MANAGEMENT SERVICES AGREEMENT
BETWEEN
SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP
AND
BONE, MUSCLE AND JOINT, INC.
Effective as of November 1, 1996
TABLE OF CONTENTS
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Page
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SECTION 1. Retention of the Management Company.......................... 2
SECTION 2. Term......................................................... 3
SECTION 3. Management Services.......................................... 3
SECTION 4. Equity Participation......................................... 21
SECTION 5. Costs, Compensation, and Other Payments...................... 21
SECTION 6. Representations and Warranties of the Medical Group.......... 34
SECTION 7. Representations and Warranties of the Management Company..... 43
SECTION 8. Operations Committee......................................... 54
SECTION 9. Obligations of the Medical Group............................. 59
SECTION 10. Certain Covenants........................................... 62
SECTION 11. Records..................................................... 62
SECTION 12. Insurance and Indemnity..................................... 63
SECTION 13. Termination................................................. 65
SECTION 14. Non-Disclosure of Confidential Information.................. 69
SECTION 15. Non-Competition............................................. 69
SECTION 16. Obligations of the Management Company....................... 70
SECTION 17. Assignment.................................................. 72
SECTION 18. Notices..................................................... 72
SECTION 19. Benefits of Agreement....................................... 73
SECTION 20. Governing Law; Jurisdiction................................. 00
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XXXXXXX 00. Headings.................................................... 74
SECTION 22. Entire Agreement; Amendments................................ 74
SECTION 23. Attorneys' Fees............................................. 74
SECTION 24. Counterparts................................................ 75
SECTION 25. Waivers..................................................... 75
SECTION 26. Survival of Termination..................................... 75
SECTION 27. Contract Modification for Prospective Legal Events.......... 75
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ATTACHMENTS
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SCHEDULES
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SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation
SCHEDULE IV -- Draw Date and Draw Percentage
SCHEDULE V -- Management Fee -- Applicable Percentage
SCHEDULE VI -- Professional Practice Cost Savings
SCHEDULE VII -- Computation Example
SCHEDULE VIII -- Non-Competition
SCHEDULE IX -- Royalties
SCHEDULE 6.4 -- Financial Information
SCHEDULE 6.5 -- Absence of Undisclosed Liabilities
SCHEDULE 6.6 -- Absence of Changes
SCHEDULE 6.7 -- Tax Matters
SCHEDULE 6.8 -- Litigation, Etc.
SCHEDULE 6.10 -- Accounts Receivable; Accounts Payable
SCHEDULE 6.11 -- Labor Relations; Employees
SCHEDULE 6.12 -- Employee Benefit Plans
SCHEDULE 6.13 -- Insurance
SCHEDULE 6.14 -- Real Property
SCHEDULE 6.15 -- Burdensome Restrictions
SCHEDULE 6.16 -- Disclosure
SCHEDULE 7.2 -- Equity Investments
SCHEDULE 7.3(a) -- Issued and Outstanding Stock
SCHEDULE 7.3(c) -- Options; Conversion Rights
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SCHEDULE 7.5 -- Permits, Authorizations, Consents, Approvals,
Notifications, and Filings
SCHEDULE 7.6 -- Financial Information
SCHEDULE 7.7 -- Absence of Undisclosed Liabilities
SCHEDULE 7.8 -- Absence of Changes
SCHEDULE 7.9 -- Tax Matters
SCHEDULE 7.10 -- Litigation, Etc.
SCHEDULE 7.11 -- Compliance; Governmental Authorizations
SCHEDULE 7.12 -- Accounts Receivable; Accounts Payable
SCHEDULE 7.13 -- Labor Relations; Employees
SCHEDULE 7.14 -- Employee Benefit Plans
SCHEDULE 7.15 -- Insurance
SCHEDULE 7.16 -- Real Property
SCHEDULE 7.17 -- Burdensome Restrictions
SCHEDULE 7.18 -- Disclosure
ANNEX
ANNEX A -- Medical Group Key Personnel
ANNEX B -- Management Company Key Employees
EXHIBITS
EXHIBIT A -- Asset Purchase Agreement
EXHIBIT B -- Stockholder Non-Competition Agreement
EXHIBIT C -- Restricted Stock Agreement
EXHIBIT D -- Assignment of Lease
EXHIBIT E -- Office Sublease
EXHIBIT F -- Medical Equipment Master Lease
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INDEX OF DEFINED TERMS
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Term Page
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Additional Terms........................................................... 3
Administrative Personnel................................................... 16
Agreement.................................................................. 1
Ancillary Division......................................................... 31
Ancillary Service Start-Up Costs........................................... 32
Ancillary Service Start-Up Period.......................................... 32
Annual Draw Amount......................................................... 23
Annual Medical Group Compensation Amount................................... 23
Applicable Percentage...................................................... 26
Asset Purchase Agreement................................................... 1
Authorized Management Company Operating Costs.............................. 28
Authorized Partners........................................................ 13
Balance Sheet.............................................................. 35
Balance Sheet Date......................................................... 35
Bankruptcy Event........................................................... 65
Base Term.................................................................. 3
Billable Items............................................................. 30
Xxxxxxxx................................................................... 24
BMJ Formation Documents.................................................... 44
Budgets.................................................................... 21
Collections................................................................ 24
Commencement Date.......................................................... 3
Compensation Committee..................................................... 70
Competitive Business....................................................... 104
Confidential or Proprietary Information.................................... 69
Corporate Overhead......................................................... 27
COSI....................................................................... 66
Cost Savings............................................................... 99
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Documents.................................................................. 13
Draw Date.................................................................. 96
Draw Percentage............................................................ 22
Eligible Parties........................................................... 21
Employee Plans............................................................. 42
Employees.................................................................. 41
Equipment.................................................................. 7
ERISA...................................................................... 41
Excluded Costs............................................................. 27
Facility................................................................... 59
FF&E....................................................................... 7
Incentive Based Costs...................................................... 99
Internal Financial Statements.............................................. 35
IPO........................................................................ 97
Management Business........................................................ 1
Management Company......................................................... 1
Management Company Balance Sheet........................................... 46
Management Company Balance Sheet Date...................................... 46
Management Company Bank.................................................... 22
Management Company Costs................................................... 27
Management Company Employees............................................... 52
Management Company Key Employee............................................ 49
Management Company Operating Costs......................................... 27
Management Company Real Property........................................... 54
Management Company Returns................................................. 49
Management Company Transaction Documents................................... 44
Management Fee............................................................. 26
Management Services........................................................ 2
Medical Business........................................................... 1
Medical Equipment.......................................................... 7
Medical Equipment Master Lease Payments.................................... 26
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Medical Group.............................................................. 1
Medical Group Bank......................................................... 12
Medical Group Collections Account.......................................... 12
Medical Group Costs........................................................ 30
Medical Group Key Personnel................................................ 37
Medical Group Services..................................................... 24
Medical Group Transaction Documents........................................ 34
Medical Personnel.......................................................... 19
MGC........................................................................ 97
Monthly Draw............................................................... 22
MSAs....................................................................... 87
New Ancillary Service Medical Equipment.................................... 31
New Ancillary Services..................................................... 9
New Medical Office......................................................... 29
New Medical Office Start-Up Costs.......................................... 29
New Medical Office Start-Up Period......................................... 29
Office Lease............................................................... 6
Office Sublease............................................................ 5
Office Sublease Payments................................................... 26
OGC........................................................................ 97
Operating Account.......................................................... 22
Phase I.................................................................... 97
Phase II................................................................... 97
Phase III.................................................................. 97
Professional Practice Cost Savings......................................... 26
Real Property.............................................................. 43
Recalculation Date......................................................... 84
Restricted Stock Agreement................................................. 84
Returns.................................................................... 38
Review Financial Statements................................................ 35
SEC........................................................................ 97
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Selling Shareholders....................................................... 71
Shares..................................................................... 88
Signature Date............................................................. 1
Stock...................................................................... 81
Stockholders Agreement..................................................... 45
Tax........................................................................ 39
Taxes...................................................................... 39
Tenant Improvements........................................................ 56
Term....................................................................... 3
Transaction Documents...................................................... 81
Unaudited Financial Statements............................................. 46
Van Nuys Office............................................................ 4
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MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is entered into as of
November 22, 1996 (the "Signature Date"), effective as of November 1, 1996, by
and between SOUTHERN CALIFORNIA ORTHOPEDIC INSTITUTE MEDICAL GROUP, a California
general partnership (the "Medical Group"), and BONE, MUSCLE AND JOINT, INC., a
Delaware corporation (the "Management Company"), with reference to the following
facts:
A. The Medical Group is engaged in the business (the "Medical Business") of
providing orthopedic medical and surgical services and related medical and
ancillary services to the general public.
B. The Management Company is a corporation engaged in the business (the
"Management Business") of providing management, administrative, financial,
marketing, information technology, and related services to professional medical
organizations.
C. Concurrently herewith, the Management Company and the Medical Group have
entered into an Asset Purchase Agreement (the "Asset Purchase Agreement"),
pursuant to which the Management Company has acquired substantially all of the
assets of the Medical Group.
D. The Management Company and the Medical Group now desire to enter into
this Management Services Agreement, pursuant to which, among other things, the
Management Company will render certain management and administrative services to
the Medical Group.
NOW, THEREFORE, the Medical Group and the Management Company hereby agree
as follows:
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SECTION 1. Retention of the Management Company.
1.1 Retention. The Medical Group hereby retains the Management Company to
provide all of the management and related services identified or referenced in
Section 3 hereof and as otherwise required by this Agreement (collectively, the
"Management Services"), and the Management Company hereby accepts such retention
and agrees to provide such services, upon the terms and subject to the
conditions set forth herein.
1.2 Exclusivity. During the term of this Agreement, the Management Company
shall be the exclusive provider of all management and administrative services
utilized by the Medical Group; provided, however, that the Medical Group may
contract directly with or otherwise engage individuals or companies for the
provision of accounting, legal, consulting, or other professional or advisory
services (provided that such services shall be in addition to, and not in
replacement of, the services to be provided by the Management Company
hereunder), all in the sole discretion of the Medical Group and at the sole cost
of the Medical Group.
1.3 Relationship of Parties. Notwithstanding anything contained herein to
the contrary, (a) the Management Company and the Medical Group intend to act and
perform as independent contractors, and the provisions hereof are not intended
to create any partnership, joint venture, or employment relationship between the
parties, and (b) the Management Company is hereby engaged solely to provide
management and administrative services to the Medical Group and shall not
interfere with, control, direct, or supervise the Medical Group or any medical
professional employed by the Medical Group in connection with the provision of
professional medical services.
1.4 No Referral Obligation. The parties agree that the benefits to the
Medical Group hereunder do not require, are not payment for, and are not in any
way contingent upon the admission, referral, purchase, or any other arrangement
for the provision of any item or service to or for any of the Medical Group's
patients in or from any medical facility or laboratory or from any other entity
owned, operated, controlled, or managed by the Management Company. The
Management Company shall provide prior written notice to the Medical Group
before acquiring any ownership, investment interest, or control in, or entering
into any agreement or
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arrangement pursuant to which the Management Company would become responsible
for all or any part of the operations or management of, any medical facility,
laboratory, or any provider or supplier of ancillary services, diagnostic or
therapeutic equipment, prosthetic or orthotic devices, medical supplies, or
other items or services furnished to or for use by patients, but only if any of
the foregoing is located in California or serves the geographic area served by
the Medical Group.
SECTION 2. Term. Provided that the Closing under the Asset Purchase
Agreement shall have occurred as provided therein, and subject to such start-up
procedures as the parties may agree upon for purposes of facilitating the
transition of responsibilities required by this Agreement, the performance of
services under this Agreement shall commence as of November 1, 1996 (the
"Commencement Date") and shall expire on the fortieth anniversary of the
Commencement Date unless terminated earlier pursuant to the terms hereof (the
"Base Term"). The Base Term of this Agreement shall be automatically extended
for additional terms ("Additional Terms" and together with the Base Term, the
"Term") of five years each, unless either party delivers to the other party, not
less than six (6) months nor more than nine (9) months prior to the expiration
of the then-current Term, written notice of such party's intention not to extend
the Term of this Agreement.
SECTION 3. Management Services.
3.1 Management Services Generally.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company shall
provide all of the management and administrative services reasonably required by
the Medical Group in connection with the provision of any and all of the Medical
Group Services and as otherwise provided in this Agreement, including without
limitation the services described in Sections 3.2 through 3.17 hereof.
(b) Without limiting the generality of the provisions of Section 3.1(a),
the Management Services shall include such management and administrative
services as may be
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reasonably required in connection with (i) all of the offices (including New
Medical Offices) of the Medical Group, and (ii) all professional services and
all ancillary services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described in
this Agreement shall be applicable with respect to the items identified as
Medical Group Costs in Section 5.7 hereof, except that such Medical Group Costs
shall be paid by the Medical Group rather than by the Management Company.
Accordingly, the Management Company shall provide accounting, bookkeeping, and
related services with respect to all such costs.
(d) The Management Company may enter into such contracts and agreements
with outside services and suppliers as the Management Company shall reasonably
deem necessary in connection with the provision of the Management Services, and,
to the extent permitted by applicable law, such contracts and agreements shall,
except as otherwise expressly provided in this Agreement, be in the name of the
Management Company. The Management Company shall have no authority, directly or
indirectly, to perform, and shall not perform or enter into any agreement to
perform, Medical Services or any other medical function required by law to be
performed by a licensed physician or by any other licensed health care
professional.
(e) The Management Company shall comply in all material respects with all
applicable material Federal, state and local laws, regulation, and ordinances in
connection with the provision of the Management Services hereunder.
3.2 Premises.
(a) The Medical Group, as of the Commencement Date of this Agreement,
leases premises and provides Medical Services at the following location (the
"Van Nuys Office"):
0000 Xxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000
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The above-identified premises are leased to the Medical Group, in the Medical
Group's name, and such premises shall continue to be leased to the Medical
Group, in the Medical Group's name, from and after the Commencement Date of this
Agreement. The Management Company shall not be required to lease such premises.
