respect to the Provider, all accounts and any and all rights to payment of money or other forms of consideration of any kind now owned or hereafter acquired (whether classified under the Uniform Commercial Code as accounts, chattel paper, general intangibles, or otherwise) for goods sold or leased or for services rendered by the Provider, including, but not limited to, accounts receivable, proceeds of any letters of credit naming the Provider as beneficiary, chattel paper, insurance proceeds, contract rights, notes, drafts, instruments, documents, acceptances, and all other debts, obligations and liabilities in whatever form from any other Person, provided that cash, checks and credit card purchases are not included in the definition of Accounts Receivable. (c) References to "amounts recorded" shall mean all amounts recorded or recordable in accordance with GAAP (hereinafter defined), including, without limitation, all billed Physician Services Revenue hereinafter defined and Non-Physician Revenue hereinafter defined, earned Capitation Revenue hereinafter defined and all expenses that are subject to accrual under GAAP. (d) "Ancillary Clinic Expenses" shall mean all amounts recorded comprising items described in the definition of Clinic Expenses below that are directly attributable to the delivery of Ancillary Services (hereinbelow defined), including interest on indebtedness incurred by Reponse to finance the delivery of such Ancillary Services. (e) "Ancillary Net Operating Income" shall mean the excess (if any) of Ancillary Revenue over Ancillary Clinic Expenses. (f) "Ancillary Revenue" shall mean all amounts recorded as Practice Revenue that are directly attributable to the delivery of Ancillary Services. 2 4 (g) "Annual Surplus" shall mean (A) Practice Revenue (hereinafter defined) less Ancillary Revenue, reduced by (B) the sum of Clinic Expenses (except Ancillary Clinic Expenses), Practice Retainage and the Base Portion of the Base Service Fee (h) "Bad Debt Allowance" shall mean, with respect to Accounts Receivable, an allowance for uncollectible Accounts Receivable determined based on a methodology approved by the Oversight Committee. (i) "Base Service Fee" shall mean the Base Service Fee as set forth on Schedule A hereto. (j) "Base Portion" of the Fixed Portion of the Service Fee shall have the meaning set forth on Schedule A hereto. (k) "Capitation Revenue" shall mean amounts recorded consisting of revenue from managed care organizations, where payment is made periodically on a per member basis, administration payments, co-payments and all other payments by managed care organizations, including, without limitation, managed care variable expense bonuses, hospital expense bonuses or any other bonus or payment which rewards the Provider for its medical performance under any managed care arrangement. (l) "Clinic Expenses" shall mean all amounts recorded comprising the expenses incurred in the operation of any Clinic, including, without limitation: (A) Non-Physician Employee Compensation (hereinafter defined), regardless of by whom paid, salaries, benefits and other direct costs of any Executive Director employed pursuant to Section 5.6 below and all personnel employed by Response at a Clinic; (B) obligations of Response under leases or subleases of facilities and personal property utilized by the Provider, including, without limitation, Clinics and medical offices, medical, laboratory and other equipment utilized by the Provider; (C) personal property and intangible taxes assessed against properties and assets utilized by the Provider or otherwise deployed in any Clinic commencing on the date of this Agreement; and (D) other ordinary, necessary and reasonable expenses incurred by Response in carrying out its obligations under this Agreement, including, without limitation, depreciation on equipment utilized in the Clinics, interest on secured loans incurred to purchase Clinic equipment, insurance (except professional liability of physicians, which will remain a physician expense), laundry, supplies, cost of goods sold from inventory, utilities, telephone service, printing, stationery, advertising, postage, medical transcribing and waste disposal. All Clinic Expenses shall be computed in accordance with GAAP. To the extent expenses incurred benefit multiple clinics, such Clinic Expenses shall be allocated among such Clinics benefiting from such expenditure as Response shall reasonably determine with the approval of the Oversight Committee. Clinic Expenses shall not include (i) Physician Expense, (ii) any corporate overhead charges of Response (which shall include amortization of any intangible asset related to this Service Agreement), (iii) any capital expenditures incurred by Response pursuant hereto, except to the extent provided herein, (iv) any federal or state income taxes, and (v) any expenses which are expressly designated herein as expenses or responsibilities of and are paid by the Provider. 3 5 (m) "Clinic Expense Portion" of the Service Fee shall have the meaning set forth in Section 8.1 below. (n) "Fee Adjustment" shall mean any adjustment for any discount, non-allowed contractual or other adjustment under Medicare, Medicaid, any preferred provider plan, workers' compensation plan, employee/dependent health care benefit program or other contractual arrangement between the Provider and any Third Party Payor, and any professional courtesy or other reasonable and customary discount that results in fee revenue not being collected. (o) "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity or other practices and procedures as may be approved by a significant segment of the accounting profession or prescribed by the Securities and Exchange Commission, which are applicable to the circumstances as of the date of determination. For purposes of this Agreement, GAAP shall be applied in a manner consistent with the historic practices used by Response. (p) "Governmental Receivables" shall mean an Account Receivable of the Provider which (i) arises in the ordinary course of business of the Provider, (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 the Provider as a health care provider. Governmental Receivables shall not, however, refer to amounts payable by private insurers under contract to provide benefits under the Federal Employee Health Benefit Program. (q) "Non-Physician Employee Compensation" shall mean all amounts recorded as salaries, wages (including overtime), benefits, payroll taxes and other compensation expense by the Provider in respect of Non-Physician Employees (hereinafter defined), which shall be a Clinic Expense regardless of who shall pay same. (r) "Percentage Portion" of the Fixed Portion of the Service Fee shall have the meaning set forth in Schedule A below. (s) "Performance Fee" shall mean an amount payable to Response on a calendar-year basis as computed pursuant to the formula set forth in Schedule A hereto. (t) "Physician Expense" shall mean the sum of (i) salaries, bonuses and other compensatory payments to Physicians (hereinafter defined) employed by or otherwise performing services for the Provider, including Physician Stockholders; (ii) perquisites and benefits provided to such persons; (iii) travel and entertainment expense, continuing education expense, professional liability expense and other expenses and payments that primarily benefit such persons; provided, however, that any such expense incurred at the direction of Response shall not be a Physician Expense and shall instead be a Clinic Expense; and (iv) payroll taxes in respect of any of the foregoing. (u) "Physician Services Revenue" shall mean all amounts recorded as fees and revenue (net of Fee Adjustments and Bad Debt Allowance) by or on behalf of the Provider or received directly by Physicians as a result of professional medical services furnished to patients by Physicians and Non-Physician Employees, whether rendered in an inpatient or outpatient setting, and excluding any items approved pursuant to Section 4.2(c) below, and specifically including amounts paid directly to the Physicians by North Broward Hospital and VITAS. 4 6 (v) "Practice Retainage" shall mean an amount equal to the percentage of Practice Revenue (less Ancillary Revenue) set forth on Schedule A hereto. (w) "Practice Revenue" shall mean the sum of all amounts recorded by the Provider as Physician Services Revenue and Capitation Revenue and other revenue (including chemotherapy and other drug revenue) attributable to the conduct of the Provider's medical practice, but shall specifically exclude profits from any investment of the Provider in any partnership, joint venture, corporation, professional association and any other revenue not derived from the providing of services by employees of the Provider or Response. (x) "Service Fee" shall mean the sum of the Base Service Fee and the Performance Fee (if any). Other Definitions: (y) An "Affiliate" of a corporation shall mean (a) any person or entity directly or indirectly controlled by such corporation, (b) any person or entity directly or indirectly controlling such corporation, (c) any subsidiary of such corporation if the corporation has a fifty percent (50%) or greater ownership interest in the subsidiary, or (d) such corporation's parent corporation if the parent has a fifty percent (50%) or greater ownership interest in the corporation. For purposes of this Section 2.1(u), the Provider is not an affiliate of Response. (z) "Ancillary Services" shall mean diagnostic, treatment or other medical services that may from time to time be offered by Provider after the effective date hereof, which were not offered by the Provider or Response on the effective date hereof, and which are delivered by the Provider utilizing equipment and other capitalized assets acquired by Response at a cost in excess of $100,000. (aa) "Applicable Law" shall mean all applicable provisions of constitutions, statutes, rules, regulations, ordinances and orders of all Governmental Authorities and all orders and decrees of all courts, tribunals and arbitrators, and shall include, without limitation, Health Care Law. (ab) "CHAMPUS" shall mean the Civilian Health and Medical Program of the Uniformed Services. (ac) "Clinic" shall mean the practice facility currently utilized by the Provider, and any facility, related business and all medical group business operations which the Provider and Response may, in the future, mutually agree to characterize as a Clinic. (ad) "Employment Agreement" shall mean an employment agreement between each physician now or hereinafter employed by the Provider and the Provider pursuant to which the physician shall be employed by the Provider to provide medical services on behalf of the Provider, which Employment Agreement shall be substantially in the form set forth as Exhibit 7.1 hereof. (ae) "Governmental Authority" shall mean any national, state or local government (whether domestic or foreign), any political subdivision thereof or any other governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, board, body, agency, bureau or entity or any arbitrator with authority to bind a party at law. (af) "Health Care Law" shall mean any Applicable Law regulating the acquisition, construction, operation, maintenance or management of a health care practice, facility, provider or payor, including without limitation 42 U.S.C. Section 1395nn and 42 U.S.C. Section 1320a-7b. 5 7 (ag) "Liquidated Damages Amount" shall mean an amount equal to the Liquidated Damages Amount set forth on Schedule A hereto. (ah) "Medicaid" shall mean any state program pursuant to which health care providers are paid or reimbursed for care given or goods afforded to indigent persons and administered pursuant to a plan approved by the Health Care Financing Administration under Title XIX of the Social Security Act. (ai) "Medicare" shall mean any medical program established under Title VIII of the Social Security Act and administered by the Health Care Financing Administration. (aj) "Necessary Authorization" shall mean with respect to the Provider all Medicare/Medicaid Provider Numbers, 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 the Provider's business. (ak) "Oversight Committee" shall mean a five (5) member committee established pursuant to Section 4.1. Except as otherwise provided, the act of a majority of the votes by members of the Oversight Committee shall be the act of the Oversight Committee. In the event that one or more of the Provider designees on the Oversight Committee shall have a conflict with respect to the matter to be voted on by the Oversight Committee, then the remaining Provider designees shall have the right to cast the vote of such designee on the matter under consideration. (al) "Person" shall mean an individual, corporation, partnership, joint venture, trust, association, or unincorporated organization, or a government or any agency or political subdivision thereof including, without limitation, a Third Party Payor. (am) "Physician" shall mean any medical doctor employed by the Provider or with whom the Provider has entered into independent contractor or other non-employee relationships. (an) "Non-Physician Employees" shall mean all persons other than Physicians who deliver billable medical or health care services under the direction of the Provider and its Physicians or are otherwise under contract with the Provider to provide professional services to Clinic patients and, in each case, who are duly licensed to provide professional medical services in the State of Florida. (ao) "Physician Extender Personnel" shall mean employees of Response who deliver patient care services to the Provider, including without limitation nurse anesthetists, physician assistants, registered and licensed practical nurses, nurse practitioners, psychologists, and other such persons except Physicians and Non-Physician Employees. (ap) "Physician Stockholders" shall mean those Physicians who are from time to time hereafter members of the Provider. (aq) "Practice Assets" shall have the meaning ascribed to that term in Section 11.5 of this Agreement. (ar) "Provider" shall have the meaning set forth in the initial paragraph hereof. (as) "Provider Event of Default" shall have the meaning ascribed to such term in Section 11.4 hereof. 6 8 (at) "Purchase Agreement" shall mean that certain Purchase Agreement dated as of July 1, 1996 by and among Responseand the Stockholders. (au) "Remaining Physician Stockholder" shall mean any Physician Stockholder who shall have been a Stockholder at the effective time of this Agreement and who, at any time within one (1) year prior to the occurrence of a Provider Event of Default shall have been a Physician Stockholder; provided, however, that such term shall not include any Stockholder who shall have, within such one year period, ceased to be a Physician Stockholder by reason of death, total disability (as defined in the Physician Stockholder's Employment Agreement), or retirement at age 55 or with the consent of the Oversight Committee. (av) "Response" shall mean Response Oncology of Ft. Lauderdale, Inc., a Florida corporation. (aw) "Response Event of Default" shall have the meaning ascribed to such term in Section 11.3 of this Agreement. (ax) "Stockholder" shall mean each Stockholder of the Provider as of the date hereof. (ay) "Third Party Payor" shall mean each Person which makes payment under a Third Party Payor Program, and each Person which administers a Third Party Payor Program. (az) "Third Party Payor Program" shall mean Medicare, Medicaid, CHAMPUS, insurance provided by Blue Cross and/or Blue Shield, managed care plans, and any other private health care insurance programs and employee assistance programs as well as any future similar programs. ARTICLE 3. FACILITIES TO BE PROVIDED BY RESPONSE 3.1. Facilities. Response shall provide and make available to the Provider for its use in its group medical practice the offices and facilities more fully described in Exhibit 3.1 hereto, the furnishings, fixtures and equipment located thereupon, and shall pay as hereinafter provided all costs (all of which shall be Clinic Expense) of repairs, maintenance and improvements, utility (telephone, electric, gas, water) expenses, normal janitorial services, refuse disposal and all other costs and expenses reasonably incurred in conducting the operations contemplated by this Agreement in each Clinic during the term of this Agreement, including, without limitation, related real or personal property lease cost payments and expenses, taxes and insurance. Response shall comply with all terms and provisions of any lease or other agreement with respect to such facility and shall maintain such facility and equipment used by the Provider in updated, fully operational condition, ordinary wear and tear excepted. Response shall consult with the Provider regarding the condition, use and needs for the offices, facilities and improvements, and any purchase, lease or improvement of any offices, facilities or equipment, or change in any of the foregoing, shall be as directed and/or approved by a majority of the Oversight Committee. Response shall follow all directions of the Oversight Committee in respect of improvements to the offices, facilities and equipment to be used by the Provider. The Provider shall not amend, modify or terminate any sub-lease agreements without the prior written consent of Response. 3.2 Use of Facilities. The Provider shall not use or occupy any facility or equipment owned or leased by Response for any purpose which is prohibited by any Applicable Law, this Agreement, or the terms of any lease or other arrangement with respect to the use or occupancy of such facility, or which may be dangerous to life, limb, or property (except medical services provided in the ordinary course of business), or which would increase the fire or extended coverage insurance rate on such facility. 7 9 ARTICLE 4. DUTIES OF THE OVERSIGHT COMMITTEE 4.1. Formation and Operation of the Oversight Committee. The parties shall establish an Oversight Committee which shall be responsible for developing management and administrative policies for the overall operation of each Clinic. The Oversight Committee shall consist of five (5) members. Response shall designate, and shall have the right to remove and replace, in its sole discretion, two (2) members of the Oversight Committee. The Provider shall designate, and shall have the right to remove and replace, in its sole discretion, three (3) members of the Oversight Committee. The Oversight Committee shall have the authority to adopt bylaws (which shall include the fixing of a quorum for the conduct of business by the Oversight Committee), establish regular meeting times and places, call special meetings for any purpose and elect a chairman and a secretary who shall preside over and record, respectively, the proceedings at any meeting of the Oversight Committee. Except as otherwise provided herein, the affirmative vote of a majority of the members of the Oversight Committee shall be required for approval of any action taken thereby. 4.2. Duties and Responsibilities of the Oversight Committee. The Oversight Committee shall have the following duties and obligations: (a) Capital Improvements and Expansion. Any renovation and expansion plans and capital equipment expenditures with respect to any Clinic shall be reviewed and approved by the Oversight Committee and shall be based upon economic feasibility, physician support, productivity and then current market conditions. (b) Annual Budgets. All annual capital and operating budgets prepared by Response, as set forth in Section 5.2, shall be subject to the review and approval of the Oversight Committee, which shall have the authority to reject individual items in the budget and to fix such amounts so rejected; provided, however, that in the event the Oversight Committee exercises such authority and increases any budget amount by more than ten (10%) percent of the amount proposed by Response and does not propose a commensurate reduction in other budget items reasonably acceptable to Response, then such modification shall be approved by a vote of four-fifths (4/5) of the Oversight Committee. (c) Exceptions to Inclusion in the Physician Services Calculation. The exclusion of any revenue from Practice Revenue, whether now or in the future, shall be subject to the approval by a vote of four-fifths (4/5) of the Oversight Committee. Current approved exceptions are listed in the attached Exhibit 4.2(c). (d) Advertising. All advertising and other marketing of the services performed at any Clinic shall be subject to the prior review and approval of the Oversight Committee. (e) Patient Fees; Collection Policies. As a part of the annual operating budget, in consultation with the Provider and Response, to the extent allowed by Applicable Law, the Oversight Committee shall review and advise the Provider as to an appropriate fee schedule for all physician and ancillary services rendered by the Provider, which fee schedule shall ultimately be determined by the Provider in its sole discretion. In addition, the Oversight Committee shall approve the credit collection policies of any Clinic. (f) Retirement of Stockholders. The Oversight Committee shall determine and act upon the request of any Stockholder to retire before attaining age 55. 8 10 (g) Provider and Payor Relationships. Decisions regarding the establishment or maintenance of relationships with managed care organizations, institutional health care providers and Third Party Payors shall be made by the Oversight Committee in consultation with Response and the Provider. (h) Strategic Planning. The Oversight Committee shall develop long-term strategic planning objectives. (i) Capital Expenditures. The Oversight Committee shall determine the priority of major capital expenditures benefiting the Clinics. (j) Physician Hiring. Except as provided in Section 15.9 below, the Oversight Committee shall determine the number and type of physicians required for the efficient operation of each Clinic. The approval of the Oversight Committee shall be required for any variations to the restrictive covenants in any physician employment contract. (k) Executive Director. The selection and retention of any Executive Director pursuant to Section 5.6 and the salary and cash fringe benefits of each Executive Director shall be pursuant to the direction and control of the Oversight Committee. If the Provider is dissatisfied with the services provided by any Executive Director, the Provider shall refer the matter to the Oversight Committee. The Oversight Committee shall, in good faith, determine whether the performance of such Executive Director could be brought to acceptable levels through counsel and assistance, or whether the Executive Director's employment should be terminated. Lisa Fox shall initially be retained as Executive Director. ARTICLE 5. ADMINISTRATIVE SERVICES TO BE PROVIDED BY RESPONSE 5.1. Performance of Management Functions. Response shall provide or arrange for the services set forth in this Article 5, the cost of all of which shall be paid by Response in accordance with this Agreement and included in Clinic Expenses. Response is hereby expressly authorized to perform its services hereunder in whatever manner it deems reasonably appropriate to meet the day-to-day requirements of Clinic operations in accordance with the general standards approved by the Oversight Committee, including, without limitation, performance of some of the business office functions at locations other than a Clinic. The Provider will not act in a manner which would prevent Response from efficiently managing the day-to-day operations of each Clinic in a business-like manner. 