(b) The Medical Group, as of the Commencement Date of this Agreement, also
provides Medical Services at the following locations:
00000 XxXxxx Xxxxxxx, Suites A-2 and A-4
Xxxxxxxx, Xxxxxxxxxx 00000
0000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxxxxx 00000
000 Xxxxx Xxxxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
0000 00xx Xxxxxx, Xxxxx X
Xxxxxxxxxxx, Xxxxxxxxxx 00000
Immediately prior to the Commencement Date of this Agreement, all of the
above-identified premises were leased to the Medical Group, in the Medical
Group's name. Effective from and after the Commencement Date of this Agreement,
each of the leases of such premises are to be assigned from the Medical Group to
the Management Company pursuant to an assignment substantially in the form of
the Assignment of Lease attached hereto as Exhibit D. Additionally, the
Management Company shall sublease each of such premises to the Medical Group
pursuant to a sublease (each, an "Office Sublease") substantially in the form of
the Office Sublease attached hereto as Exhibit E, in consideration of the
payments to be made by the Medical Group under such Office Sublease. Upon the
expiration of each of the premises leases assigned in accordance with this
Section 3.2(b), the Management Company shall use its best efforts to enter into
a new lease, in the name of the Management Company, with the landlord of such
premises, and the parties shall amend the applicable Office Sublease or enter
into a new sublease relating to such new premises lease; provided, however, that
the approval of the Medical Group, which shall not be unreasonably withheld,
shall be required in the event of any substantial changes in
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the terms of the premises lease, and if the Medical Group does not give such
approval, the failure to enter into such new premises lease shall not constitute
a default of the Management Company. Each assigned lease and each new lease
entered into between the Management Company and the landlord is referred to
herein as an "Office Lease."
(c) A New Medical Office (as hereinafter defined) may be opened only upon
the agreement of the Medical Group and the Management Company. The capital costs
and start-up costs reasonably required in connection with the opening of any New
Medical Office shall be borne as set forth in Section 5 hereof. The premises of
any New Medical Office shall be leased to the Management Company, in the
Management Company's name, and the Medical Group shall not be required to lease
any such premises. Additionally, the Management Company shall sublease such
premises to the Medical Group pursuant to a sublease substantially in the form
of the Sublease attached hereto as Exhibit E, in consideration of the payments
to be made by the Medical Group under such sublease.
(d) The closing or relocation of any offices of the Medical Group shall be
subject to agreement by the Medical Group and the Management Company.
(e) The premises services to be provided by the Management Company shall
include, without limitation, the negotiation and renegotiation of leases,
provision of ongoing liaison with the landlords of the respective office
premises of the Medical Group, identification of potential new locations for
Medical Group offices, financial analysis relating to the opening, closing, and
relocation of offices, arranging for necessary repairs, maintenance and
improvements, procurement of property insurance, arranging for telephone and
other utility services, arranging for hazardous waste disposal, and all other
reasonably necessary or appropriate services related to all of the office
premises of the Medical Group.
(f) The Management Company also shall provide all necessary or appropriate
leasehold improvements to each of the premises, subject to prior approval as
provided in Section 8.2 hereof.
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(g) The Medical Group acknowledges that the Management Company makes no
warranties or representations, expressed or implied, regarding the condition of
any of the leased premises.
3.3 Equipment.
(a) The Management Company shall provide to the Medical Group all of the
diagnostic and therapeutic medical equipment reasonably required by the Medical
Group in connection with the provision of Medical Group Services (the "Medical
Equipment"). All Medical Equipment shall be provided by the Management Company
to the Medical Group in consideration of the rental payments to be made by the
Medical Group to the Management Company pursuant to an equipment lease
substantially in the form of the Medical Equipment Master Lease Agreement
attached hereto as Exhibit F. As used herein, the term Medical Equipment shall
not include medical equipment used in connection with a New Ancillary Service
(as hereinafter defined).
(b) The Management Company also shall provide to the Medical Group all
furniture, furnishings, trade fixtures, and office equipment reasonably required
in connection with the provision of Medical Group Services pursuant to this
Agreement (collectively, "FF&E"). The Management Company shall acquire, at its
cost, all FF&E, and the Management Company shall retain ownership of all FF&E.
The Management Fee payable to the Management Company under this Agreement is
intended to compensate the Management Company for the provision of FF&E for use
by the Medical Group. As used herein, the term FF&E does not include furniture,
furnishings, trade fixtures, and office equipment used in connection with a New
Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred to
collectively as the "Equipment." The acquisition, replacement, relocation, or
other disposition of any Equipment shall require prior approval as provided in
Section 8.2 hereof.
(d) The Management Company's obligations with respect to the Equipment are
subject and subordinate to the provisions and obligations contained in any
financing, security
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interest, mortgage, lien or other encumbrance the Management Company may, in its
reasonable discretion, place upon the Equipment through an unaffiliated third
party. The Medical Group shall use the Equipment only in connection with its
provision of the Medical Group Services, and the Medical Group shall not alter,
repair, augment, or remove the Equipment from the premises of the Medical Group
without the prior written consent of the Management Company and any lessor
thereof, which approval may be granted or withheld in the Management Company's
or such lessor's sole discretion. To the extent the Equipment is utilized by the
Medical Group in the provision of Medical Group Services, the Medical Group
shall have the right to exercise reasonable control over the use of such
Equipment.
(e) From time to time, and as reasonably requested by the Medical Group,
the Management Company shall use reasonable efforts to cause the Equipment
manufacturer or its authorized agent to provide service and maintenance for the
Equipment as needed to maintain the Equipment in an operable condition, so that
all such Equipment shall function continuously (subject to interruptions not
reasonably avoidable) in accordance with the manufacturer's specifications and
so that all conditions imposed by the manufacturer to maintaining the continued
effectiveness of any warranty on such Equipment shall be satisfied. The
Management Company shall take all reasonable steps to provide that all necessary
service and maintenance is obtained in a prompt and timely manner, so as to
minimize the amount of time that any of the Equipment is not available for usage
by or for patients of the Medical Group.
(f) THE MEDICAL GROUP ACKNOWLEDGES THAT THE MANAGEMENT COMPANY MAKES NO
WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER
RELATING TO THE EQUIPMENT PROVIDED TO THE MEDICAL GROUP PURSUANT TO THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DESIGN CONDITION OF THE EQUIPMENT,
THE CONFORMANCE THEREOF TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER RELATING THERETO, OR THE FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR
PURPOSE. NOTWITHSTANDING THE FOREGOING DISCLAIMER, THE MANAGEMENT COMPANY DOES
WARRANT TO THE MEDICAL GROUP THAT THE X-RAY
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EQUIPMENT AND THE COMPUTER HARDWARE AND COMPUTER SOFTWARE THAT THE MANAGEMENT
COMPANY SELECTS FOR USE BY THE MEDICAL GROUP SHALL BE SUITABLE FOR USE BY THE
MEDICAL GROUP FOR SUCH INTENDED USES. Nothing in this Agreement shall be
construed to affect or limit in any way the professional discretion of the
Medical Group to select and use any Equipment acquired by the Management Company
in accordance with the terms of this Agreement insofar as such selection or use
constitutes or might constitute the practice of medicine.
3.4 New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Physical therapy;
(ii) Magnetic resonance imaging and/or other imaging services (except
diagnostic radiology);
(iii) Outpatient surgery;
(iv) Densitometry; and
(v) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Plain film radiography;
(B) Any other services provided on a regular basis by the
Medical Group immediately prior to the Commencement Date of
this Agreement, including without limitation (1) other
diagnostic radiology (if any) and (2) ultrasound for
pediatric patients; and
(C) Any service performed in connection with new Medical
Equipment acquired to replace existing Medical Equipment so
long as the new Medical Equipment performs substantially the
same functions as the replaced Medical Equipment.
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New Ancillary Services do not include the sale or provision of (or services
rendered in connection with) prosthetics, prosthetic devices, orthotics, braces,
splints, appliances, crutches, casts, or any other supplies or similar items
which are billable to patients or payors.
(b) New Ancillary Services may be established only upon agreement of the
Medical Group and the Management Company. Such agreement shall be memorialized
in a written agreement executed by the parties (or in a written amendment to
this Agreement) under which the Management Company agrees to provide all of the
Management Services described in this Section 3 in connection with such New
Ancillary Service, and for which the Management Company shall be compensated as
described in Section 5.8 of this Agreement, except as otherwise agreed by the
parties.
3.5 Administration, Finance and Accounting. The Management Company shall
provide or arrange for the provision of all administrative, financial, and
accounting functions necessary for the operation of the Medical Group, including
without limitation --
(a) Creation and maintenance of bank accounts.
(b) Deposits of receipts.
(c) Preparing accounts receivable summary reports, including various
analyses of delinquent accounts.
(d) Receiving appropriate approvals as required by the Medical
Group's General Partnership Agreement prior to distribution of
payments to outside parties; provided, however, that the
Management Company shall not be responsible for or liable with
respect to interpretations of the General Partnership Agreement.
(e) Disbursement of payables, including payables of the Medical
Group; provided, however, that payables of the Medical Group
shall be paid from an account of the Medical Group and not from
the Management Company's Operating Account, and all checks drawn
on any Medical Group account shall be signed by a partner in the
Medical Group or other authorized representative of the Medical
Group.
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(f) Negotiation of vendor contracts.
(g) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and
preparation of financial statements.
(h) Analyzing financial data as reasonably requested by physicians.
(i) Analyzing potential new office locations, and coordinating all
functions associated with opening new office locations.
(j) Preparing monthly financial and medical practice statistics
reports
(i) By satellite office
(ii) By physician
(k) Providing from the Medical Group's bank account(s) monthly draws
to physicians and professional corporations pursuant to service
agreements, monthly profit and loss distributions, and quarterly
bonus calculations; provided, however, that the Management
Company shall not be responsible for or liable with respect to
interpretations of the General Partnership Agreement; provided,
further, that all checks drawn on any Medical Group account shall
be signed by a partner in the Medical Group or other authorized
representative of the Medical Group.
(l) Calculating physicians' and professional corporations' annual
earnings based on the Medical Group's profit and loss
distribution formulas.
(m) Ongoing day-to-day communication with the managing partner and
assisting the managing partner in fulfilling his
responsibilities.
(n) Preparing agendas and information packages for Medical Group
meetings.
(o) Developing budgets and long-term strategies for the Medical
Group.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
(r) Providing administrative services (excluding the services of a
plan administrator) of the Medical Group's 401(k) and flexible
spending plans; provided, however, that the Management Company
shall not be responsible for investment decisions.
(s) Coordinating recruitment, interviewing, and hiring of new
physicians.
(t) Implementing Medical Group fee schedule increases and/or
decreases.
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(u) Coordinating depositions and court appearances.
(v) Assisting in the coordination of call schedules.
(w) Assisting in the coordination of coverage of athletic team
events.
(x) Assisting in the day-to-day administration of the Medical Group's
fellowship program, including the sports clinic.
(y) Acting as liaison to hospital administration, physical therapy,
surgery center, MRI, and other ancillary services entities.
(z) Cooperating with outside accountants in preparing various
schedules and providing other information.
(aa) Interacting with legal counsel as necessary.
3.6 Billing and Collection.
(a) The Medical Group hereby irrevocably designates and appoints the
Management Company to be the agent of the Medical Group during the Term, to
perform the following duties and for those purposes incidental thereto: (i) to
xxxx patients and third party payors in the Medical Group's name and on its
behalf; (ii) to collect accounts receivable resulting from such billing; (iii)
to receive payments and prepayments from the Medical Group's patients, Blue
Cross and Blue Shield organizations, insurance companies, health care plans,
Medicare, Medicaid, HMO's and any and all other third party payors; (iv) to take
possession of and deposit into such bank (the "Medical Group Bank") as the
Medical Group designates, in an account established by the Medical Group in the
name of the Medical Group (the "Medical Group Collections Account"), any and all
checks, insurance payments, cash, cash equivalents and other instruments
received for Medical Group Services; and (v) to initiate with the consent of the
Medical Group, which consent may be withheld by the Medical Group in its sole
and absolute discretion, legal proceedings in the name of the Medical Group to
collect any accounts and monies owed to the Medical Group, to enforce the rights
of the Medical Group as a creditor under any contract or in connection with the
rendering of any service, and to contest adjustments and denials by governmental
agencies (or its fiscal intermediaries) as third-party payors. The Management
Company, in its capacity as agent pursuant to this paragraph, shall not have any
duties or responsibilities except those expressly set forth in clauses (i)
through (v) above. Following termination of this Agreement, the Management
Company shall continue to use
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reasonable efforts to collect the accounts receivable of the Medical Group as of
such termination date for a period of ninety (90) days thereafter.
(b) From time to time at the Management Company's request, the Medical
Group shall make available to the Management Company one or more authorized
partners (the "Authorized Partners") of the Medical Group to sign any letters,
checks, instruments or other documents (the "Documents") on behalf of the
Medical Group that are necessary for the Management Group to perform its duties
as agent under this Section 3.6 and its other duties under this Agreement. If
the Management Company notifies the Medical Group that an Authorized Partner is
not signing the Documents in a timely manner, the Management Company shall not
be liable for any failure to perform its duties as agent hereunder or for any
failure to perform the Management Services to the extent caused by the failure
of an Authorized Partner to sign the Documents in a timely manner.
(c) The Management Company represents and warrants to the Medical Group
that it has sufficient knowledge and expertise in the area of billing for
orthopedic and other medical services and ancillary services to be able to
adequately perform the billing services required by the Medical Group hereunder.
The Management Company shall submit all bills and manage the billing process on
a timely basis in accordance with the terms of this Agreement and applicable
law.
(d) Without limiting the generality of the foregoing, the Management
Company shall xxxx patients, xxxx and submit claims to third party payors,
perform appropriate coding for each xxxx, and collect all fees for professional
and other services rendered and for items supplied to patients by the Medical
Group, all in a timely manner and in accordance with parameters and criteria
established by the Operations Committee (as hereinafter defined). Additionally,
the Management Company shall provide the following services which are currently
being provided by or on behalf of the Medical Group:
(i) Receive and collect from patients at the time of visit all
appropriate payments and pre-payments, including co-pays,
-13-
deductibles, payments for non-covered medical services, and
deposits for surgeries (if applicable), and additionally shall
obtain all appropriate insurance and other information required.
(ii) Submit claims utilizing electronic billing submission, whenever
appropriate.
(iii) Perform delinquent account collection calls and other
appropriate follow-up mechanisms for delinquent accounts of all
insurance classifications, all in a timely fashion as determined
by the Operations Committee.