5.2. Financial Planning and Goals. Response shall prepare annual capital and operating budgets reflecting in reasonable detail anticipated revenue and expenses, sources and uses of capital for growth in the Provider's practice and medical services rendered at each Clinic. Response shall determine the amount and form of capital to be invested annually in each Clinic and shall specify the targeted profit margin for each Clinic which shall be reflected in the overall budget. Response realizes that a Clinic may realize opportunities to provide new services and utilize new technologies that will require capital expenditures and anticipates that such opportunities may include outpatient treatment centers, renovations to Clinic facilities, the addition of satellite locations and new and replacement equipment pursuant to Section 3.1, and new services, including, without limitation, radiation therapy, radiology and stem cell supported high dose chemotherapy. Upon the direction of the Oversight Committee, Response agrees to provide funds to allow the Clinic to provide such new services and to utilize such new technologies. Such budgets shall be presented to the Oversight Committee at least sixty (60) days prior to the end of the preceding calendar year. The Oversight Committee shall us its best efforts to agree upon a budget at least thirty (30) days prior to the end of such preceding Calendar year as provided in Section 4.2(b), and, once approved in such manner, shall be binding upon Response and the Provider unless modified or revised in like manner by the Oversight Committee. 9 11 5.3. Financial Statements. Response shall prepare monthly, quarterly and annual financial statements on an accrual basis reflecting the results of operations of the Provider. If the Provider desires an audit of any financial statement, the Provider may obtain such an audit at its own expense. Response shall prepare monthly unaudited financial statements containing a combined balance sheet and statements of operations for the Clinics, which shall be delivered to the Provider within thirty (30) days after the close of each calendar month. Notwithstanding the foregoing, Response shall be under no obligation to keep multiple sets of books for cash basis and accrual basis methods of accounting, but shall be entitled to keep one set of books maintained on an accrual basis method of accounting, which shall be converted by workpaper-only entries to the cash basis method of accounting for purposes of tax reporting. 5.4. Inventory and Supplies. Response shall order and purchase reasonable and requested medical and office inventory, pharmaceuticals and supplies required by the Provider in the day-to-day operations of its medical practice. 5.5. Management Services and Administration. (a) The Provider hereby appoints Response as its sole and exclusive manager and administrator of all day-to-day business functions connected with its group medical practice. The Provider agrees that the purpose and intent of this Service Agreement is to relieve the Provider, the Physicians and Non-Physician Employees, to the maximum extent possible, of the administrative, accounting, payroll, accounts payable, personnel and business aspects of its practice, with Response assuming responsibility for and being given all necessary authority to perform these functions. Response agrees that the Provider, and only the Provider, will perform the medical functions of its practice. Response will have no authority, directly or indirectly, to perform, and will not perform, any medical function. Response may, however, advise the Provider as to the relationship between its performance of medical functions and the overall administrative and business functioning of its practice. To the extent that they assist the Provider in performing medical functions, all Physician Extender Personnel performing patient care services obtained and provided by Response shall be subject to the professional direction and supervision of the Provider and, in the performance of such medical functions, shall not be subject to any direction or control by, or liability to, Response, except as may be specifically authorized by the Provider. (b) Response shall, on behalf of the Provider and under the Provider's provider number, bill patients and Third Party Payors, and shall collect the professional fees for medical services rendered by the Provider in each Clinic, for services performed outside a Clinic for the Provider's hospitalized patients, and for all other professional and Clinic services. Response's billing and collection practice shall be consistent with those of comparable, nationally recognized, well managed group medical practices. The Provider hereby appoints Response for the term hereof to be its true and lawful attorney-in-fact, for the following purposes: (i) to bill patients in the Provider's name and on its behalf; (ii) to collect Accounts Receivable resulting from such billing in the Provider's name and on its behalf; (iii) to receive payments from insurance companies, prepayments from health care plans, and payments from all other Third Party Payors; (iv) to take possession of and endorse in the name of the Provider (and/or in the name of an individual Physician, such payment intended for purpose of payment of a Physician's bill) any notes, checks, money orders, insurance payments and other instruments received in payment of Accounts Receivable; and (v) with the advance consent of the Oversight Committee, to initiate collection proceedings in the name of the Provider or any Physician to collect any accounts and monies owed to the Provider, Clinic or any Physician, to enforce the rights of the Provider or any Physician as a creditor under any contract or in connection with the rendering of any service, and to contest adjustments and denials by any Governmental Authority (or its fiscal intermediaries) as Third Party Payors. All adjustments made for uncollectible accounts, professional courtesies and other activities that do not generate a collectible fee shall be done in a reasonable and consistent manner. 10 12 (c) Response shall design, supervise and maintain custody of all files and records relating to the operation of each Clinic, including but not limited to accounting, billing, patient medical records, and collection records. Patient medical records shall at all times be and remain the property of the Provider and shall be located at Clinic facilities so that they are readily accessible for patient care. The Physicians shall have the obligation to oversee the preparation and maintenance of patient medical records, and to provide such medical information as shall be necessary and appropriate to the clinical function of such records, and to maintain such records so as to ensure the availability of Third-party Payor reimbursement for services rendered. The management of all files and records shall comply with applicable state and federal statutes. Response shall use its best efforts to preserve the confidentiality of patient medical records and use information contained in such records only for the limited purpose necessary to perform the services set forth herein; provided, however, in no event shall a breach of said confidentiality be deemed a default under this Agreement. Response shall indemnify and hold the Provider harmless from and against any monetary loss suffered by the Provider on account of Response's breach of the foregoing confidentiality provisions. (d) Response shall supply to the Provider necessary clerical, accounting, payroll, bookkeeping and computer services, laundry, linen, uniforms, printing, stationary, advertising, postage and duplication services, medical transcribing services and any other ordinary, necessary or appropriate item or service for the operation of a Clinic, the cost of all of which shall be Clinic Expense. (e) Subject to the provisions of Section 4.2(d), Response shall design and implement adequate and appropriate public relations programs on behalf of the Provider, with appropriate emphasis on public awareness of the availability of services at the Provider's Clinics. Any public relations program shall be conducted in compliance with applicable laws and regulations governing advertising by medical professionals and applicable canons or principles of professional ethics governing the Provider and its physicians. (f) Response shall provide the data necessary for the Provider to prepare its annual income tax returns and financial statements, and shall provide payroll and related services for Physicians and Non-Physician Employees. Response shall have no responsibility for the filing of such tax returns, the payment of such income taxes or the cost of preparation of income tax returns or financial statements on behalf of the Provider or any Physician employed thereby. (g) Response shall assist the Provider in recruiting additional Physicians and Non-Physician Employees, carrying out such administrative functions as may be appropriate such as advertising for and identifying potential candidates, checking credentials, and arranging interviews; provided, however, the Provider shall interview and make the ultimate decision as to the suitability of any Physician or Non-Physician Employee to become associated with a Clinic. All Physicians recruited by Response and accepted by the Provider shall be the sole employees of the Provider, to the extent such Physicians are hired as employees. Subject to the provisions of Section 6.4, any expenses incurred in the recruitment of Physicians or Non-Physician Employees, including, but not limited to, employment agency fees, relocation and interviewing expenses, shall be Clinic Expenses. (h) Subject to the provisions of Section 4.2(g), Response shall negotiate and administer all managed care contracts on behalf of the Provider. (i) Response shall provide for the proper cleanliness of the physical premises occupied and/or utilized by the Provider, and maintenance and cleanliness of the equipment, furniture and furnishings located upon such premises. 11 13 5.6. Executive Director. Subject to the provisions of Section 4.2(k), Response shall recruit, hire and appoint an Executive Director to manage and administer all of the day-to-day business functions of each Clinic (it being understood and agreed that, if reasonable, a single Executive Director may have responsibility for multiple Clinics). Subject to Oversight Committee approval, Response shall determine the salary, bonuses (if any) and fringe benefits of each Executive Director, which salary, bonuses (which may be payable in Response common stock or by issuance of options on Response common stock) and benefits shall, to the extent the same are current expenses under GAAP, be Clinic Expenses. At the direction, supervision and control of Response, the Executive Director, subject to the terms of this Agreement, shall implement the policies established by the Oversight Committee and shall generally perform the duties and have the responsibilities of an administrator. The Executive Director shall be responsible for organizing the agenda for the meetings of the Oversight Committee referred to in Article 4. 