(iv) Turn over to outside collection agencies all delinquent accounts
satisfying the criteria established by the Operations Committee.
The Management Company shall also follow-up on the performance of
the outside collection agencies and make changes if necessary,
and additionally shall reconcile each account turned over to the
summary data provided by the collection agency.
(v) Write-off account balances according to criteria approved by the
Operations Committee.
(vi) Prepare claim reviews in accordance with criteria approved by the
Operations Committee.
(vii) Xxxx workers' compensation medical services at rates equal to
the most recently approved California workers' compensation fee
schedule.
(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
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(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), the Management Company shall determine that
payments from the PPOs and HMOs are in compliance with the
contract with the Medical Group.
(x) With respect to capitation fee contracts with HMOs, the
Management Company shall --
(A) Follow-up to ensure that payments to the Medical Group are
made on a timely basis;
(B) Review and audit enrollment data provided by the HMO to
ensure that Medical Group is being compensated for the
proper number of lives enrolled.
(xi) With respect to lien accounts, the Management Company shall --
(A) Ensure that appropriate documents are signed and agreed to
initially as between Medical Group, attorney and patient;
(B) Follow-up on a regular basis as to the status of the
account; and
(C) Apply the policies of the Operations Committee in resolving
open account balances.
(xii) With respect to student athlete accounts, the Management Company
shall coordinate insurances and other information in compliance
with the policy of the Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance with
contracts between the payor and the Medical Group, the Management
Company shall follow-up on a timely basis to ensure that withheld
amounts are returned to the Medical Group, if
-15-
warranted, and to ensure that amounts not returned are verified
and audited for appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and third
party payors when appropriate.
(xv) Ensure that revenue related to depositions, record review, court
appearances, athletic teams services, and royalties payable to
Xxxxxxx X. Xxxxxx, M.D., are accounted for, monitored, followed-
up, and ultimately collected.
3.7 Personnel.
(a) The Management Company shall retain and provide or arrange for the
retention and provision of all of the following non-medical personnel necessary
for the conduct of the Medical Group's business operations (collectively,
"Administrative Personnel"):
(i) Administration
(ii) Accounting
(iii) Billing and Collection
(iv) Secretarial
(v) Transcription
(vi) Appointments
(vii) Switchboard
(viii) Medical Records
(ix) Chart Preparation
(x) Historians
(xi) Clinic Support
(xii) Marketing
(b) The Management Company shall determine and pay the salaries and fringe
benefits of the Administrative Personnel, and shall provide other personnel
services related to
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the Administrative Personnel, including but not limited to scheduling, personnel
policies, administering continuing education benefits, and payroll
administration.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as reasonably necessary, verify
educational and employment experience, licensure, and insurability.
(d) All of the personnel services shall be performed in compliance with all
applicable California and Federal labor laws.
3.8 Inventory and Supplies. The Management Company shall order and purchase
inventory and supplies on behalf of the Medical Group, and such other ordinary
or appropriate materials as the Medical Group reasonably deems to be necessary
for it to carry out its professional medical activities. Inventory and supplies
shall include, but not be limited to:
(a) Medical supplies
(b) Office supplies
(c) Postage
(d) Computer forms and supplies
(e) Printing and stationary supplies
(f) Printer supplies
(g) Linen and laundry supplies
3.9 Taxes. The Management Company shall provide the Medical Group with
access to all information necessary for the Medical Group to prepare its tax
returns. The Management Company shall have no responsibility for --
(a) The payment of the Medical Group's taxes; or
(b) The preparation of any partnership income tax returns or related
Schedule K-1 forms for the Medical Group.
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3.10 Information Systems Management.
(a) The Management Company shall provide or arrange for the provision of
all management information systems services to be utilized by the Medical Group.
These services shall include, but not be limited to --
(i) Ongoing maintenance and improvement of the Medical Group's existing
information systems:
(A) Accounts receivable - Billing/Insurance/Collections
(B) On-line appointment scheduling
(C) Internal e-mail
(D) On-line transcription
(E) Faxing subsystem
(F) Electronic claims submission
(G) Patient flow monitoring system
(H) Authorization module
(I) Prescription module
(J) X-ray tracking system
(K) Voice mail
(ii) Development of the following new information systems --
(A) Paperless medical records
(B) Bar code chart tracking system
(b) The services provided by the Management Company shall protect the
confidentiality of patient medical records to the extent required by applicable
law or the Medical Group's payor agreements; provided, however, that in no event
shall a breach of such confidentiality be deemed a default under this Agreement
if the Management Company acted reasonably and in good faith to protect such
confidentiality.
3.11 Use of New Technologies in the Practice of Medicine. The Management
Company shall promote the integration of new technologies into the professional
practice of the Medical Group, including without limitation the use of satellite
and other telecommunications
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services that permit the provision of remote consultations, virtual operations,
and other professional services; provided, however, that the foregoing shall be
subject to the terms of Section 8.2(e) hereof.
3.12 Public Relations; Marketing and Advertising. The Management Company
shall develop and implement community outreach programs and public relations
programs designed to educate the patient population regarding the Medical Group,
the availability of its medical services, and the availability in terms of any
managed care programs in which the Medical Group participates. The Management
Company also shall develop and implement marketing and advertising programs as
reasonably required to promote and expand the Medical Business, subject to any
approved budgets. The programs shall be conducted in compliance with applicable
laws and regulations governing advertising by the medical profession.
3.13 Medical Personnel Recruiting.
(a) The Management Company shall, upon request by the Medical Group, assist
the Medical Group in recruiting Medical Personnel. "Medical Personnel" means:
(i) Physicians (including fellows and residents, if any) providing
professional medical services who are employees, independent
contractors, partners, or physician-employees of corporate
partners in the Medical Group;
(ii) Physician assistants, nurse practitioners, and other health care
professionals who provide services that are billable to patients
or third party payors (separate and apart from the billable
services provided by physicians); and
(iii) Technicians who perform diagnostic tests or procedures.
(b) With respect to each of the Medical Personnel, the Management Company
shall verify educational and employment experience, licensure and insurability,
and shall review
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and provide the Medical Group with copies of any complaints contained in public
files with applicable state and federal sanctioned commissions.
3.14 Insurance. The Management Company shall provide the insurance coverage
described in Sections 12.1 and 12.2 of this Agreement.
3.15 Files and Records.
(a) To the extent permitted by applicable law, the Management Company shall
supervise and maintain custody of all files and records relating to the
operation of the business of the Medical Group, including, without limitation,
accounting, billing, collection, or patient medical records. The management of
all files and records shall be in compliance with applicable state and federal
statutes. Business records of the Medical Group created and/or maintained by the
Management Company shall be the joint property of the Management Company and the
Medical Group and shall at all times be located at a location that is readily
accessible to the parties. Patient medical records shall at all times be and
remain the property of the Medical Group and shall be located at a location that
is readily accessible for patient care. The Management Company shall preserve
the confidentiality of patient medical records and use information contained in
such records only for the limited purposes necessary to perform the management
services set forth herein; provided, however, that in no event shall a breach of
such confidentiality be deemed a default under this Agreement if the Management
Company acted reasonably and in good faith to protect such confidentiality.
(b) The Management Company shall provide all off site storage of files and
records as required and in conjunction with policies established by the
Operations Committee. The Management Company shall provide the Medical Group
with all requested off-site files and records on a timely basis, consistent with
the policies of the Medical Group in effect immediately prior to the
Commencement Date. Any change in such policies shall be subject to the approval
of the Operations Committee.
3.16 Managed Care Contracts. The Management Company shall solicit,
negotiate and administer all managed care contracts on behalf of the Medical
Group based on parameters and
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criteria established by the Operations Committee. Such services shall be
performed by the Management Company as agent of the Medical Group, and all
managed care contracts shall be subject to the Medical Group's prior approval of
any such contract. The Management Company shall prepare cost forecasts and other
analyses as reasonably requested by the Medical Group in order to allow the
Medical Group to make an informed decision with respect to each proposed
contract.
3.17 Budgets. The Management Company shall prepare, for the review and
approval of the Operations Committee, annual operating budgets (the "Budgets")
reflecting in reasonable detail projected Xxxxxxxx, Collections, Medical Group
Costs, and Management Company Operating Costs; provided, however, that the
Medical Group shall provide the Management Company with a proposed Budget
covering the initial three-month period under this Agreement. The initial
Budget, which shall be applicable to the period commencing on the Commencement
Date and ending three (3) months thereafter, is attached hereto as Schedule II.
All other budgets shall be on a calendar year basis. The Management Company
shall prepare and submit to the Operations Committee all subsequent Budgets on
or before December 15 of the year immediately preceding the calendar year to
which such Budgets are applicable.
3.18 Force Majeure. The Management Company shall not be liable to the
Medical Group for failure to perform any of the services required herein in the
event of strikes, lockouts, calamities, acts of God, unavailability of supplies,
changes in applicable law or regulations or other events over which the
Management Company has no control for so long as such events continue and for a
reasonable time thereafter.
SECTION 4. Equity Participation. In consideration of the Medical Group's
entering into this Agreement, the Management Company shall provide to the
persons identified in Schedule III attached hereto (the "Eligible Parties") the
consideration set forth on Schedule III.
SECTION 5. Costs, Compensation, and Other Payments.
5.1 Bank Accounts. The Medical Group shall instruct the Medical Group Bank
to transfer, on a weekly basis, all funds in the Medical Group Collections
Account (less the amount
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necessary to avoid the payment of bank charges or fees relating to the failure
to maintain a minimum balance in the Medical Group Collections Account) to a
bank (the "Management Company Bank") designated by the Management Company, for
credit to an account in the Management Company's name (the "Operating Account").
All interest earned on the funds on deposit in the Operating Account shall be
for the account of the Management Company.
5.2 Payments. The Management Company shall pay all of the Medical Group
Compensation and all of the Management Company Costs, as hereinafter defined,
and the Management Company shall be entitled to retain for itself the Management
Fee, as hereinafter defined. The Management Company may disburse funds from the
Operating Account only for the purposes specified in this Section 5, including
without limitation for the payment of Medical Group Compensation, Authorized
Management Company Operating Costs, and the Management Fee. If at any time there
are insufficient funds in the Operating Account to satisfy any of the payment
obligations of the Management Company under this Agreement, the Management
Company shall satisfy such obligations from other funds of the Management
Company, and the Management Company may thereafter reimburse itself such amounts
from the Operating Account.
5.3 Medical Group Compensation.
(a) Monthly Draw.
(i) On each Draw Date during the Term hereof, the Management Company shall
distribute to the Medical Group an amount equal to a percentage (the "Draw
Percentage") of the Medical Group's total Xxxxxxxx for Medical Group Services
provided during the previous month (the "Monthly Draw"). The Draw Date and the
initial Draw Percentage are as set forth in Schedule IV, and the Draw Percentage
shall be adjusted as provided in Section 5.3(a)(ii).
(ii) Commencing May 15, 1998, and effective May 15 of each year thereafter,
the Draw Percentage shall be adjusted to equal a fraction, the numerator of
which is the Annual Medical Group Compensation Amount for the previous year, and
the denominator of which is the total amount of Xxxxxxxx for the previous year.
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(b) Annual Settlement.
(i) On or before April 30, 1998, and on or before April 30 of each year
thereafter, the Management Company shall calculate the following (the "Annual
Medical Group Compensation Amount"):
(A) The total Collections for all Medical Group Services rendered during
the previous calendar year, less --
(B) the sum of the following:
(1) the Management Fee earned by the Management Company for the
previous calendar year; and
(2) the Authorized Management Company Operating Costs incurred by the
Management Company during the previous calendar year.
(ii) If the Annual Medical Group Compensation Amount thus determined
exceeds the total of the twelve (12) Monthly Draws paid by the Management
Company to the Medical Group during the previous calendar year (the "Annual Draw
Amount"), the Management Company shall pay to the Medical Group on or before May
15, an amount equal to such excess. If the Annual Draw Amount for the previous
calendar year exceeds the Annual Medical Group Compensation Amount for the
previous calendar year, the Management Company shall withhold from the Medical
Group Compensation otherwise payable to the Medical Group, during each of the
following six (6) months, an amount equal to one-sixth (1/6) of such excess.
(iii) For purposes of determining the total Collections for all Medical
Group Services provided during any calendar year, all Collections during
January, February, and March of each year shall be deemed to be for Medical
Group Services rendered during the previous calendar year, and all Collections
during April through December shall be deemed to be for Medical Group Services
rendered during the calendar year in which such Collections were received;
provided, however, that for purposes of determining the total Collections during
the period commencing on the Commencement Date and ending December 31, 1997, all
Collections from and after the Commencement Date through March 31, 1998, shall
be deemed to be for
-23-
Medical Group Services rendered during the period commencing on the Commencement
Date and ending December 31, 1997. Notwithstanding the foregoing, the Management
Fee applicable to any calendar year shall be based on the Collections actually
received during such calendar year.
(iv) Notwithstanding anything to the contrary set forth herein, the first
period for which the annual settlement described in this Section 5.3(b) shall be
applicable is the period commencing on the Commencement Date and ending on
December 31, 1997.
(c) Notwithstanding the provisions of Section 5.1, in the event that the
Medical Group has not received from the Management Company all or any portion of
the Monthly Draw on or before the third business day following the Draw Date, or
in the event that the Medical Group has not received from the Management Company
all or any portion of any amount payable to the Medical Group pursuant to
Section 5.3(b)(ii) on or before the third business day following the date on
which such payment is required to be made under the terms of Section 5.3(b)(ii),
without limiting any other right or remedy that the Medical Group may have under
this Agreement or under applicable law, the Medical Group shall have the right
to immediately withdraw such amount directly from the Medical Group Collections
Account.
(d) For purposes of this Agreement --
(i) "Xxxxxxxx" means, for any applicable period, the gross charges of
the Medical Group for all Medical Group Services furnished during
such period.
(ii) "Collections" means, for any applicable period, all cash or cash
equivalents received during such period, net of refunds paid
during such period, for Medical Group Services.