5.7. Personnel. Response shall provide Physician Extender Personnel and other non-physician professional support (other than persons who are required to be Non-Physician Employees) and administrative personnel, clerical, secretarial, bookkeeping and collection personnel reasonably necessary for the conduct of operations at each clinic. Response shall determine and cause to be paid the salaries and fringe benefits of all such personnel, which shall be Clinic Expenses. Such personnel shall be under the direction, supervision and control of Response, with those personnel performing billable patient care services remaining employees of and being subject to the professional supervision of the Provider. If the Provider is dissatisfied with the services of any person, the Provider shall consult with Response. Response shall in good faith determine whether the performance of that employee could be brought to acceptable levels through counsel and assistance, or whether such employee's employment should be terminated. All of Response's obligations regarding staff shall be governed by the overriding principle and goal of providing the optimal quality of medical care consistent with the efficient operation of the Clinic. Employee assignments shall be made to assure consistent and continued rendering of the optimal quality medical support services consistent with the efficient operation of the Clinic and to ensure prompt availability and accessibility of individual medical support personnel to Physicians in order to develop constant, familiar and routine working relationships between individual Physicians and individual members of the medical support personnel. Response shall maintain established working relationships wherever possible and Response shall make every reasonable effort consistent with sound business practices to honor the specific requests of the Provider with regard to the assignment of its employees. In addition to the foregoing, Response shall advance to the Provider from time to time the amount of any operating deficiency with respect to any new physician who is an employee but not a shareholder of the Provider ("Junior Physician"). Operating deficiency with respect to a Junior Physician is hereby defined as the excess of the amount payable to such Junior Physician pursuant to any salary guarantee over the amount of salary payable to such Junior Physician under the Provider's normal and customary compensation system, as the same may be modified from time to time by the Provider. Upon the earliest to occur of (i) the Junior Physician becoming a shareholder of the Provider, or (ii) the Junior Physician recognizing billings in excess of his cost (as determined by the Oversight Committee, a "Surplus"), the Provider shall begin repaying the amounts theretofore advanced in respect of such Junior Physician. Such advanced amounts shall be repaid in full within thirty (30) days after the occurrence of the event enumerated (i) above, and, in the event item (ii) above shall occur, shall be repaid as Surplus is recognized, in quarterly amounts equal to such surplus for each quarter, within sixty (60) days after the end of each such quarter; provided, however, that all such advances shall be payable in full by the Provider no later than the third anniversary of the employment date of such Junior Physician. 5.8. Events Excusing Performance. Response shall not be liable to the Provider for failure to perform any of the services required herein in the event of strikes, lock-outs, calamities, acts of God, unavailability of supplies or other events over which Response has no control for so long as such events continue, and for a reasonable period of time thereafter. 5.9. Compliance with Applicable Laws. Response shall comply with all Applicable Law, in the conduct of its obligations under this Agreement. 12 14 5.10. Quality Assurance. Response shall assist the Provider in fulfilling its obligations to its patients to maintain the optimal quality of medical and professional services consistent with the efficient operation of the Clinic. 5.11. Provider Bank Accounts. The Provider agrees to establish and maintain two (2) separate bank accounts. One such account, which shall be referred to as the Provider Receipts Account, will be under the sole direct control of the Provider and will be utilized only as a depository for Practice Revenue. Such account shall be subject to, and the Provider agrees to execute and deliver to an appropriate commercial bank, a Lockbox Operating Procedural Agreement, and, pursuant thereto, shall instruct such bank to transfer automatically all amounts deposited in the Provider Receipts Account to the Provider Operating Account. The second account shall be referred to as the Provider Operating Account, and shall be maintained for the purpose of (a) depositing amounts swept from the Provider Receipts Account and advances from the Receivables Line (defined below) pursuant to Section 5.12 and (b) paying (i) all expenses which are solely the obligation of the Provider, including, without limitation, Physician Expense, up to the amount of Practice Retainage, which shall be paid to a separate bank account under the Provider's sole control, (ii) Clinic Expenses payable directly by the Provider (including, without limitation, Non-physician Employee Compensation), (iii) the Clinic Expense Portion of the Base Service Fee owed pursuant to Section 8.1 of this Agreement, (iv) the Fixed Portion of the Base Service Fee owed pursuant to Section 8.1 of this Agreement, and (v) other distributions to the Provider, and the distributions shall be made in that order of payment. To the extent Practice Revenue of the Provider is insufficient to pay all amounts set forth above, then any shortage shall be applied in reverse order to the order provided above, with the Practice Retainage being the last item to be reduced by such shortage. Provider hereby designates, constitutes and appoints Response, through its duly authorized officers and employees as approved by the Oversight Committee, as a signatory on the Provider Operating Account, with full power and authority to sign checks and cause drafts and other debits to be made on the Provider Operating Account in the name of the Provider and to otherwise manage the cash resources and flow of the Provider. After the payment of all items described in clauses (b)(i) through (iv) above, the Provider may withdraw amounts for distributions to Physician Members. 5.12. Credit Line. Response shall from time to time, but no less frequent than monthly, during the term of this Agreement advance to Provider, in readily available United State funds, by wire transfer, intrabank transfer or other electronic means, to be deposited into the Provider Operating Account, an amount (the "Receivables Line") equal to 100% of Accounts Receivable, net of any Bad Debt Allowance and all Fee Adjustments with respect thereto. Amounts advanced by Response under the Receivables Line will not bear interest except after payment shall have become due hereunder, in which event such advanced amounts shall bear interest at the maximum rate permitted to be lawfully charged. Amounts advanced by Response pursuant to this Section 5.12 shall be payable by Provider upon termination of this Agreement or occurrence of a Provider Event of Default. Response shall have the authority from time to time pursuant to Section 5.11 above to make principal payments on the Receivables Line. Advances on the Receivables Line will be secured by a security interest in and to Accounts Receivable granted pursuant to Section 15.7 below. 5.13. Ancillary Services. Response shall assist this Provider in adding and operating such ancillary services, including Ancillary Services as defined in Section 2.1(z) of this Service Agreement, as approved by the Oversight Committee. 13 15 ARTICLE 6. OBLIGATIONS OF THE PROVIDER 6.1. Professional Services. The Provider shall provide professional services to patients in compliance at all times with ethical standards, laws and regulations applying to the medical profession, in a manner and to an extent consistent with that established by the Provider prior to effectiveness of this Agreement. The Provider shall also make all reports and inquiries to the National Practitioners Data Bank and/or any state medical licensing board required by Applicable Law. The Provider shall use its best efforts to ensure that each Non-Physician Employee and Technical Employee associated with the Provider to provide medical care to patients of the Provider is licensed by the State of Florida to the extent required. The Provider shall promptly notify Response in writing, citing the underlying circumstances, in the event the Provider or any Physician or Non-Physician Employee associated therewith (i) shall be or become the subject of any investigation into or proceeding with respect to allegations of professional misconduct or incompetence; (ii) shall be or become the subject of any investigation by any Federal or state regulatory agency with respect to any possible violation of any Federal or state law regulating the providing of health care services; (iii) shall be named party to any proceeding alleging violation of any law relating to such person's professional activities or seeking to revoke or suspend such person's professional license or privileges to practice in any hospital or medical center; or (iv) shall become the subject of any proceeding to exclude such person from any Federal or state reimbursement program or shall suffer the revocation or suspension of such person's Medicare provider number, DEA permit, professional license or privileges to practice in any hospital or medical center. In the event that any disciplinary action or medical malpractice actions is initiated against any Physician or other person assisting in the providing of medical services, the Provider shall immediately inform the Executive Director and/or Response of such action and the underlying facts and circumstances. The Provider shall develop a program to monitor the quality of medical care practiced at each Clinic. In that regard, the Provider shall at all times supervise and assume primary professional responsibility for the delivery of all medical or other services to patients by Physician Extender Personnel and any other employee of Response. 6.2. Medical Practice. The Provider shall use and occupy each Clinic exclusively for the practice of medicine, and shall comply with all Applicable Law and all standards of medical care. It is expressly acknowledged by the parties that the medical practice or practices conducted at a Clinic shall be conducted solely by Physicians associated with the Provider, and no other physician or medical practitioner shall be permitted to use or occupy a Clinic without the prior written consent of Response and the Provider. 6.3. Employment of Physicians. The Provider shall have complete control of and responsibility for the hiring, compensation, supervision, evaluation and termination of its Physicians , although at the request of the Provider, Response shall consult with the Provider respecting such matters. The Provider shall be responsible for the payment of all Physician Expense and Non-Physician Employee Compensation now or hereafter applicable to Physicians and Non-Physician Employees; provided, however, that Response shall provide the payroll service for computing, accounting for and disbursing or paying all salaries and benefits of the Provider employees, all of whom may be paid out of the Provider Operating Account. With respect to Physicians, the Provider shall only employ and contract with licensed Physicians meeting applicable credentialling guidelines established by the Provider. 6.4. Licensing Fees, Professional Dues and Education Expenses. Except as provided in Section 5.5(g), the Provider and Physicians shall be solely responsible for payment of the cost of professional licenses and dues for membership in professional associations and continuing professional education costs. The Provider shall ensure that each of its Physicians and Non-Physician Employees participates in such continuing medical education as is necessary for such person to maintain current practical and academic knowledge of the field of medicine and health care in which the Provider is engaged. 6.5. Professional Insurance Eligibility. The Provider and Responseshall collaborate in obtaining and retaining of professional liability insurance by assuring that all Physicians and Non-Physician Employees are insurable, and participating in an ongoing risk management program. Professional liability insurance with respect 14 16 to Physicians shall be paid for by the Provider or its Physicians and shall not be Clinic Expense. Professional liability insurance with respect to Non-Physician Employees shall be paid for by Response and shall be Clinic Expense. 6.6. Events Excusing Performance. The Provider shall not be liable to Response for failure to perform any of the services required herein in the event of strikes, lock-outs calamities, acts of God, unavailability of supplies or other events over which the Provider has no control for so long as such events continue, and for a reasonable period of time thereafter. 6.7. Fees for Professional Services. The Provider shall be solely responsible for legal, accounting and other professional service fees incurred by the Provider, except as set forth in Section 5.5(i) herein. 6.8. Peer Review; Clinical Trials. At Response's request, the Provider agrees to participate in Response's clinical trials program or any data collection and analysis program maintained by Response from time to time. The Provider agrees to cooperate with Response in establishing a system of peer review as necessary to obtain provider contracts. In connection therewith, the Provider agrees to assist in the formulation of oncology and cancer care provider guidelines for each treatment or surgical modality, and agrees to abide by said guidelines, and further agrees to submit to periodic reviews by a third party to monitor compliance with said guidelines. The Provider acknowledges that the establishment of provider guidelines may be necessary to obtain PPO, HMO, IPA and other similar provider contracts, both private and government funded. To the extent that said provider guidelines must be filed or registered with any Third Party Payor, the Provider agrees to cooperate with Response in making such filings or registrations. It is agreed and acknowledged that all such peer review guidelines shall be established and monitored by medical personnel on the staff of the Provider and other practices that are part of the peer review process, and shall not be promulgated, established or enforced independently by Response. To the extent possible, all information obtained through the peer review process shall remain confidential and the parties shall take all steps reasonably necessary to assure that all privileges and immunities provided by Applicable Law remain intact. 6.9 Provider Employee Benefit Plans. (a) The Provider shall not enter into any new "employee pension benefit plan" (as defined in Section 3(3) of the Employment Retirement Income Security Act of 1974, as amended ("ERISA") without the consent of Response (which will not be unreasonably withheld). (b) Response shall have the sole and exclusive authority to adopt, amend or terminate any employee benefit plan for the benefit of its employees, regardless of whether such employees are leased employees, unless such actions would require the amendment, freeze or termination of any tax qualified retirement plan of the Provider to avoid disqualification of any such plan, in which case any such action would be subject to the express prior written consent of the Oversight Committee. Response shall have the sole and exclusive authority to appoint the trustee, custodian and administrator of any such plan. (c) In the event that any "employee welfare benefit plan" (as defined in ERISA Section 3(l)) maintained or sponsored by the Provider must be amended, terminated, modified or changed as a result of the Provider or Response being deemed to be a part of an affiliated service group, the Oversight Committee will replace such plan or plans with a plan or plans that provides those benefits approved by the Oversight Committee. It shall be the goal of the Oversight Committee in such event to provide substantially similar or comparable benefits if the same can be provided at a substantially similar cost to the replaced plan. 15 17 ARTICLE 7. EMPLOYMENT AGREEMENTS, RESTRICTIVE COVENANTS AND REMEDIES The parties recognize that the services to be provided by Response shall be feasible only if the Provider operates an active medical practice to which the Physicians associated with the Provider devote their full time and attention. To that end: 7.1. Employment Agreements with Physicians. As a condition to Response's continuing obligations hereunder, the Provider and each Physician now or hereinafter employed thereby shall execute and deliver to each other an Employment Agreement. 7.2. Restrictive Covenants by Provider and Physicians. As a material inducement to Response to consummate the Purchase Agreement and execute, deliver and perform this Service Agreement, the Provider and each Physician Stockholder shall not engage in the practice of oncology or hematology, including providing or supervising the provision of chemotherapy, radiation treatment or other cancer therapies, within Broward County, Florida (the "Practice Territory") during the term of this Agreement and for a period of five (5) years after any termination of this Agreement or cessation of a Physician's employment with the Provider. Notwithstanding the foregoing, (A) any such restrictive covenant shall not restrict such Physician from (i) delivering physician services that are unrelated to the fields of hematology or oncology, including the practice of internal medicine, (ii) teaching hematology and/or oncology or (iii) assuming directorships of hospices following termination of any such employment relationship with the Provider; and (B) such restrictive covenant shall not apply to any Stockholder if such Stockholder pays any Liquidated Damages to Response pursuant to Section 11.6 hereunder. 7.3. Restrictive Covenants of Response. During the term of this Agreement, neither Response nor any Affiliate, officer, director or employee of Response or any Affiliate shall, without the consent of the Provider, purchase or otherwise acquire any oncology or hematology practice within the Practice Territory or establish, operate or enter into a service agreement with, or provide services similar to those provided under this Agreement to, any medical group or physician engaged in the practice of oncology or hematology within the Practice Territory. In that regard, the Provider and the Stockholders hereby consent to Response acquiring the practices of and entering into management services agreements with Drs. Rosenberg & Kalman and Drs. Weisberg, Weiss and Weinreb in Tamarac, Florida. 7.4. Enforcement. Response, the Provider and the Stockholders acknowledge and agree that since a remedy at law for any breach or attempted breach of the provisions of this Article 7 shall be inadequate, either party shall be entitled to specific performance and injunctive or other equitable relief in case of any such breach or attempted breach, in addition to whatever other remedies may exist by law. All parties hereto also waive any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief. If any provision of Article 7 relating to the restrictive period, scope of activity restricted and/or the territory described therein shall be declared by a court of competent jurisdiction to exceed the maximum time period, scope of activity restricted or geographical area such court deems reasonable and enforceable under applicable law, the time period, scope of activity restricted and/or area of restriction held reasonable and enforceable by the court shall thereafter be the restrictive period, scope of activity restricted and/or the territory applicable to the restrictive covenant provisions in this Article 7. The invalidity or non-enforceability of this Article 7 in any respect shall not affect the validity or enforceability of the remainder of this Article 7 or of any other provision of this Agreement. 16 18 ARTICLE 8. FINANCIAL ARRANGEMENTS 8.1. Service Fees. Subject to the terms of Section 5.11, in consideration for its services hereunder, Response shall receive the Base Service Fee and Performance Fee, computed pursuant to Schedule A hereto, as compensation for its services hereunder. The Service Fees shall be determined on an annual basis, based on annual financial statements prepared pursuant to Section 5.3 above. The Base Service Fee shall be payable by means of the procedure set forth in Section 8.2 below. Notwithstanding the foregoing or any other provision in this Service Agreement, in the event the sum of the Base Service Fee, Non-physician Employee Compensation and Practice Retainage, based on the annual financial statements, shall exceed the aggregate Practice Revenue of the Provider (a "deficiency"), then (i) first, the Fixed Portion of the Base Service Fee shall be reduced by the amount of such deficiency and Response shall reimburse the Provider for the amount of such deficiency, to the extent the same shall have been retained by Response pursuant to Section 8.2 below, and (ii) to the extent such deficiency is greater than the Fixed Portion, such remaining deficiency will be reimbursed by Response to the Provider. Any reimbursement pursuant to this Section 8.1 shall be made by Response no later than the 15th day of March following the year in which such deficiency arose. In the event that Response is required to fund any deficiency pursuant to this Section 8.1, then in any future year in which an Annual Surplus exists, such Annual Surplus will first be paid to Response to the extent of any cumulative deficiency funded by Response. 