(iii) "Medical Group Services" means the following services rendered
by, through, or on behalf of the Medical Group: all professional
-24-
services rendered by or under the supervision of any of the
Medical Personnel (including professional services rendered in
connection with New Ancillary Services); all diagnostic radiology
services rendered by or under the supervision of any of the
Medical Personnel; all other ancillary services (other than New
Ancillary Services); all prosthetics, prosthetic devices,
orthotics, braces, splints, appliances, and other items and
supplies that are billable to patients or to third party payors;
depositions, record review services, court appearances,
independent medical exams, athletic team services; bookkeeping
fees received from SCORE and from FDP Development, Inc.; and
those services of Xxxxxxx X. Xxxxxx, M.D. which are compensated
through the payment of royalties (other than book royalties), a
current list of which is attached hereto as Schedule IX.
(iv) It is the intent of the parties that Xxxxxxxx, Collections, and
Medical Group Services not include any of the following: New
Ancillary Services (excluding professional services rendered by
Medical Personnel in connection therewith, which professional
services are included under Section 5.3(d)(iii) above), interest
income, income from the HealthSouth Rehabilitation Corporation
with respect to a Services Agreement under which computer, linen,
and telephone support services are provided; royalties payable to
any Medical Group physician (except Xxxxxxx X. Xxxxxx, M.D.) for
medical inventions; fees payable under consulting agreements
entered into by Medical Group physicians (including Xxxxxxx X.
Xxxxxx, M.D.); income from presentations, writings, and
endorsements; proceeds from the sale of any capital assets of the
Medical Group; and any income from investments.
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5.4 Management Fee.
(a) The compensation payable to the Management Company for the provision of
Management Services under this Agreement (the "Management Fee"), which the
Management Company may disburse from the Operating Account from time to time at
its discretion, shall be equal to the aggregate of the following:
(i) An amount equal to the Applicable Percentage of Collections,
provided that the amount thus determined shall be reduced by the
Medical Equipment Master Lease Payments; and
(ii) An amount equal to sixty-six and two-thirds percent (66-2/3%) of
the Professional Practice Cost Savings.
(b) For purposes of this Section 5.4, "Applicable Percentage" has the
meaning set forth in Schedule V.
(c) For purposes of this Agreement, "Office Sublease Payments" means the
aggregate of the monthly lease amounts payable under all of the Office Subleases
described in Section 3.2 hereof.
(d) For purposes of this Agreement, "Medical Equipment Master Lease
Payments" means the monthly lease amounts payable for all Medical Equipment
determined in accordance with the Medical Equipment Master Lease Agreement
referenced in Section 3.3(a) hereof.
(e) For purposes of this Section 5.4, "Professional Practice Cost Savings"
means the cost savings determined in the manner described in Schedule VI.
(f) An example of the computation of Medical Group Compensation and the
Management Fee is attached hereto as Schedule VII.
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5.5 Management Company Costs.
(a) The Management Company shall pay all Management Company Operating Costs
and all Excluded Costs (collectively, the "Management Company Costs").
(Authorized Management Company Operating Costs may be paid from the Operating
Account, but Excluded Costs shall be paid from a separate account of the
Management Company.) All Management Company Costs shall be incurred in the name
of the Management Company, and not in the name of the Medical Group, except as
specifically approved by the Medical Group. Management Company Costs shall not
include any costs or expenses incurred prior to the Commencement Date of this
Agreement.
(b) The Management Company shall provide to the Medical Group, upon
reasonable request by the Medical Group from time to time, supporting
documentation and other backup detail relating to any or all of the Management
Company Costs.
(c) For purposes of this Agreement, "Management Company Operating Costs"
means all costs and expenses incurred in connection with the provision of the
Management Services, except for any costs and expenses defined as Medical Group
Costs in Section 5.7 hereof, and except for Excluded Costs. "Excluded Costs"
means all of the following costs and expenses incurred in connection with the
provision of the Management Services hereunder:
(i) New Medical Office Start-Up Costs;
(ii) The rent and any other payments due under any of the Office
Leases;
(iii) The cost of any Medical Equipment leased by the Management
Company to the Medical Group;
(iv) The cost of any FF&E provided by the Management Company to the
Medical Group;
(v) Depreciation, amortization, and interest; and
(vi) Corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following
conditions are satisfied:
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(A) The Corporate Overhead is incurred in lieu of a pre-existing
Management Company Operating Cost;
(B) The amount of such Corporate Overhead does not exceed the amount
of the Management Company Operating Costs being eliminated; and
(C) The Corporate Overhead is allocated to the Medical Group and to
all other medical groups utilizing such Corporate Overhead on a
pro rata basis.
Any Corporate Overhead with respect to which all of the above
conditions are satisfied shall be considered Management Company
Operating Costs.
(d) For purposes of this Agreement, "Authorized Management Company
Operating Costs" means all Management Company Operating Costs incurred in any
year reduced by any or all of the following, as applicable:
(i) any costs that exceed the applicable Management Company Operating
Costs Budget which are not approved by the Operations Committee;
(ii) any costs with respect to which the Medical Group has reasonably
requested supporting documentation or other backup detail which
has not been furnished by the Management Company or which does
not reasonably establish the appropriateness of such costs; and
(iii) any costs that have been determined pursuant to an audit under
Section 5.9 not to have been reasonably incurred in connection
with the Management Services required to be provided under of
this Agreement.
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5.6 New Medical Office Start-Up Costs.
(a) The Management Company shall pay all New Medical Office Start-Up Costs
incurred in connection with the establishment of any New Medical Office.
(b) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and leased to the Medical Group in accordance
with Section 3.3 hereof.
(c) For purposes of this Agreement, "New Medical Office" means any office
of the Medical Group other than those offices located in the premises identified
in Sections 3.2(a) and 3.2(b) hereof.
(d) For purposes of this Agreement, "New Medical Office Start-Up Costs"
means the following costs incurred in connection with the establishment of a New
Medical Office during the New Medical Office Start-Up Period: all Management
Company Costs and all costs other than physician Medical Personnel costs that,
but for this provision, would have been considered Medical Group Costs.
(e) For purposes of this Agreement, "New Medical Office Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of a New Medical Office and ending on the
earlier of (i) the last day of the calendar month in which a period of eighteen
(18) months has elapsed from and after the date on which the New Medical Office
first opened for the treatment of patients, or (ii) the last day of the first
period of two (2) consecutive calendar months for which the costs borne by the
Management Company in connection with the New Medical Office are less than sixty
percent (60%) of the Collections for Medical Group Services provided at the New
Medical Office during such two-month period. In no event shall the Management
Company have any obligation under this Section 5.6 to pay any New Medical Office
Start-Up Costs incurred later than eighteen (18) months after the New Medical
Office first opened for the treatment of patients.
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5.7 Medical Group Costs. Except as otherwise provided in this Agreement,
the Medical Group shall pay all of the costs specified in this Section 5.7 (the
"Medical Group Costs"). All Medical Group Costs shall be incurred in the name of
the Medical Group, and not in the name of the Management Company, and shall be
paid from an account of the Medical Group and not from the Operating Account of
the Management Company. The Medical Group Costs are as follows:
(a) Compensation of all Medical Personnel;
(b) Any applicable fringe benefits for all Medical Personnel, including,
but not limited to, payroll taxes, workers' compensation, health
insurance (including drug coverage), dental insurance, individual
disability insurance, life insurance, business buy-out disability
insurance, continuing education, and medical dues and licenses;
(c) The cost of prosthetics, prosthetic devices, orthotics, braces,
splints, appliances, allografts, x-ray films, and other items and
supplies that are billable to patients or to third party payors (the
"Billable Items");
(d) The Medical Equipment Master Lease Payments;
(e) Any lease payments for New Ancillary Service Medical Equipment;
(f) Rent for the Van Nuys Office and any other offices leased by the
Medical Group;
(g) The Office Sublease Payments; and
(h) The cost of any items which are not required to be provided by the
Management Company under this Agreement and/or which were ordered,
purchased, or incurred by the Medical Group directly, including but
not limited to the cost of accounting, legal, consulting, or other
professional or advisory services, business meetings, and business
taxes.
5.8 New Ancillary Services Costs.
(a) Any agreement by the parties to establish a New Ancillary Service as
described in Section 3.4 of this Agreement shall (unless otherwise agreed by the
parties) incorporate the following:
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(i) The Management Company shall create a separate division
("Ancillary Division") for purposes of accounting for the income, costs,
profits, and losses of any New Ancillary Service. The Management Company
shall utilize generally accepted accounting principles in determining and
accounting for the profits and losses related to the operations of each New
Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division shall be divided
equally between the Medical Group and the Management Company, and all
distributions to the Medical Group and to the Management Company shall be
made in equal amounts to each from available cash (after payment of all
currently due obligations incurred in connection with such New Ancillary
Division, including without limitation any principal and interest amounts
then due and payable under Section 5.8(a)(iv) below, and after retention of
reasonable reserves) derived from the operation of such Ancillary Division.
(iii) All diagnostic and therapeutic equipment utilized in connection
with any New Ancillary Service ("New Ancillary Service Medical Equipment")
shall be acquired by the Management Company and leased to the Medical Group
pursuant to an equipment lease substantially in the form of the Medical
Equipment Master Lease Agreement attached hereto as Exhibit F.
(iv) The Management Company shall pay all of the Ancillary Service
Start-Up Costs. Beginning with the month following the expiration of the
Ancillary Service Start-Up Period, the Management Company shall be entitled
to recoup all of the Ancillary Service Start-Up Costs previously paid by
the Management Company in sixty (60) equal monthly installments of
principal, plus interest on the unrecouped portion of such costs at the
prevailing prime rate as set forth in the Wall Street Journal and/or at the
actual rate paid by the Management Company with respect to any part of such
costs that have been financed by the Management Company.
(v) The Management Company shall provide, in connection with any New
Ancillary Service, the full range of management services described in this
agreement.
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(vi) The xxxxxxxx, collections, costs and expenses relating to any New
Ancillary Service shall not be included in the computations of Medical
Group Compensation, the Management Fee, Management Company Costs, New
Medical Office Start-Up Costs, or Medical Group Costs as described in
Sections 5.3, 5.4, 5.5, 5.6, or 5.7, respectively.
(b) For purposes of this Section 5.8, "Ancillary Service Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of the New Ancillary Service and ending on the
last day of the first period of two (2) consecutive calendar months for which
the New Ancillary Service shows a profit.
(c) For purposes of this Section 5.8, "Ancillary Service Start-Up Costs"
means the total of all of the following costs incurred in connection with the
establishment of a New Ancillary Service during the Ancillary Service Start-Up
Period (whether such costs would otherwise be considered Management Company
Costs or Medical Group Costs) --
(i) Any lease payments for New Ancillary Service Medical Equipment;
(ii) All costs of acquiring furniture, fixtures, and office equipment;
(iii) All initial occupancy costs, if any, including but not limited
to rent deposits, prepaid rent, and tenant improvements;
(iv) All other start-up costs, including but not limited to legal,
accounting and consulting fees, and the cost of initial
inventories of supplies and other items; and
(v) All ongoing costs of the New Ancillary Service, including but not
limited to personnel (other than physician Medical Personnel) and
related benefits, the cost of operating any equipment utilized in
providing the service, supplies, insurance, rent, repairs and
-32-
maintenance, outside services, telephone, taxes, utilities,
storage and other ordinary ongoing expenses of providing the New
Ancillary Service.
5.9 Review and Audit of Books and Records. Each of the parties shall have
the right, during ordinary business hours and upon reasonable notice, to review
and make copies of, or to audit through a qualified certified public accountant
approved by the other party (which approval shall not be unreasonably withheld),
the books and records of the other party relating to the billing, collection,
and disbursement of fees, and the determination of costs, under this Agreement.
Any such review or audit shall be performed at the cost of the requesting party;
provided, however, that in the event that such review or audit requested by the
Medical Group discloses a discrepancy indicating that the Medical Group has
actually been underpaid by an amount in excess of two percent (2%) of the total
amount of Medical Group Compensation payable to the Medical Group for the period
covered by the audit, the cost of the audit shall be borne by the Management
Company. All documents and other information obtained in the course of such
review or audit shall be held in strict confidence.
5.10 Start-Up Period. Consistent with the provisions of Section 2 of this
Agreement, the parties acknowledge and agree that, in order to facilitate the
transition of responsibilities hereunder, certain requirements and procedures
agreed to under this Agreement may be implemented over the course of a period of
time commencing on the Commencement Date and ending December 31, 1996 (subject
to extension by agreement of the Medical Group and the Management Company),
rather than being fully implemented immediately on the Commencement Date.
Accordingly, the parties further agree that the Management Fee and Medical Group
Compensation payable in respect of the Management Services and the Medical Group
Services applicable to such period of time shall be computed, and any
appropriate adjustments shall be made, such that no material financial advantage
or disadvantage shall accrue to either party as a result of implementing such
requirements and procedures over the course of such start-up period rather than
immediately on the Commencement Date.
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SECTION 6. Representations and Warranties of the Medical Group. The Medical
Group hereby represents and warrants to the Management Company, as of the
Signature Date hereof, as follows:
6.1 Organization; Good Standing; Qualification and Power. The Medical Group
is a general partnership duly organized, validly existing, and in good standing
under the laws of the State of California and has all requisite power and
authority to own, lease, and operate its properties, to carry on its business as
now being conducted and as proposed to be conducted, to enter into this
Agreement, the Asset Purchase Agreement, the Medical Equipment Master Lease,
each Assignment of Lease, each Office Sublease, and each Stockholder
Non-Competition Agreement (collectively, the "Medical Group Transaction
Documents"), to perform its obligations thereunder, and to consummate the
transactions contemplated hereby and thereby. The Medical Group has delivered to
the Management Company a true and correct copy of its General Partnership
Agreement, in effect on the date hereof.
6.2 Equity Investments. The Medical Group currently has no subsidiaries,
nor does the Medical Group currently own any capital stock or other proprietary
interest, directly or indirectly, in any corporation, association, trust,
partnership, joint venture, or other entity.