8.2. Base Service Fee. The Clinic Expense Portion of the Base Service Fee shall be payable by the Provider to Response out of the Provider Operating Account as Clinic Expenses are incurred by Response, subject to ordinary, reasonable and customary payment terms on invoices for goods and services, and subject to Section 5.11 and the adjustments as set forth in Section 8.1 above. The Fixed Portion of the Base Service Fee shall be payable by the Provider to Response out of the Provider Operating Account on a monthly basis based on monthly financial statements prepared pursuant to Section 5.6 above, provided that Response shall have made all advances pursuant to the Receivables Line pursuant to Section 5.12 above, and, provided, further, that if at any time there shall be insufficient funds in the Provider Operating Account to pay all or any part of the Fixed Portion, then such unpaid Fixed Portion (if any) shall be accrued. The Performance Fee will be computed as of the end of each calendar year based on amounts recorded during the calendar year. 8.3 Interim Closing. At the election of either party, given to the other in writing no later than June 15 of each year, Response shall, not later than July 20 of such year, make an interim computation of the Service Fee earned, and/or deficiency, as the case may be, pursuant to Section 8.1 above, which computation shall be effective as of June 30 of such year. Response and the Provider shall settle, in cash, the computed Service Fee or deficiency, as the case may be, resulting from such interim closing. ARTICLE 9. RECORDS 9.1. Patient Records. Upon termination of this Agreement, the Provider shall retain all patient medical records maintained by the Provider or Response in the name of the Provider. Response shall, at its option, and if allowed under Applicable Law be entitled to have reasonable access during normal business hours to the Provider's patient medical records applicable to the period of Response's performance under this Agreement. Moreover, the Provider shall, at its option, be entitled to retain copies of financial and accounting records relating to all services performed by the Provider or Response under this Agreement. All parties agree to maintain the confidentiality of patient identifying information and not to disclose such information except as may be required or permitted by Applicable Law. 9.2. Records Owned by Response. All records relating in any way to the operation of a Clinic which are not the property of the Provider under the provisions of Section 9.1 above, shall at all times be the property of Response. 17 19 9.3. Access to Records. During the term of this Agreement and thereafter, the Provider or its designee shall have reasonable access during normal business hours in Ft. Lauderdale, Florida to the Provider's and Response's financial and accounting records, including, but not limited to, records of collections, expenses and disbursements, as kept by Response in performing Response's obligations under this Agreement, and the Provider may copy any and or all such records. 9.4. Government Access to Records. To the extent required by Section 1861(v)(1)(I) of the Social Security Act, each party shall, upon proper request, allow the United States Department of Health and Human Services, the Comptroller General of the United States, and their duly authorized representatives access to this Agreement and to all books, documents, and records necessary to verify the nature and extent of the costs of services provided by either party under this Agreement, at any time during the term of this Agreement and for an additional period of four (4) years following the last date services are furnished under this Agreement. If either party carries out any of its duties under this Agreement through an agreement between it and an individual or organization related to it or through a subcontract with an unrelated party, that party to this Agreement shall require that a clause be included in such agreement (the value of which is in excess of $10,000.00) to the effect that until the expiration of four (4) years after the furnishing of services pursuant to such agreement, the related organization shall make available, upon request by the United States Department of Health and Human Services, the Comptroller General of the United States, or any of their duly authorized representatives, all agreements, books, documents, and records of such related organization that are necessary to verify the nature and extent of the costs of services provided under that agreement. ARTICLE 10. INSURANCE AND INDEMNITY 10.1. Insurance to be Maintained by the Provider. Throughout the term of this Agreement, each Physician shall maintain comprehensive professional liability insurance with limits of not less than $500,000 per claim and with aggregate policy limits of not less than $1,000,000 per physician. The Provider shall be responsible for all liabilities in excess of the limits of such policies. Response shall have the option, with Oversight Committee approval, of providing such professional liability insurance through an alternative program, provided such program meets the requirements of the Insurance Commissioner of the State of Florida. Response shall reimburse the Provider for any unearned professional liability insurance premiums paid by the Provider to the extent not reimbursed or reimbursable by the Provider's insurance carrier if the Provider's existing professional liability insurance program is canceled and replaced by a comparable professional liability insurance program initiated by Response. 10.2. Insurance to be Maintained by Response. Throughout the term of this Agreement, Response shall provide and/or maintain comprehensive professional liability insurance for all Non-Physician Employees and Physician Extender Employees, the cost of which shall be a Clinic Expense, with limits as determined reasonable by Response in its national program, and comprehensive general liability and property insurance covering each Clinic premises and operations. 10.3. Additional Insureds. The Provider and Response each agrees to use its best efforts to have the other named as an additional insured on the their respective professional liability insurance programs. 18 20 ARTICLE 11. TERM AND TERMINATION 11.1. Term of Agreement. This Service Agreement shall be effective immediately preceding the closing of the Purchase Agreement and shall expire on June 30, 2036, unless earlier terminated pursuant to the terms hereof. 11.2. Extended Term. Unless earlier terminated as provided for in this Agreement, the term of this Agreement shall be automatically extended for additional terms of five (5) years each, unless either party delivers to the other party, not less than one hundred eighty (180) days prior to the expiration of the preceding term, written notice of such party's intention not to extend the term of this Agreement. 11.3. Response Event of Default. The occurrence of any of the following events shall constitute a default by Response (a "Response Event of Default") under this Agreement, giving the Provider the right to the remedies set forth in Section 11.5 below: (a) the filing by Response of a petition in voluntary bankruptcy or an assignment by Response for the benefit of creditors, or upon other action taken or suffered, voluntarily or involuntarily, under any federal or state law for the benefit of debtors by Response, except for the filing of a petition in involuntary bankruptcy against Response which is dismissed within one hundred twenty (120) days thereafter. (b) any material default by Response in the performance of any of its duties or obligations under this Agreement , and such default or breach shall continue for a period of sixty (60) days (fifteen (15) days in the case of Response's failure to provide required advances under the Receivables Line) after written notice thereof has been given to Response by the Provider. (c) in the event Response shall, intentionally or in bad faith, misapply funds or assets of the Provider or commit a similar act which cause material harm to the Provider. Notwithstanding the foregoing, if a particular default listed above is subject to cure, the occurrence of such default more than twice in any twelve month period extending from July 1 to June 30 of the next succeeding year shall not carry the curative right provided above. 11.4. Provider Event of Default. The occurrence of any of the following events shall constitute a default by the Provider (an "Provider Event of Default") under this Agreement, giving Response the right to the remedies set forth in Section 11.6 below: (a) the filing by the Provider of a petition in voluntary bankruptcy or an assignment by the Provider for the benefit of creditors, or upon other action taken or suffered, voluntarily or involuntarily, under any federal or state law for the benefit of debtors by the Provider, except for the filing of a petition in involuntary bankruptcy against the Provider which is dismissed within one hundred twenty (120) days thereafter; provided, further, that if the Physicians comprising the Provider are lawfully able, within 120 days after the occurrence of such event, to reorganize the practice or transfer its assets, patients, goodwill and going concern value to a newly-formed entity and continue such practice, and if such new entity and its principal stockholders or owners assumes all of the obligations of the Provider under the Service Agreement or enter into a new Service Agreement with Response for the remaining term and containing substantially the same terms and conditions as the original Service Agreement, then Response will not terminate the original Service Agreement. 19 21 (b) any material default by the Provider in the performance of any of its duties or obligations under this Agreement, and such default or breach shall continue for a period of sixty (60) days after written notice thereof has been given to the Provider by Response. (c) the termination or suspension of the Provider's Medicare Provider Number as a result of the action or inaction of physicians, and such termination or suspension shall continue for ninety (90) days, or if any Physician employed by the Provider shall have his license to practice medicine or DEA license revoked or suspended and the affected physician or the Provider, as the case may be, shall not, within 90 days, either gain reinstatement of such license or otherwise find a suitable replacement for such physician (which replacement may be the shifting of case load to an existing physician employee of the Provider), unless the Provider 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 Oncology to reverse such termination or suspension, if such termination or suspension shall not be reversed within ninety (90) days after occurrence, an event of default shall be deemed to have occurred. Notwithstanding the foregoing, if a particular default listed above is subject to cure, the occurrence of such default more than once in any twelve month period extending from July 1 to June 30 of the next succeeding year shall not carry the curative right provided above. 11.5. Remedies upon Response Event of Default. Upon the occurrence of a Response Event of Default, the Provider shall have the right to terminate this Agreement by written notice to Response without any further obligation to Response for the Service Fee after the giving of such notice. In such event the Provider shall have the option to purchase from Response, and upon proper exercise of such option by the Provider in the manner hereinbelow provided, Response shall sell to the Provider, all assets and properties, tangible and intangible (which intangible assets shall not include any intangible asset related to this Service Agreement), owned by Response and used by the Provider in its medical practice ("Practice Assets") for a price, payable in cash, equal to the book value of the Practice Assets. The Provider shall exercise such option by giving written notice to Response within sixty (60) days after the occurrence of the Response Event of Default. 