6.3 Authority. The execution, delivery and performance of the Medical Group
Transaction Documents and the consummation of the transactions contemplated
thereby have been duly and validly authorized by all necessary action on the
part of the Medical Group. The Medical Group Transaction Documents have been
duly and validly executed and delivered by the Medical Group and constitute the
legal, valid and binding obligations of the Medical Group enforceable in
accordance with their respective terms, except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally or by applicable laws pertaining to
the enforceability of non-competition agreements. Neither the execution,
delivery or performance of the Medical Group Transaction Documents by the
Medical Group nor the consummation by the Medical Group of the transactions
contemplated hereby or thereby, nor compliance by the Medical Group with any
provision hereof or thereof will (a) conflict with or result in a breach of any
provision of the
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formation documents of the Medical Group, (b) cause a default (with due notice,
lapse of time or both), or give rise to any right of termination, cancellation
or acceleration, under any of the terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license or other instrument, obligation or
agreement to which the Medical Group or the Medical Business is a party or by
which they or any of its respective properties or assets may be bound (with
respect to which defaults or other rights all requisite waivers or consents
shall have been obtained at or prior to the date hereof) or (c) to the best
knowledge of the Medical Group, but without expressing any opinion regarding the
enforceability of non-competition agreements, violate any law, statute, rule or
regulation or order, writ, judgment, injunction or decree of any court,
administrative agency or governmental body applicable to the Medical Group, the
Medical Business or any of their respective properties or assets. To the best
knowledge of the Medical Group, no permit, authorization, consent or approval of
or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery or performance
by the Medical Group of the Medical Group Transaction Documents or the
consummation of the transactions contemplated thereby.
6.4 Financial Information. Schedule 6.4 contains (a) the Medical Group's
internal statements of assets, liabilities and partners' equity of the Medical
Business at September 30, 1996 (the "Balance Sheet"; and the date thereof being
referred to as the "Balance Sheet Date"), and the related internal statements of
revenue and expenses for the period then ended (including the notes thereto and
other financial information included therein) (collectively, the "Internal
Financial Statements"), and (b) the review financial statements of the Medical
Business for the periods ended December 31, 1995 and December 31, 1994 (the
"Review Financial Statements"). The Internal Financial Statements and the Review
Financial Statements (i) were prepared in accordance with the books and records
of the Medical Business, (ii) fairly present the financial position of the
Medical Business as of the dates thereof, and (iii) are true, correct and
complete in all material respects as of the dates thereof.
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, as of the Balance Sheet Date, (a) the Medical Business did not have any
material liability of any nature (matured or unmatured, fixed or contingent,
known or unknown) which was not provided
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for or disclosed on the Balance Sheet, (b) all liability reserves established by
the Medical Business on the Balance Sheet were adequate and (c) there were no
loss contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which were not adequately provided for or disclosed on the Balance Sheet.
6.6 Absence of Changes. Except as set forth on Schedule 6.6, since the
Balance Sheet Date, the Medical Business has been operated in the ordinary
course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation, levels of working
capital and the components thereof), liabilities, operations, results of
operations, earnings, business or prospects of the Medical Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Medical Business;
(c) any obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Medical Business
other than such items created or incurred in the ordinary course of the
Medical Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Medical Business outside the
ordinary course of the Medical Business (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other disposition
of any tangible or intangible asset of the Medical Business except in the
ordinary course of the Medical Business and consistent with past practice;
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(f) any write-off as uncollectible of any accounts receivable in
connection with the Medical Business or any portion thereof in excess of
$5,000 in the aggregate exclusive of all normal contractual adjustments
from third party payors;
(g) except for all normal contractual adjustments from third party
payors, any account receivable in connection with the Medical Business in
an amount greater than $10,000 which (i) has become delinquent in its
payment by more than 90 days, (ii) has had asserted against it any claim,
refusal to pay or right of set-off, (iii) an account debtor has refused to
pay for any reason or with respect to which such account debtor has become
insolvent or bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Medical
Business;
(i) any general uniform increase in the compensation of employees of
the Medical Group or the Medical Business (including, without limitation,
any increase pursuant to any bonus, pension, profit-sharing, deferred
compensation arrangement or other plan or commitment) or any increase in
compensation payable to any officer, employee, consultant or agent thereof,
or the entering into of any employment contract with any officer or
employee, or the making of any loan to, or the engagement in any
transaction with, any officer of the Medical Group or the Medical Business;
(j) any change in the accounting methods or practices followed in
connection with the Medical Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(k) the termination of any partner and/or key employee of the Medical
Group or the Medical Business listed on Annex A ("Medical Group Key
Personnel"), or any expression of intention by any of the Medical Group Key
Personnel to terminate such partnership status or employment with the
Medical Group or the Medical Business;
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(l) any agreement or commitment relating to the sale of any material
fixed assets of the Medical Business;
(m) any other transaction relating to the Medical Business other than
in the ordinary course of the Medical Business and consistent with past
practice; or
(n) any agreement or understanding, whether in writing or otherwise,
for the Medical Business to take any of the actions specified in items (a)
through (m) above.
6.7 Tax Matters.
(a) Except as set forth on Schedule 6.7, (i) all Taxes relating to the
Medical Business required to be paid by the Medical Group through the date
hereof have been paid and all returns, declarations of estimated Tax, Tax
reports, information returns and statements required to be filed by the Medical
Group in connection with the Medical Business prior to the date hereof (other
than those for which extensions shall have been granted prior to the date
hereof) relating to any Taxes with respect to any income, properties or
operations of the Medical Group prior to the date hereof (collectively,
"Returns") have been duly filed; (ii) as of the time of filing, the Returns
correctly reflected in all material respects (and, as to any Returns not filed
as of the date hereof, will correctly reflect in all material respects) the
facts regarding the income, business, assets, operations, activities and status
of the Medical Business and any other information required to be shown therein;
(iii) all Taxes relating to the operations of the Medical Business that have
been shown as due and payable by the Medical Group on the Returns have been
timely paid and filed or adequate provisions made to the books and records of
the Medical Business; (iv) in connection with the Medical Business (x) the
Medical Group has made provision on the Balance Sheet for all Taxes payable by
the Medical Group for any periods that end on or before the Balance Sheet Date
for which no Returns have yet been filed and for any periods that begin on or
before the Balance Sheet Date and end after the Balance Sheet Date to the extent
such Taxes are attributable to the portion of any such period ending on the
Balance Sheet Date and (y) provision has been made for all Taxes payable by the
Medical Group for any periods that end on or before the date hereof for which no
Returns have then been filed and for any periods that begin on or before the
date hereof and end after such date to the extent such
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Taxes are attributable to the portion of any such period ending on such date;
(v) no tax liens have been filed with respect to any of the assets of the
Medical Business, and there are no pending tax audits of any Returns relating to
the Medical Business; and (vi) no deficiency or addition to Taxes, interest or
penalties applicable to the Medical Group for any Taxes relating to the
operation of the Medical Business has been proposed, asserted or assessed in
writing (or any member of any affiliated or combined group of which the Medical
Group or any previous operator of the Medical Business was a member for which
the Medical Group could be liable).
(b) The Medical Group is not a foreign person within the meaning of
Sections 1.1445-2(b) of the Regulations under Section 1445 of the Code.
(c) The Medical Group has provided the Management Company with true and
complete copies of all Federal, state and foreign Returns of the Medical Group
for the calendar years ending December 31, 1994 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or entity, (i) all federal, state,
local and foreign income taxes (including any tax on or based upon net income,
or gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all Federal, state, local and
foreign gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties or other Federal, state, local and foreign taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign) on such person or entity and (ii) any liability for the payment of
any amount of the type described in the immediately preceding clause (i) as a
result of being a `transferee' (within the meaning of Section 6901 of the Code
or any other applicable law) of another person or entity or a member of an
affiliated or combined group.
6.8 Litigation, Etc. Except as set forth on Schedule 6.8, there are no (a)
actions, suits, claims, investigations or legal or administrative or arbitration
proceedings pending or, to
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the best knowledge of the Medical Group, threatened against the Medical Group or
in connection with the Medical Business, whether at law or in equity, or before
or by any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality or (b) judgments, decrees,
injunctions or orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against the Medical Group, its assets or affecting
the Medical Business. The Medical Group has delivered to the Management Company
all documents and correspondence relating to matters referred to in said
Schedule 6.8.
6.9 Compliance; Governmental Authorizations. The Medical Group and the
Medical Business shall have complied in all material respects with all
applicable material Federal, state, local or foreign laws, ordinances,
regulations and orders. The Medical Group has all Federal, state, local and
foreign governmental licenses and permits necessary in the conduct of the
Medical Business, the lack of which would have a material adverse effect on the
Medical Group's ability to operate the Medical Business after the date hereof on
substantially the same basis as presently operated, such licenses and permits
are in full force and effect, the Medical Group has not received any notice
indicating that any violations are or have been recorded in respect of any
thereof, and no proceeding is pending or, to the best knowledge of the Medical
Group, threatened to revoke or limit any thereof. To the best knowledge of the
Medical Group, none of such licenses and permits shall be affected in any
material respect by the transactions contemplated hereby.
6.10 Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 6.10, all of the accounts receivable
owing to the Medical Group in connection with the Medical Business as of the
date hereof constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of the Medical Business, the amounts of
which are actually due and owing, and as of the date hereof, to the best
knowledge of the Medical Group, there are no claims, refusals to pay or other
rights of set-off against any thereof. Except as set forth on Schedule 6.10, as
of the date hereof, there is (i) no account debtor or note debtor of the Medical
Business delinquent in its payment by more than 60 days, (ii) no account debtor
or note debtor of the Medical Business who or which
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has refused to pay its obligations for any reason or is the subject of a
bankruptcy proceeding and (iii) no account receivable or note receivable of the
Medical Business pledged to any third party.
(b) All accounts payable and notes payable by the Medical Business to third
parties arose in the ordinary course of business and, except as set forth in
Schedule 6.10, there is no account payable or note payable past due or
delinquent in its payment.
6.11 Labor Relations; Employees. Schedule 6.11 contains a true and complete
list of the persons employed by the Medical Group as of the date hereof (the
"Employees"). Except as set forth on Schedule 6.11, (a) the Medical Group and
the Medical Business are not delinquent in payments to any of the Employees for
any wages, salaries, commissions, bonuses or other compensation for any services
performed by them to the date hereof or amounts required to be reimbursed to the
Employees; (b) upon termination of the employment of any of the Employees,
neither the Medical Group, the Medical Business nor the Management Company will
by reason of anything done prior to the date hereof, or by reason of the
consummation of the transactions contemplated hereby, be liable for any excise
taxes pursuant to Section 4980B of the Code or to any of the Employees for
severance pay or any other payments; (c) there is no unfair labor practice
complaint against the Medical Group or in connection with the Medical Business
pending before the National Labor Relations Board or any comparable state, local
or foreign agency; (d) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the best knowledge of the Medical Group, threatened
against or involving the Medical Group or Medical Business; (e) there is no
collective bargaining agreement covering any of the Employees; and (f) to the
best knowledge of the Medical Group, no Employee or consultant is in violation
of any (i) employment agreement, arrangement or policy between such person and
any previous employer (private or governmental) or (ii) agreement restricting or
prohibiting the use of any information or materials used or being used by such
person in connection with such person's employment by or association with the
Medical Group or the Medical Business.
6.12 Employee Benefit Plans.
(a) Schedule 6.12 identifies each `employee benefit plan', as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all
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other written or oral plans, programs, policies or agreements involving direct
or indirect compensation (including any employment agreements entered into
between the Medical Group or the Medical Business and any Employee or former
employee of the Medical Group or in connection with the Medical Business, but
excluding workers' compensation, unemployment compensation and other
government-mandated programs) currently or previously maintained or entered into
by the Medical Group or in connection with the Medical Business for the benefit
of any Employee or former employee of the Medical Group or in connection with
the Medical Business under which the Medical Group, any affiliate thereof or the
Medical Business has any present or future obligation or liability (the
"Employee Plans"). The Medical Group has provided the Management Company with
true and complete age, salary, service and related data for Employees of the
Medical Group and in connection with the Medical Business.
(b) Schedule 6.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits currently
maintained by the Medical Group or in connection with the Medical Business.
6.13 Insurance. Schedule 6.13 contains a list of all policies of
professional liability (medical malpractice), general liability, theft,
fidelity, fire, product liability, errors and omissions, health and other
property and casualty forms of insurance held by the Medical Group covering the
assets, properties or operations of the Medical Group and the Medical Business
(specifying the insurer, amount of coverage, type of insurance, policy number
and any pending claims thereunder). All such policies of insurance are valid and
enforceable policies and are outstanding and duly in force and all premiums with
respect thereto are currently paid. Neither the Medical Group nor its
predecessor in interest has, during the last five fiscal years, been denied or
had revoked or rescinded any policy of insurance relating to the assets,
properties or operations of the Medical Group or the Medical Business.
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6.14 Real Property. Schedule 6.14 sets forth an accurate and complete legal
description of the entire right, title and interest of the Medical Group in and
to all real property, together with all buildings, facilities, fixtures and
improvements located on such real property, owned or leased by the Medical Group
(the "Real Property"), together with an accurate description of the title
insurance policy or other evidence of title issued with respect thereto, the
most current survey of such real property and a description of the use thereof.
Other than the Real Property, the Medical Group has no other interest (leasehold
or otherwise) in real property used, held for use or intended to be used in the
Medical Business. The Medical Group has a valid leasehold interest in all Real
Property leased by the Medical Group.
6.15 Burdensome Restrictions. Except as set forth on Schedule 6.15, neither
the Medical Group nor the Medical Business is bound by any oral or written
agreement or contract which by its terms prohibits it from conducting the
Medical Group or the Medical Business (or any material part thereof).
6.16 Disclosure. Neither the Medical Group Transaction Documents (including
the Exhibits and Schedules attached thereto) nor any other document, certificate
or written statement furnished to the Management Company by or on behalf of the
Medical Group in connection with the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein not
misleading. Except as set forth on Schedule 6.16, there have been no events or
transactions, or information which has come to the attention of the Medical
Group, which, as they relate directly to the Medical Group or the Medical
Business, could reasonably be expected to have a material adverse effect on the
business, operations, affairs, prospects or condition of the Medical Group and
the Medical Business.
SECTION 7. Representations and Warranties of the Management Company. The
Management Company represents and warrants to the Medical Group, as of the
Signature Date hereof, as follows:
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7.1 Organization, Good Standing and Power. The Management Company (a) is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and (b) has all requisite corporate power and authority
to own, lease and operate its properties, to carry on its business as now being
conducted and as proposed to be conducted, to execute and deliver this
Agreement, the Asset Purchase Agreement, each Restricted Stock Agreement, the
Medical Equipment Master Lease, each Assignment of Lease, each Office Sublease,
and each Stockholder Non-Competition Agreement (collectively, the "Management
Company Transaction Documents"), to perform its obligations thereunder, and to
consummate the transactions contemplated hereby and thereby. The Management
Company has delivered to the Medical Group a true and correct copy of its
formation documents, consisting of the following: Amended and Restated
Certificate of Incorporation filed November 12, 1996 (the "BMJ Formation
Documents"). The BMJ Formation Documents have not been amended, and the BMJ
Formation Documents are in effect as of the date hereof.
7.2 Equity Investments. Except as identified in Schedule 7.2, the
Management Company currently has no subsidiaries, nor does the Management
Company currently own any capital stock or other proprietary interest, directly
or indirectly, in any corporation, association, trust, partnership, joint
venture, or other entity.
7.3 Capitalization.
(a) The total authorized capital of the Management Company consists of
10,000,000 shares of common stock and 5,000,000 shares of preferred stock. Set
forth in Schedule 7.3(a) is an accurate and complete listing of all of the
stockholders of the Management Company and the number and class of shares held
by each. Except as set forth in Schedule 7.3(a), the Management Company has no
other outstanding stock or securities of any kind or nature, and no shares of
capital stock are held by the Management Company in its treasury. Each of the
outstanding shares of capital stock has been duly and validly authorized and
issued, is fully paid and non-assessable, and was issued in compliance with all
applicable federal and state securities laws. Except as set forth in the
Stockholders Agreement (as hereinafter defined), no person is entitled to any
preemptive or similar right with respect to the issuance of any shares of
capital stock of the Management Company.
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(b) No sale of common stock has been effected or any other action taken the
effect of which sale or other action would require or permit an adjustment of
the Conversion Price of any issued and outstanding convertible preferred stock.
The exercise of the right of any holder of convertible preferred stock to
convert such stock to common stock on or as of the Commencement Date hereunder
would entitle such holder of preferred stock to receive one share of common
stock for each share of preferred stock.
(c) There are no outstanding warrants, options, calls, conversion rights or
commitments or other rights to subscribe for or purchase from the Management
Company any shares of capital stock of the Management Company or securities
convertible into or exchangeable for capital stock, except as set forth in
Schedule 7.3(c).
(d) The Management Company has taken all action necessary or appropriate to
duly authorize the creation, issuance and sale of the common stock to be issued
hereunder. Such shares of common stock, when issued, sold and delivered, as
provided for herein and in the Restricted Stock Agreements, will be validly
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership of the shares. The issuance of such shares of common stock will
not violate any preemptive or similar right of any person.
7.4 Stockholders Agreement. The Management Company has delivered to the
Medical Group a true and correct copy of that certain Amended and Restated
Stockholders Agreement dated as of November 12, 1996 (the "Stockholders
Agreement"), entered into by and among the Management Company and the
stockholders identified therein. The Stockholders Agreement has not been
terminated or amended and remains in full force and effect.
7.5 Authority. The execution, delivery and performance of the Management
Company Transaction Documents, and the consummation of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action on the part of the Management Company. The Management Company
Transaction Documents to which it is a party have been duly and validly executed
and delivered by the Management Company, and such Management Company Transaction
Documents are valid and binding obligations of the
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Management Company, enforceable in accordance with their respective terms except
as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally. Neither the execution, delivery or performance of the Management
Company Transaction Documents, nor the consummation by the Management Company of
the transactions contemplated thereby, nor compliance by the Management Company
with any provision thereof, will (a) conflict with or result in a breach of any
provisions of the BMJ Formation Documents or By-laws of the Management Company,
(b) cause a default (with due notice, lapse of time or both), or give rise to
any right of termination, cancellation or acceleration, under any of the terms,
conditions or provisions of any material note, bond, lease, mortgage, indenture,
license or other instrument, obligation or agreement to which the Management
Company is a party or by which it or any of its properties or assets is or may
be bound or (c) violate any law, statute, rule or regulation or order, writ,
judgment, injunction or decree of any court, administrative agency or
governmental body applicable to the Management Company or any of its properties
or assets. Except as provided in Schedule 7.5, to the best of the Management
Company's knowledge, no permit, authorization, consent or approval of or by, or
any notification of or filing with, any person (governmental or private) is
required in connection with the execution, delivery or performance by the
Management Company of this Agreement or the consummation by the Management
Company of the transactions contemplated hereby.
7.6 Financial Information. Schedule 7.6 contains (a) the unaudited
statements of assets, liabilities and stockholders' equity of the Management
Business at September 30, 1996 (the "Management Company Balance Sheet"; and the
date thereof being referred to as the "Management Company Balance Sheet Date"),
and the related unaudited statements of revenue and expenses for the periods
then ended (including the notes thereto and other financial information included
therein) (collectively, the "Unaudited Financial Statements"). The Unaudited
Financial Statements (i) were prepared in accordance with the books and records
of the Management Business, (ii) fairly present the financial position of the
Management Business as of the dates thereof, and (iii) are true, correct and
complete in all material respects as of the date thereof.
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7.7 Absence of Undisclosed Liabilities. Except as set forth on Schedule
7.7, as of the Management Company Balance Sheet Date, (a) the Management
Business did not have any material liability of any nature (matured or
unmatured, fixed or contingent, known or unknown) which was not provided for or
disclosed on the Management Company Balance Sheet, (b) all liability reserves
established by the Management Business on the Management Company Balance Sheet
were adequate and (c) there were no loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5 issued by the Financial
Accounting Standards Board in March 1975) which were not adequately provided for
or disclosed on the Management Company Balance Sheet.
7.8 Absence of Changes. Except as set forth on Schedule 7.8, since the
Management Company Balance Sheet Date, the Management Business has been operated
in the ordinary course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or otherwise),
assets (including, without limitation, levels of working capital and the
components thereof), liabilities, operations, results of operations, earnings,
business or prospects of the Management Business;
(b) any damage, destruction or loss (whether or not covered by insurance)
in an aggregate amount exceeding $25,000 affecting any asset or property of the
Management Business;
(c) any obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Management Business
other than such items created or incurred in the ordinary course of the
Management Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien, encumbrance,
liability or obligation by the Management Business outside the ordinary course
of the Management Business (whether absolute, accrued, contingent or otherwise
and whether due or to become due);
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(e) any license, sale, transfer, pledge, mortgage or other disposition of
any tangible or intangible asset of the Management Business except in the
ordinary course of the Management Business and consistent with past practice;
(f) any write-off as uncollectible of any accounts receivable in connection
with the Management Business or any portion thereof in excess of $5,000 in the
aggregate exclusive of all normal contractual adjustments from third party
payors;
(g) except for all normal contractual adjustments from third party payors,
any account receivable in connection with the Management Business in an amount
greater than $10,000 which (i) has become delinquent in its payment by more than
90 days, (ii) has had asserted against it any claim, refusal to pay or right of
set-off, (iii) an account debtor has refused to pay for any reason or with
respect to which the Management Business, such account debtor has become
insolvent or bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Management
Business;
(i) any general uniform increase in the compensation of employees of the
Management Company or the Management Business (including, without limitation,
any increase pursuant to any bonus, pension, profit-sharing, deferred
compensation arrangement or other plan or commitment) or any increase in
compensation payable to any officer, employee, consultant or agent thereof, or
the entering into of any employment contract with any officer or employee, or
the making of any loan to, or the engagement in any transaction with, any
officer of the Management Company or the Management Business;
(j) any change in the accounting methods or practices followed in
connection with the Management Business or any change in depreciation or
amortization policies or rates theretofore adopted;
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(k) any termination of employment of any key employee of the Management
Company or the Management Business listed on Annex B (each, a "Management
Company Key Employee"), or any expression of intention by any Key Employee of
the Management Company or the Management Business to terminate such employment
with the Management Company or the Management Business;
(l) any agreement or commitment relating to the sale of any material fixed
assets of the Management Business;
(m) any other transaction relating to the Management Business other than in
the ordinary course of the Management Business and consistent with past
practice; or
(n) any agreement or understanding, whether in writing or otherwise, for
the Management Business to take any of the actions specified in items (a)
through (m) above.
7.9 Tax Matters.
(a) Except as set forth on Schedule 7.9, (i) all Taxes relating to the
Management Business required to be paid through the date hereof have been paid
and all returns, declarations of estimated Tax, Tax reports, information returns
and statements required to be filed in connection with the Management Business
prior to the date hereof (other than those for which extensions shall have been
granted prior to the date hereof) relating to any Taxes with respect to any
income, properties or operations of the Management Company prior to the date
hereof (collectively, "Management Company Returns") have been duly filed; (ii)
as of the time of filing, the Management Company Returns correctly reflected in
all material respects (and, as to any Management Company Returns not filed as of
the date hereof, will correctly reflect in all material respects) the facts
regarding the income, business, assets, operations, activities and status of the
Management Business and any other information required to be shown therein;
(iii) all Taxes relating to the operations of the Management Business that have
been shown as due and payable on the Management Company Returns have been timely
paid and filed or adequate provisions made to the books and records of the
Management Business; (iv) in connection with the Management Business (x) the
Management Company has made provision on the Management
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Company Balance Sheet for all Taxes payable for any periods that end on or
before the Management Company Balance Sheet Date for which no Management Company
Returns have yet been filed and for any periods that begin on or before the
Management Company Balance Sheet Date and end after the Management Company
Balance Sheet Date to the extent such Taxes are attributable to the portion of
any such period ending on the Management Company Balance Sheet Date and (y)
provision has been made for all Taxes payable for any periods that end on or
before the date hereof for which no Management Company Returns have then been
filed and for any periods that begin on or before the date hereof and end after
such date to the extent such Taxes are attributable to the portion of any such
period ending on such date; (v) no tax liens have been filed with respect to any
of the assets of the Management Business, and there are no pending tax audits of
any Management Company Returns relating to the Management Business; and (vi) no
deficiency or addition to Taxes, interest or penalties for any Taxes relating to
the operation of the Management Business has been proposed, asserted or assessed
in writing (or any member of any affiliated or combined group of which the
Management Company or any previous operator of the Management Business was a
member for which the Management Company could be liable).
(b) The Management Company is not a foreign person within the meaning of
Sections 1.1445-2(b) of the Regulations under Section 1445 of the Code.
7.10 Litigation, Etc. Except as set forth on Schedule 7.10, there are no
(a) actions, suits, claims, investigations or legal or administrative or
arbitration proceedings pending or, to the best knowledge of the Management
Company, threatened against the Management Company or in connection with the
Management Business, whether at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality or (b) judgments, decrees, injunctions or orders of
any court, governmental department, commission, agency, instrumentality or
arbitrator against the Management Company its assets or affecting the Management
Business. The Management Company has delivered to the Medical Group all
documents and correspondence relating to matters referred to in said Schedule
7.10.
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7.11 Compliance; Governmental Authorizations. The Management Company and
the Management Business shall have complied in all material respects with all
applicable material Federal, state, local or foreign laws, ordinances,
regulations and orders. The Management Company has all Federal, state, local and
foreign governmental licenses and permits necessary in the conduct of the
Management Business, the lack of which would have a material adverse effect on
the Management Company's ability to operate the Management Business after the
date hereof on substantially the same basis as presently operated, such licenses
and permits are in full force and effect, the Management Company has not
received any notice indicating that any violations are or have been recorded in
respect of any thereof, and no proceeding is pending or, to the best knowledge
of the Management Company, threatened to revoke or limit any thereof. To the
best knowledge of the Management Company, none of such licenses and permits
shall be affected in any material respect by the transactions contemplated
hereby.
7.12 Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 7.12, all of the accounts receivable
owing to the Management Company in connection with the Management Business as of
the date hereof constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of the Management Business, the amounts of
which are actually due and owing, and as of the date hereof, to the best
knowledge of the Management Company, there are no claims, refusals to pay or
other rights of set-off against any thereof. Except as set forth on Schedule
7.12, as of the date hereof, there is (i) no account debtor or note debtor of
the Management Business delinquent in its payment by more than 60 days, (ii) no
account debtor or note debtor of the Management Business who or which has
refused to pay its obligations for any reason or is the subject of a bankruptcy
proceeding and (iii) no account receivable or note receivable of the Management
Business pledged to any third party.
(b) All accounts payable and notes payable by the Management Business to
third parties arose in the ordinary course of business and, except as set forth
in Schedule 7.12, there is no account payable or note payable past due or
delinquent in its payment.
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7.13 Labor Relations; Employees. Schedule 7.13 contains a true and complete
list of the persons employed by the Management Company as of the date hereof
(the "Management Company Employees"). Except as set forth on Schedule 7.13, (a)
the Management Company and the Management Business are not delinquent in
payments to any of the Management Company Employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them to
the date hereof or amounts required to be reimbursed to the Management Company
Employees; (b) upon termination of the employment of any of the Management
Company Employees, neither the Management Company, the Management Business nor
the Medical Group will by reason of anything done prior to the date hereof, or
by reason of the consummation of the transactions contemplated hereby, be liable
for any excise taxes pursuant to Section 4980B of the Code or to any of the
Management Company Employees for severance pay or any other payments; (c) there
is no unfair labor practice complaint against the Management Company or in
connection with the Management Business pending before the National Labor
Relations Board or any comparable state, local or foreign agency; (d) there is
no labor strike, dispute, slowdown or stoppage actually pending or, to the best
knowledge of the Management Company, threatened against or involving the
Management Company or Management Business; (e) there is no collective bargaining
agreement covering any of the Management Company Employees; and (f) to the best
knowledge of the Management Company, no Management Company Employee or
consultant is in violation of any (i) employment agreement, arrangement or
policy between such person and any previous employer (private or governmental)
or (ii) agreement restricting or prohibiting the use of any information or
materials used or being used by such person in connection with such person's
employment by or association with the Management Company or the Management
Business.
7.14 Employee Benefit Plans.
(a) Schedule 7.14 identifies each `employee benefit plan', as defined in
Section 3(3) of ERISA, and all other written or oral plans, programs, policies
or agreements involving direct or indirect compensation (including any
employment agreements entered into between the Management Company or the
Management Business and any Management Company Employee or former employee of
the Management Company or in connection with the Management Business, but
excluding workers' compensation, unemployment compensation and other
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government-mandated programs) currently or previously maintained or entered into
by the Management Company or in connection with the Management Business for the
benefit of any Management Company Employee or former employee of the Management
Company or in connection with the Management Business under which the Management
Company, any affiliate thereof or the Management Business has any present or
future obligation or liability. The Management Company has provided the Medical
Group with true and complete age, salary, service and related data for
Management Company Employees and in connection with the Management Business.