11.6. Remedies upon Provider Event of Default. Upon the occurrence of a Provider Event of Default, Response shall have the right (and, during the initial two (2) years hereof, the obligation) to terminate this Agreement by written notice to the Provider, and the Provider shall have no further obligation to Response for the Service Fee after the date such notice is received. In such event, the Provider shall be obligated to pay to Response the Liquidated Damages Amount in complete satisfaction of any and all damages suffered by Response hereunder. Such Liquidated Damages Amount shall be payable by the Provider in cash within sixty (60) days after occurrence of the Provider Event of Default. Each Stockholder hereby severally, and not jointly, guarantees the foregoing obligation of the Provider and agrees to pay to Response his pro rata share of the Liquidated Damages Amount provided that and to the extent he is a Remaining Physician Stockholder for purposes of this Agreement, with the pro rata share being equal to the Liquidated Damages Amount times (x) such Remaining Physician Stockholder's proportionate interest in the Provider as of the date hereof, less (v) the amount of the Liquidated Damages Amount paid by the Provider times such Remaining Physician Stockholder's proportionate interest in the Provider as of the date of such payment by the Provider; provided, however, that if a Stockholder is not a Remaining Physician Stockholder at the time of a Provider Event of Default because of his permissive retirement before age 55 with consent of the Oversight Committee, then the Remaining Physician Stockholders' pro rata share of the foregoing guaranteed amount shall be increased by their respective pro rata shares of the obligation that such retiring Stockholder would have had had he not retired. Moreover, in such event the Provider shall have the obligation to purchase from Response, and Response shall sell to the Provider, (i) all Practice Assets for a price equal to the book value of the Practice Assets as of the date of the Provider Event of Default, and (ii) any intangible asset then carried on Response's books for a price equal to its then book value. 20 22 11.7. Closing of Repurchase by the Provider and Effective Date of Termination. The Provider shall pay cash for Practice Assets and intangible assets repurchased hereunder. The amount of the purchase price shall be reduced by the amount of debt and liabilities of Response assumed by the Provider, by the amount of Liquidated Damages received by Response from the Provider or any Physician Stockholder pursuant to Section 11.6 above, and by any payment Response has failed to make under this Agreement, provided that such payments or obligations are not otherwise accounted for in the liabilities assumed by the Provider in connection with the repurchase described herein. The closing date for the repurchase shall be determined by the Provider, but shall in no event occur later than 90 days from the date of the notice of termination. In the event of such repurchase, each party shall use its best efforts to obtain such consents and authorizations to such transaction as may be required by Applicable Law or otherwise. In such event, Response shall execute and deliver to the Provider such assignments to leases and other contracts and such bills of sale and other transfer or closing documents necessary to effect such transaction. The Provider shall execute and deliver to Response such officers' certificates, assumption agreements and other closing documents necessary to close such transaction. Between the date of termination and the closing of the repurchase the Provider shall be entitled to use all Practice Assets, and Response hereby grants the Provider a license to use the Practice Assets in such event. In consideration of the foregoing license, the Provider will pay to Response an amount equal to any rental payments by Response to any third party vendor in respect of all Practice Assets. ARTICLE 12 DAMAGE AND LOSS; CONDEMNATION 12.1. Use of Insurance Proceeds. All insurance or condemnation proceeds payable by reason of any physical loss of any of the improvements comprising the facilities or the furniture, fixtures and equipment used by the Clinics, shall be available for the reconstruction, repair or replacement, as the case may be, of any damage, destruction or loss. The Oversight Committee, in consultation with the Provider, shall review and approve such reconstruction, repair or replacement. 12.2. Temporary Space. In the event of substantial damage to or the condemnation of a significant portion of the facilities, Response shall use its best efforts to provide temporary facilities until such time as the facilities can be restored or replaced. ARTICLE 13 REPRESENTATIONS AND WARRANTIES OF THE PROVIDER The Provider represents, warrants, covenants and agrees with Response that: 13.1. Validity. The Provider is a professional association duly organized, validly existing and in good standing under the laws of the State of Florida. The Provider has the full power and authority to own its property, to carry on its business as presently being conducted, to enter into this Agreement, and to consummate the transactions contemplated hereby. 13.2. Permits. The Provider and all physicians and other health care professionals associated with or employed by the Provider have all permits and licenses and other Necessary Authorizations required by all Applicable Laws, except where failure to secure such licenses, permits and other Necessary Authorizations does not have a material adverse effect; have made all regulatory filings necessary for the conduct of the Provider's business; and are not in violation of any of said permitting or licensing requirements. 13.3. Authority. The execution of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action, and this Agreement is a valid and binding Agreement of the Provider, enforceable in accordance with its terms. The Provider has obtained all third-party consents necessary to enter into and consummate the transaction contemplated by this Agreement. Neither the execution and delivery 21 23 of this Agreement, the consummation of the transactions contemplated hereby, nor compliance by the Provider with any of the provisions hereof, will: (a) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in the creation of, any lien, security interest, charge or encumbrance upon any of the assets of the Corporation to be acquired pursuant to the Purchase Agreement, the Provider's charter or bylaws or any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, agreement or other instrument or obligation to which the Provider is a party, or by which either the Provider or any of the assets to be conveyed hereunder is bound; or (b) violate any order, writ, injunction, decree, statute, rule or regulation applicable either to the Provider or any of the assets to be conveyed hereunder. ARTICLE 14 REPRESENTATIONS AND WARRANTIES OF RESPONSE Response represents, warrants, covenants and agrees with the Provider as follows: 14.2. Authority. The execution of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary action, and this Agreement is a valid and binding Agreement of Response enforceable in accordance with its terms. Response has taken all necessary action to authorize the execution, delivery and performance of this Agreement, as well as the consummation of the transactions contemplated hereby. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, violate any provisions of the charter or the bylaws of Response or any indenture, mortgage, deed of trust, lien, lease, agreement, arrangement, contract, instrument, license, order, judgment or decree or result in the acceleration of any obligation thereunder to which Response is a party or by which it is bound. 14.4. Permits. Response has all permits and licenses and other Necessary Authorizations required by all Applicable Laws, except where failure to secure such licenses, permits and other Necessary Authorizations does not have a material adverse effect; have made all regulatory filings necessary for the conduct of Response's business; and are not in violation of any of said permitting or licensing requirements. ARTICLE 15 COVENANTS OF THE PROVIDER 15.1. Merger, Consolidation and Other Arrangements. The Provider shall not incorporate, merge or consolidate with any other entity or individual or liquidate or practice at any location other than the Clinics or dissolve or wind-up the Provider's affairs or enter into any partnerships, joint ventures or sale-leaseback transactions or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials and equipment in the ordinary course of business) of any other person or entity without first obtaining the prior written consent of Response; provided, however, that no 22 24 such consent shall be required in respect of any incorporation, merger, consolidation, partnership, joint venture or acquisition transaction that (i) results in the continued, unimpaired operation of the Clinics; and (ii) results in the Physician Stockholders maintaining at least a fifty percent (50%) voting and equity interest in the Clinics. The Provider acknowledges and agrees that such consent may be withheld if Response and the Provider cannot mutually agree upon the terms and conditions of a new Service Agreement with the Provider. 15.2. Necessary Authorizations/Assignment of Licenses and Permits. The Provider 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 the Provider assign, transfer, or remove or permit any other individual or entity to assign, transfer or remove any records of the Provider, including without limitation, patient records, medical and clinical records (except for removal of such patient records as directed in writing by the patients owning such records or as otherwise required under any Applicable Law). 15.3. Transaction with Affiliates. The Provider shall not enter into any transaction or series of transactions, whether or not related or in the ordinary course of business, with any Affiliate of Response, other than on terms and conditions substantially as favorable to the Provider as would be obtainable by the Provider at the time in a comparable arms-length transaction with a person not an Affiliate of Response. 15.4. Compliance with All Laws. The Provider shall comply with all laws and regulations relating to the Provider's practice and the operation of any cancer care facility, including, but not limited to, all state, federal and local laws relating to the acquisition or operation of a health care practice. Furthermore, the Provider shall not violate any Applicable Laws. 15.5. Third Party Payor Programs. The Provider shall maintain the Provider's compliance with the requirements of all Third Party Payor Programs in which the Provider is currently participating or authorized to participate. 15.6. Change in Business or Credit and Collection Policy. The Provider shall not make any change in the character of the Provider's business or in the credit and collection policy, which change would, in either case, impair the collectibility of any Accounts Receivable or otherwise modify, amend or extend the terms of any such account other than in the ordinary course of business. 