(b) Schedule 7.14 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits currently
maintained by the Management Company or in connection with the Management
Business.
7.15 Insurance. Schedule 7.15 contains a list of all policies of liability,
theft, fidelity, fire, product liability, errors and omissions, health and other
property and casualty forms of insurance held by the Management Company covering
the assets, properties or operations of the Management Company and the
Management Business (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims thereunder). All such policies
of insurance are valid and enforceable policies and are outstanding and duly in
force and all premiums with respect thereto are currently paid. Neither the
Management Company nor its predecessor in interest has, during the last five
fiscal years, been denied or had revoked or rescinded any policy of insurance
relating to the assets, properties or operations of the Management Company or
the Management Business.
7.16 Real Property. Schedule 7.16 sets forth an accurate and complete legal
description of the entire right, title and interest of the Management Company in
and to all real property, together with all buildings, facilities, fixtures and
improvements located on such real
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property, owned or leased by the Management Company (the "Management Company
Real Property"), together with an accurate description of the title insurance
policy or other evidence of title issued with respect thereto, the most current
survey of such real property and a description of the use thereof. Other than
the Management Company Real Property, the Management Company has no other
interest (leasehold or otherwise) in real property used, held for use or
intended to be used in the Management Business. The Management Company has a
valid leasehold interest in all Management Company Real Property leased by the
Management Company.
7.17 Burdensome Restrictions. Except as set forth on Schedule 7.17, neither
the Management Company nor the Management Business is bound by any oral or
written agreement or contract which by its terms prohibits it from conducting
the Management Company or the Management Business (or any material part
thereof).
7.18 Disclosure. Neither the Management Company Transaction Documents
(including the Exhibits and Schedules attached thereto) nor any other document,
certificate or written statement furnished to the Medical Group by or on behalf
of the Management Company in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading. Except as set forth on Schedule 7.18, there have been no
events or transactions, or information which has come to the attention of the
Management Company, which, as they relate directly to the Management Company or
the Management Business, could reasonably be expected to have a material adverse
effect on the business, operations, affairs, prospects or condition of the
Management Company and the Management Business.
SECTION 8. Operations Committee.
8.1 Formation and Operation of the Operations Committee. The Management
Company and the Medical Group shall establish an Operations Committee
responsible for directing the Management Company in connection with the
development of certain specific management and administrative policies for the
overall operation of the Medical Group. The Operations Committee shall consist
of six (6) members. The Medical Group shall designate
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three (3) members of the Operations Committee, each of whom shall be a physician
in the Medical Group, and the Management Company shall designate three (3)
members of the Operations Committee. The business of the Operations Committee
shall be conducted in accordance with the policies and procedures described in
Section 8.4 hereof.
8.2 Authoritative Functions of the Operations Committee. The Operations
Committee shall perform the following functions, and the decisions of the
Operations Committee with respect to such functions shall be binding on the
Management Company and the Medical Group:
(a) Approve the annual budgets for:
(i) Xxxxxxxx and Collections
(ii) Medical Group Costs
(iii) Management Company Operating Costs (which, in the absence of
approval by the Operations Committee, shall be increased by one
percent (1.0%) over the total amount approved for the preceding
period)
(b) Approve costs and expenses that exceed the Management Company
Operating Costs Budget.
(c) Establish parameters and criteria with respect to the establishment
and maintenance of relationships with institutional providers and
payors and managed care contracts (except with respect to the
establishment of professional fees).
(d) Establish parameters and criteria with respect to:
(i) Xxxxxxxx
(ii) Claims submission
(iii) Collections of fees
(iv) Delinquent account collection policies
(v) Turnover of delinquent accounts to outside collection agencies
(vi) Write-offs of account balances
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(vii) Claim review requests
(viii) "Insurance only" and other courtesy write-off policies
(ix) Lien account collection policies
(x) Student Athlete account policies
(e) Approve the acquisition, replacement, relocation, or other disposition
of Medical Equipment and FF&E, approve the integration of new
technologies into the professional practice of the Medical Group as
contemplated by Section 3.11 hereof, and approve the renovation and
expansion of any offices of the Medical Group ("Tenant Improvements");
provided, however, that the approval of the Management Company also
shall be required prior to (i) the acquisition of any Medical
Equipment or FF&E (including any Medical Equipment or FF&E relating to
the integration of new technologies into the professional practice of
the Medical Group) if and to the extent that the aggregate cost of
such items in any calendar year exceeds five percent (5%) of the
Management Fee for such year, (ii) the undertaking of any Tenant
Improvements relating to patient care facilities that cost more than
$25,000 in the aggregate at any one of the Medical Group's office
locations in any calendar year, or (iii) the undertaking of any other
Tenant Improvements.
(f) Establish parameters and criteria for off-site storage of files and
records of the Medical Group.
8.3 Advisory Functions of the Operations Committee. The Operations
Committee shall review, evaluate and make recommendations to the Medical Group
and the Management Company with respect to the following matters:
(a) Identification of physician subspecialties required for the efficient
operation of the Medical Group; advice regarding all Medical Personnel
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employment and recruitment contracts to be utilized by the Medical
Group.
(b) Development of long-term strategic planning objectives for the Medical
Group.
(c) Public relations, advertising, and other marketing of Medical Group
services, including design of exterior signs.
(d) The establishment of fees for professional services and ancillary
services rendered by the Medical Group.
(e) Access and quality issues pertaining to ancillary services.
(f) Insurance limits and insurance coverage of the Medical Group and the
Management Company, as such coverage may relate to Medical Group
operations and activities.
(g) Any matters arising in connection with the operations of the Medical
Group that are not specifically addressed in this Agreement and as to
which the Management Company or the Medical Group requests
consideration by the Operations Committee.
The recommendations of the Operations Committee with respect to the matters
described in this Section 8.3 are intended for the advice and guidance of the
Management Company and the Medical Group, and except as provided herein, the
Operations Committee does not have the power to bind the Management Company or
the Medical Group. Where discretion with respect to any matters is vested in the
Management Company or the Medical Group under the terms of this Agreement, the
Management Company or the Medical Group, as the case may be, shall have ultimate
responsibility for the exercise of such discretion, notwithstanding any
recommendation of the Operations Committee. The Management Company and the
Medical
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Group shall, however, take such recommendations of the Operations Committee into
account in good faith in the exercise of such discretion.
8.4 Committee Policies and Procedures.
(a) The Medical Group shall designate one of its members to act as Chairman
of the Committee, and the Management Company shall designate one of its members
to act as Vice Chairman. Each party may substitute or change its designated
Operations Committee members at any time upon notice to the other party, and any
Operations Committee member may designate his or her own substitute at any
meeting without notice. Each member shall have one vote and shall have the right
to grant his or her proxy to another member of the Operations Committee. The
Chairman, if present, shall preside at all meetings of the Operations Committee.
In the absence of the designated Chairman, the Vice Chairman shall preside. The
only powers of the Chairman and the Vice Chairman that differ from those of the
other members of the Operations Committee shall be to call and preside over
meetings in accordance with this Section 8.4.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to time
determine. A meeting of the Operations Committee also may be called by at least
two (2) members of the Operations Committee or by the Chairman or Vice Chairman
thereof upon at least three (3) days' written notice to the other members of the
Operations Committee. Such notice requirement shall be deemed waived with
respect to any member of the Operations Committee who attends such meeting.
Meetings may be held in person or by telephone. The Operations Committee also
may act by written consent as provided in Section 8.4(c). Minutes shall be kept
of all formal actions taken by the Operations Committee.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of four (4) or more members of the Operations Committee
present or represented by proxy at the applicable meeting. A quorum of the
Operations Committee shall be four (4) members, in person, by telephone, or by
proxy, and a quorum must remain for the duration of the meeting. The Operations
Committee may establish such procedures to act by written
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consent, without a meeting, as the Operations Committee determines are
advisable, provided that all six (6) members (in person or by proxy) must sign
any written consent.
SECTION 9. Obligations of the Medical Group. The Medical Group shall
perform the following obligations during the Term:
9.1 Compliance with Laws. The Medical Group shall provide professional
services to patients in compliance at all times with ethical standards, laws and
regulations to which they are subject. The Medical Group shall verify, with the
assistance of the Management Company, that each physician and other Medical
Personnel associated with the Medical Group for the purpose of providing medical
care to patients of the Medical Group is licensed by the State of California.
The Medical Group shall monitor the quality of medical care practiced by
physicians and other health care personnel associated with the Medical Group. In
the event that any disciplinary actions or medical malpractice actions are
initiated against any such physician by any payor, patient, state or federal
regulatory agency or any other person or entity, the Medical Group shall
immediately inform the Management Company of such action and its underlying
facts and circumstances.
9.2 Use of Facility. The Medical Group shall use and occupy any Facility
(as defined below) exclusively for the practice of medicine, and shall comply
with all applicable federal, state and local rules, ordinances and standards of
medical care. The medical practice or practices conducted at any Facility
described in clause (i) of the definition of the term "Facility" shall be
conducted solely by Medical Personnel associated with the Medical Group, and no
other physician or medical practitioner shall be permitted to use or occupy any
Facility described in clause (i) below without the prior written consent of the
Management Company, which consent shall not be unreasonably withheld or delayed.
The term "Facility" shall mean (i) any medical facility or laboratory
controlled, managed or operated by the Management Company or (ii) any hospital
at which any Medical Personnel practices medicine or maintains admitting
privileges.
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9.3 Choice of Braces, Splints, Appliances, Medical Supplies, and
Allografts. The Medical Group shall have the exclusive control over the choice
of vendors and products utilized with respect to all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, medical supplies and
allografts.
9.4 Choice of Radiologists, Anesthesiologists, Hospitals, Physical Therapy,
MRI, and Other Medical Professionals and Facilities. The Medical Group shall
have exclusive control over the choice of specific physicians and facilities to
be utilized by the Medical Group with respect to radiology, anesthesiology,
hospitals, physical therapy, MRI, and other medical professionals and
facilities; provided, however, that the foregoing shall not limit the provisions
of Section 3.4(b) hereof.
9.5 Insurability. The Medical Group shall cooperate with the Management
Company in (i) ensuring that its Medical Personnel are insurable or (ii)
instituting proceedings to terminate within two business days any Medical
Personnel who is not insurable or who loses his or her insurance eligibility.
The Medical Group shall notify the Management Company in writing of any change
in the insurance status of any Medical Personnel within two days after the
Medical Group receives notice of any such change. The Medical Group shall
require all Medical Personnel to participate in an on-going risk management
program.
9.6 Medicare. The Medical Group shall cause all physicians to be
participating providers and accept assignment under Medicare.
9.7 Billing. The Medical Group's Medical Personnel shall be responsible for
providing the appropriate current CPT4 coding with respect to the fee tickets
prepared by such Medical Personnel.
9.8 Medical Personnel Hiring. The Medical Group shall have the ultimate
control over and responsibility for the hiring, compensation, supervision,
evaluation and termination of its Medical Personnel; provided, however, that at
the request of the Medical Group, the Management Company shall consult with the
Medical Group regarding such matters.
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9.9 Continuing Education. The Medical Group and its Medical Personnel shall
be solely responsible for ongoing membership in professional associations and
continuing professional education. The Medical Group shall ensure that its
Medical Personnel participate in such continuing professional education as is
necessary for such physician or professional to remain current in his or her
field of medical practice.
9.10 Physician Fellowship Program. The Medical Group shall have the
ultimate control over and responsibility for the Physician Fellowship Program of
the Medical Group, including but not be limited to fellow interviewing, hiring,
termination, compensation, day-to-day supervision, and assignment of
responsibilities and projects.
9.11 Clinical Research. The Medical Group shall have the ultimate control
over and responsibility for the clinical research program pertaining to patients
of the Medical Group. This shall include but not be limited to research
personnel interviewing, hiring, termination, compensation, day-to-day
supervision, and assignment of responsibilities and projects. However, the
Medical Group will cooperate with and take direction from the Management Company
in its nationwide efforts to provide an effective disease management information
system and outcome studies programs.
9.12 Sales of Stock. The Eligible Parties shall give to Xxxxxx Xxxxxx, M.D.
and any venture capital firm providing funds to the Management Company the right
to participate on a pro rata basis (based on the number of shares, whether
preferred or common, calculated on an as-converted basis, held by Xxxxxx Xxxxxx,
M.D. and any such venture capital firm and by any other shareholders who hold
the same rights that are conferred by this Section 9.12, including members of
other physician groups) in any proposed sale of more than fifty percent (50%) of
the stock in the Management Company held by the Eligible Parties to any
unaffiliated third party or parties, and the Medical Group shall require the
Eligible Parties to comply with the obligations set forth in this Section 9.12;
provided, however, that the obligations under this Section 9.12 shall become
null and void upon the consummation of an initial public offering of the
Management Company's common stock.
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SECTION 10. Certain Covenants.
10.1 Change of Control. During the Term of this Agreement, the Medical
Group shall not enter into any single transaction (or group of related
transactions undertaken pursuant to a common plan) involving the admission of
new partners, transfer of partnership interests, or reorganization or
restructuring of the Medical Group if in any such case the effect would be to
transfer a majority of the ownership interest in the Medical Group, without the
prior written consent of the Management Company, which consent shall not be
unreasonably withheld or delayed.
10.2 Legend on Securities. During the Term of this Agreement, any
certificate or similar evidence representing an equity interest in the Medical
Group issued by the Medical Group shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT SERVICES AGREEMENT
EFFECTIVE AS OF NOVEMBER 1, 0000, XXXXXXX XXXXXXXX XXXXXXXXXX ORTHOPEDIC
INSTITUTE MEDICAL GROUP, A CALIFORNIA GENERAL PARTNERSHIP, AND BONE, MUSCLE
AND JOINT, INC., A DELAWARE CORPORATION."
The Management Company acknowledges that there is no certificate or other
similar evidence representing equity interests in the Medical Group as of the
Effective Date hereof. Nothing herein shall be construed as requiring the
Medical Group to issue any certificate or other evidence representing an equity
interest in the Medical Group (other than the Medical Group's General
Partnership Agreement, or any replacement thereof, as amended from time to
time).