15.7. Security Interest. The Provider shall, effective as of the date hereof, be deemed to have granted (and the Provider does hereby grant) to Response a first priority security interest in and to any and all of the Accounts Receivable (except Governmental Receivables) and the proceeds thereof (including the proceeds, after deposit into the Provider Operating Account, from the collection of Governmental Receivables) to secure the repayment of all amounts advanced to the Provider under the Receivables Line and all accrued interest thereon, and this Agreement shall be deemed to be a security agreement. The Provider 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 such pledged Receivables. Upon a default by the Provider in the payment of amounts due under the Receivables Line, Response may at its option exercise from time to time any and all rights and remedies available to it under the UCC or otherwise. The Provider represents and warrants that the location of the Provider's principal place of business, and all locations where the Provider maintains records with respect to its Accounts Receivables are set forth under its name in Section 16.5 hereof. The Provider agrees to notify Response in writing thirty (30) days prior to any change in any such location. The exact name of the Provider is as set forth at the beginning of this Agreement. The Provider is a new professional association, and the medical practice conducted by the Provider was formerly conducted under the name "Rymer, Zaravinos & Faig, M.D., P.A.," a Florida professional association. The Provider shall notify Response in writing thirty (30) days prior to any change in any such name. 23 25 15.8. Representations and Warranties. The Provider agrees to notify Response in the event that any representation or warranty contained in Article 13 of this Agreement becomes untrue in any material respect. ARTICLE 16. GENERAL PROVISIONS 16.1. Assignment. Response shall have the right to assign its rights hereunder to any person, firm or corporation under common control with Response and to any lending institution, for security purposes or as collateral, from which Response obtains financing. Except as set forth above, neither Response nor the Provider shall have the right to assign their respective rights and obligations hereunder without the written consent of the other party. 16.2. No Practice of Medicine. The parties acknowledge that Response is not authorized or qualified to engage in any activity which may be construed or deemed to constitute the practice of medicine. To the extent any act or service required of Response in this Agreement should be construed or deemed by any Governmental Authority or court to constitute the practice of medicine, the performance of said act or service by Response shall be deemed waived and forever unenforceable. 16.3. Whole Agreement; Modification. This Agreement supersedes all prior agreements between the parties, and there are no other agreements or understandings, written or oral, between the parties regarding this Agreement, the Exhibits and the Schedules, other than as set forth herein. This Agreement shall not be modified or amended except by a written document executed by both parties to this Agreement, and such written modification(s) shall be attached hereto. 16.4. Arbitration of Disputes; Legal Fees. Any dispute arising under this Service Agreement shall be submitted by the parties to binding arbitration pursuant to the Florida Uniform Arbitration Act, with any such arbitration proceeding being conducted in Ft. Lauderdale, Florida in accordance with the rules of the American Arbitration Association. Any arbitration panel presiding over any arbitration proceeding hereunder is hereby empowered to render a decision in respect of such dispute, to award costs and expenses (including reasonable attorney fees) as it shall deem equitable and to enter its award in any court of competent jurisdiction. 16.5. Notices. All notices required or permitted by this Agreement shall be in writing and shall be addressed as follows: To Response: Response Oncology, Inc. 1775 Moriah Woods Blvd. Memphis, Tennessee 38117 Attn: Joseph T. Clark, CEO With copies to: John A. Good, Esq. Executive Vice-President -- General Counsel Response Oncology, Inc. 1775 Moriah Woods Blvd. Memphis, Tennessee 38117 To Provider: Southeast Florida Hematology Oncology Group, P.A. Attn: William Rymer, M.D. 5700 N. Federal Highway Suite 5 Ft. Lauderdale, Florida 33308
24 26 With copies to: Stanley H. Kuperstein, Esq. Geiger, Kasdin, Heller & Kuperstein, P.A. 1428 Brickell Avenue, 6th Floor Miami, Florida 33131 or to such other addresses as either party shall notify the other. 16.6. Binding on Successors. Subject to Section 16.1, this Agreement shall be binding upon the parties hereto, and their successors, assigns, heirs and beneficiaries. 16.7. Waiver of Provisions. Any waiver of any terms and conditions hereof must be in writing, and signed by the parties hereto. The waiver of any of the terms and conditions of this Agreement shall not be construed as a waiver of any other terms and conditions hereof. 16.8. Governing Law. The validity, interpretation and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of Florida. The parties acknowledge that Response is not authorized or qualified to engage in any activity which may be construed or deemed to constitute the practice of medicine. To the extent any act or service required of Response in this Agreement should be construed or deemed, by any governmental authority, agency or court to constitute the practice of medicine, the performance of said act or service by Response shall be deemed waived and forever unenforceable. 16.9. Severability. The provisions of this Agreement shall be deemed severable and if any portion shall be held invalid, illegal or unenforceable for any reason, the remainder of this Agreement shall be effective and binding upon the parties. 16.10. Additional Documents. Each of the parties hereto agrees to execute any document or documents that may be requested from time to time by the other party to implement or complete such party's obligations pursuant to this Agreement. 16.11. Time is of the Essence. Time is hereby expressly declared to be of the essence in this Agreement. 16.12. Confidentiality. Except for disclosure to its bankers, underwriters or lenders, or as necessary or desirable for conduct of business, including negotiations with other acquisition candidates, neither party hereto shall disseminate or release to any third party any information regarding any provisions of this Agreement, or any financial information regarding the other (past, present or future) that was obtained by the other in the course of the negotiations of this Agreement or in the course of the performance of this Agreement, without the other party's written approval; provided, however, the foregoing shall not apply to information which (i) is generally available to the public other than as a result of a breach of confidentiality provisions; (ii) becomes available on a non-confidential basis from a source other than the other party or its affiliates or agents, which source was not itself bound by a confidentiality agreement, or (iii) which is required to be disclosed by law or pursuant to court order. 16.13. Contract Modifications for Prospective Legal Events. In the event any state or federal laws or regulations, now existing or enacted or promulgated after the effective date of this Agreement, are interpreted by judicial decisions, a regulatory agency or legal counsel in such a manner as to indicate that the structure of this Agreement may be in violation of such laws or regulations, the Provider and Response shall amend this Agreement as necessary. To the maximum extent possible, any such amendment shall preserve the underlying economic and financial arrangements between the Provider and Response. 16.14. Remedies Cumulative. No remedy set forth in this Agreement or otherwise conferred upon or reserved to any party shall be considered exclusive of any other remedy available to any party, but the same shall be 25 27 distinct, separate and cumulative and may be exercised from time to time as often as occasion may arise or as may be deemed expedient. 16.15. Language Construction. The language in all parts of this Agreement shall be construed, in all cases, according to its fair meaning, and not for or against either party hereto. The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement. 16.16. No Obligation to Third Parties; Nonrecourse Obligation. None of the obligations and duties of Response or the Provider under this Agreement shall in any way or in any manner be deemed to create any obligation of Response or of the Provider to, or any rights, in, any person or entity not a party to this Agreement. The Stockholders, their heirs, legatees, successors and assigns shall have no individual obligation for the performance of the provisions hereof except as expressly provided herein 16.17. Communications. The Provider and Response agree that good communication between the parties is essential to the successful performance of this Agreement, and each pledges to communicate fully and clearly with the other on mattes relating to the successful operation of the Provider's practice at a Clinic. 26 28 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. SOUTHEAST FLORIDA HEMATOLOGY ONCOLOGY GROUP, P.A. By: ------------------------------------------------- Title: ---------------------------------------------- RESPONSE ONCOLOGY OF FT. LAUDERDALE, INC. By: ------------------------------------------------- Title: ---------------------------------------------- STOCKHOLDERS: ------------------------------------------ William Rymer, M.D. ------------------------------------------ Theodore Zaravinos, M.D. ------------------------------------------ Douglas Faig, M.D. 27 29 RESPONSE ONCOLOGY OF FT. LAUDERDALE, INC. SERVICE AGREEMENT SCHEDULE A BASE SERVICE FEE The Base Service Fee shall be equal to the sum of (i) amounts recorded as Clinic Expenses (the "Clinic Expense Portion") plus (ii) the sum of (A) *** of the difference of Practice Revenue minus Ancillary Revenue (the "Base Portion"); plus (B) *** of Ancillary Net Operating Income (if any, the Percentage Portion) (the Base Portion and Percentage Portion, collectively the "Fixed Portion"). PERFORMANCE FEE During the entire term of the Service Agreement, including any extended term, a Performance Fee in an amount equal to *** of any Annual Surplus shall be paid to Response. Performance Fees shall be computed on the basis of Annual Surplus computed for each calendar year. For any period during the term of the Service Agreement that does not encompass an entire calendar year, the Performance Fees for such partial period shall be computed as follows: a) For any partial period that commences with the execution and delivery of the Service Agreement, the Clinic Expenses (less Ancillary Clinic Expenses) and Practice Revenue (less Ancillary Revenue) from such commencement date until the end of the calendar year of commencement shall be determined. The sum of Clinic Expenses (less Ancillary Clinic Expenses), Practice Retainage and the Base Portion of the Fixed Portion of the Service Fee (both computed on Practice Revenue, less Ancillary Revenue, for such period) will be subtracted from Practice Revenue, less Ancillary Revenue for such period, with the difference then being divided by the number of days in such period, and the quotient multiplied by 365. The computation formula set forth above will be applied to the annualized Annual Surplus to compute an annualized Performance Fee, which shall then be divided by 365 and multiplied by the number of days in the partial period to yield the Performance Fee payable with respect to such short period. b) For any partial period that commences on the first day of a calendar year and ends prior to the last day thereof, Annual Surplus for the full year will be computed based on the definition thereof, which result shall then be divided by 365 and multiplied by the number of days during the partial period to yield the Performance Fees payable with respect to such short period. LIQUIDATED DAMAGES AMOUNT The amount of *** until ***, at which time such amount shall be *** per Remaining Physician Stockholder for the duration of this Agreement. *** MATERIAL REDACTED PURSUANT TO CLAIM FOR CONFIDENTIAL TREATMENT 28 30 PRACTICE RETAINAGE For purposes of this Agreement, the Practice Retainage shall equal *** of Practice Revenue, and amounts received directly by Physicians as salary from sources other than Provider (unless covered by Schedule 4.2(c)) shall be charged against this number. *** MATERIAL REDACTED PURSUANT TO CLAIM FOR CONFIDENTIAL TREATMENT 29 -----END PRIVACY-ENHANCED MESSAGE-----