SECTION 11. Records.
11.1 Medical Records. Upon termination of this Agreement, the Medical Group
shall retain all patient medical records maintained by the Medical Group or the
Management Company in the name of the Medical Group.
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11.2 Management Business Records. All books and records relating in any way
to the operation of the Management Business which are not patient medical
records shall at all times be the joint property of the Management Company and
the Medical Group. The Management Company shall maintain custody of such
records, and the Medical Group shall, upon its written request, be entitled to
copies of any such records relating to the Management Services performed by the
Management Company.
11.3 Access to Records Following Termination.
(a) Following the termination of this Agreement, the Medical Group shall
grant (to the extent permitted by law) to the Management Company, for the
purpose of preparing for any actual or anticipated legal proceeding or for any
other reasonable purpose, reasonable access (which shall include making
photocopies) to the patient medical records described in Section 11.1 hereof and
any other pertinent information regarding the Medical Group during the Term.
Prior to accessing such patient medical records, the Management Company shall
obtain any required patient authorization.
(b) Following the termination of this Agreement, the Management Company
shall provide to the Medical Group, promptly upon the Medical Group's written
request, photocopies of the Management Business records described in Section
11.2 hereof, and shall grant to the Medical Group, for the purpose of preparing
for any actual or anticipated legal proceeding or for any other reasonable
purpose, any other pertinent information regarding the Management Company during
the Term.
SECTION 12. Insurance and Indemnity.
12.1 Professional Liability Insurance. During the Term, the Management
Company shall, to the extent permitted by applicable law, procure and maintain
for the benefit of itself and the Medical Group comprehensive professional
liability insurance providing for (a) general liability coverage and (b) medical
malpractice coverage with limits of not less than $1,000,000 per claim and with
aggregate policy limits of not less than $3,000,000 covering the Medical Group
and each of the Medical Personnel of the Medical Group (or such higher amounts
as may be necessary to comply with any regulatory requirement and/or contractual
requirement to which
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such Medical Personnel or the Medical Group may be subject), including coverage
for claims made after the Commencement Date relating to events or occurrences at
any time prior thereto. The parties hereto acknowledge that the Management
Company is procuring the malpractice insurance referenced herein to ensure that
the Management Company has protection in the event it is sued as a result of an
act or omission of an employee of the Medical Group. The Management Company
shall pay the premiums for such general and medical malpractice liability
coverage, and the Management Company shall be designated as a co-beneficiary
under such insurance policies.
12.2 Life Insurance. The Management Company shall obtain a $500,000 life
insurance policy for each duly licensed physician partner in the Medical Group.
The Management Company shall be designated as the beneficiary under such
policies. The premiums for such policies shall be paid by the Management Company
and shall not be included as Management Company Operating Costs or otherwise
charged to the Medical Group.
12.3 Indemnification by Medical Group. The Medical Group shall indemnify,
hold harmless and defend the Management Company, its officers, directors,
shareholders, employees, agents and independent contractors from and against any
and all liabilities, losses, damages, claims, causes of action and expenses
(including reasonable attorneys' fees and expenses), whether or not covered by
insurance, caused or asserted to have been caused, directly or indirectly, by or
as a result of (i) the performance of Medical Group Services, including without
limitation the performance of such services prior to the Commencement Date, (ii)
any other acts or omissions of the Medical Group and its Medical Personnel,
including without limitation any such acts or omissions that occurred prior to
the Commencement Date, or (iii) any breach of or failure to perform any
obligation under this Agreement or the Transaction Documents by the Medical
Group and/or the Medical Personnel and/or their respective agents and/or
subcontractors (other than the Management Company) during the Term.
12.4 Indemnification by Management Company. The Management Company shall
indemnify, hold harmless and defend the Medical Group, its officers, directors,
partners, members, employees, agents and independent contractors from and
against any and all liabilities,
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losses, damages, claims, causes of action and expenses (including reasonable
attorneys' fees and expenses), whether or not covered by insurance, caused or
asserted to have been caused, directly or indirectly, by or as a result of (i)
the performance of Management Services, (ii) any other acts or omissions of the
Management Company and its employees or (iii) any breach of or failure to
perform any obligation under this Agreement or the Transaction Documents by the
Management Company and/or its partners, agents, employees and/or subcontractors
(other than the Medical Group) during the Term.
SECTION 13. Termination.
13.1 Termination by Medical Group. The Medical Group may terminate this
Agreement effective immediately by giving written notice of termination to the
Management Company (a) in the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by the Management
Company or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the Management
Company, except for the filing of a petition in involuntary bankruptcy against
the Management Company which is dismissed within ninety (90) days thereafter (a
"Bankruptcy Event"), (b) in the event the Management Company shall default in
any material respect in the performance of any duty or obligation imposed upon
it by this Agreement and the Management Company shall not have taken reasonable
action commencing curing of such default within thirty (30) days after written
notice thereof has been given to the Management Company by the Medical Group or
the Management Company does not thereafter diligently prosecute such action to
completion, (c) in the event that any of the representations and warranties made
by the Management Company in Section 7 is untrue or misleading in any material
respect, provided that the Medical Group shall have previously given written
notice to the Management Company describing in reasonable detail the nature of
the item in question and the Management Company shall not have cured such matter
within thirty (30) days of such notice, (d) in the event that the sale of shares
of the Management Company pursuant to its IPO is not consummated within
forty-eight (48) months after the Commencement Date, (e) at any time during the
month of January 1998, if by December 31, 1997, the commencement date of Phase
II (as described in Schedule V) has not occurred, or at any time after January
31, 1998, so long as the commencement date of Phase II has not yet occurred; (f)
if Xxxxxx Xxxxxx, M.D. ceases to be and act on a full-time
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basis as the President and CEO of the Management Company prior to the
commencement date of Phase II, provided that the Medical Group gives notice of
termination within ninety (90) days after the Medical Group's receipt of written
notice from the Management Company that Xx. Xxxxxx has ceased to be or act on a
full-time basis as the President and CEO of the Management Company; (g) in the
event of the Management Company's breach of Section 16.8 hereof pertaining to
the initial public offering of the Management Company's common stock; (h) in the
event of the failure of the Management Company and the Center for Orthopedic
Surgery, Inc. ("COSI") (an affiliate of the Medical Group) to enter into, on or
before December 31, 1996, the definitive agreements described in that certain
Letter of Intent Regarding Surgical Clinic Transaction entered into as of the
date hereof by the Management Company and COSI, pursuant to which (A) the
Management Company is to assume management responsibilities for the ambulatory
surgery center to be constructed on the fourth floor of the building in which
the Medical Group's Van Nuys Office is located, and (B) the Management Company
is to issue common stock of the Management Company to the shareholders of COSI;
(i) in the event of the failure of the Management Company to issue, on or before
December 31, 1996, one hundred eighty-three thousand three hundred thirty-three
(183,333) shares of convertible preferred stock of the Management Company at a
purchase price of $3.00 per share to the members of the Medical Group and/or
other persons designated by the Medical Group, and approved by the Management
Company, except to the extent that the Management Company's failure to issue
such shares is the result of any delay or inaction by any of such members of the
Medical Group or such other persons; or (j) in the event that the Management
Company fails to take such steps as may be necessary to implement the provisions
of Section 16.9 (relating to the appointment of a member of the Medical Group to
the Board of Directors of the Management Company) of this Agreement.
13.2 Termination by Management Company. The Management Company may
terminate this Agreement effective immediately by giving written notice of
termination to the Medical Group (a) in the event of a Bankruptcy Event relating
to the Medical Group, (b) in the event the Medical Group shall default in any
material respect in the performance of any duty or obligation imposed upon it by
this Agreement and the Medical Group shall not have taken reasonable action
commencing curing of such default within thirty (30) days after written notice
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thereof has been given to the Medical Group by the Management Company or the
Medical Group does not thereafter diligently prosecute such action to
completion, (c) in the event that any of the representations and warranties made
by the Medical Group in Section 6 is untrue or misleading in any material
respect, provided that the Management Company shall have previously given
written notice to the Medical Group describing in reasonable detail the nature
of the item in question and the Medical Group shall not have cured such matter
within thirty (30) days of such notice, or (d) in the event the Medical Group is
excluded from the Medicaid or Medicare program for any reason.
13.3 Termination by Medical Group or Management Company. The Medical Group
and the Management Company shall each have the right to terminate this Agreement
effective immediately by giving written notice of termination to the other party
pursuant to Section 27 of this Agreement.
13.4 Effect of Termination. Upon the termination of this Agreement in
accordance with the terms hereof, neither party hereto shall have any further
obligation or liability to the other party hereunder, except as provided in
Section 13.5 and in Section 26 hereof, and except to pay in full and satisfy any
and all outstanding obligations of the parties accruing through the effective
date of termination. In order to accomplish the foregoing, the Annual Medical
Group Compensation Amount described in Section 5.3(b) shall be calculated on or
before the end of the fourth month following the termination date, rather than
on or before April 30 as specified in Section 5.3(b), and the computation made
under such section shall be made with respect to the portion of the year ending
on the termination date (if the termination date is other than December 31). In
making such computation, all Collections during January, February, and March of
such year shall be excluded, and all Collections during the three-month period
following termination shall be included. Additionally, any payment required
under the terms of Section 5.3(b)(ii) shall be made within fifteen (15) days
after the date by which the foregoing calculation is to be made, rather than on
May 15.
13.5 Repurchase of Assets. Promptly following termination of this Agreement
for any reason, the Management Company shall sell, transfer, convey, and assign
to the Medical Group,
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and the Medical Group shall purchase, assume, and accept from the Management
Company, at such price and upon such terms as may be agreed upon by the parties
-- or, if the parties are unable to agree, at fair market value, determined in
the manner set forth below -- all of the following items which are used in
connection with the professional practice and related activities of the Medical
Group and which, in the case of items (a), (b), (c) and (d), are physically
located in any of the offices of the Medical Group, subject to any required
consent from any third party having an interest therein:
(a) the Medical Equipment owned by the Management Company;
(b) the furniture, furnishings, trade fixtures, and office equipment owned
by the Management Company;
(c) the Management Company's rights and interests in any equipment leased
by the Management Company, subject to the Medical Group's assumption
of the obligations accruing thereunder after the date of termination
of this Agreement;
(d) the supplies owned by the Management Company;
(e) the Management Company's rights and interests under all of the Office
Leases, subject to the Medical Group's assumption of the obligations
accruing thereunder after the date of termination of this Agreement;
and
(f) the deposits of the Management Company relating to the Medical Group.
Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected shall
select a third appraiser. All of the appraisers shall appraise the assets, and
for purposes of determining the purchase price, the highest and lowest
appraisals shall be disregarded, and the remaining appraisal shall be used.
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SECTION 14. Non-Disclosure of Confidential Information.
14.1 Non-Disclosure. Neither the Management Company nor the Medical Group,
nor their respective employees, stockholders, consultants or agents shall, at
any time after the execution and delivery hereof, directly or indirectly
disclose any Confidential or Proprietary Information relating to the other party
hereto to any person, firm, corporation, association or other entity, nor shall
either party, or their respective employees, stockholders, consultants or agents
make use of any of such Confidential or Proprietary Information for its or their
own purposes or for the benefit of any person, firm, corporation or other entity
except the parties hereto or any subsidiary or affiliate thereof. The foregoing
obligation shall not apply to any information which a party hereto can establish
to have (a) become publicly known without breach of this Agreement by it or
them, (b) to have been given to such party by a third party who is not obligated
to maintain the confidentiality of such information, or (c) is disclosed to a
third party with the prior written consent of the other party hereto.
14.2 Confidential or Proprietary Information. The term "Confidential or
Proprietary Information" means all information known to a party hereto, or to
any of its employees, stockholders, officers, directors or consultants, which
relates to the Transaction Documents, patient medical and billing records, trade
secrets, books and records, supplies, pricing and cost information, marketing
plans, strategies and forecasts. Nothing contained herein shall prevent a party
hereto from furnishing Confidential or Proprietary Information pursuant to a
direct order of a court of competent jurisdiction.
SECTION 15. Non-Competition. In consideration of the premises contained
herein and the consideration to be received hereunder, and in consideration of
and as an inducement to the Management Company to consummate the transactions
contemplated hereby, the Medical Group hereby (a) agrees to the Non-Competition
provisions attached hereto as Schedule VIII and (b) agrees to require each of
the Eligible Parties, and each person who after the date hereof becomes entitled
to receive shares (or options to receive shares) in the Management Company in
connection with his or her performance of services for the Medical Group, to
execute a Stockholder Non-Competition Agreement substantially in the form
attached hereto as Exhibit B.
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SECTION 16. Obligations of the Management Company.
16.1 No Practice of Medicine. The Medical Group and the Management Company
acknowledge that certain federal and state statutes severely restrict or
prohibit the Management Company from providing medical services. Accordingly,
during the Term, the Management Company shall not provide or otherwise engage in
services or activities which constitute the practice of medicine, as defined in
applicable state or federal law, except in compliance therewith.
16.2 No Interference with Professional Judgment. Without in any way
limiting Section 16.1 hereof, during the Term, the Management Company shall not
interfere with the exercise of professional judgment by any physician or other
licensed health care professional who is a partner, employee, or contractor of
the Medical Group, nor shall the Management Company interfere with, control,
direct, or supervise any physician or other licensed health care professional in
connection with the provision of Medical Services. The foregoing shall not
preclude the Management Company from assisting in the development of
professional protocols and monitoring compliance with policies and procedures
that have been instituted in accordance with this Agreement.
16.3 Compensation Committee. The Management Company shall establish a
compensation committee (the "Compensation Committee") which is comprised of
members of the Board of Directors of the Management Company who are not
employees of the Management Company. The compensation payable to the five (5)
most highly compensated management employees of the Management Company shall be
subject to the approval of the Compensation Committee.
16.4 Budgets. The Board of Directors of the Management Company shall
establish budgets for the expenses of the Management Company, and the approval
of the Board of Directors shall be required in connection with any expenses in
excess of any such approved budget; provided, however, that following
consummation of an initial public offering of the Company's Common Stock, the
responsibility of the Board of Directors with respect to such
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budgets shall be exercised in accordance with the standards applicable to the
conduct of business of public companies.
16.5 Contracts with Venture Capital Firms. The Management Company shall not
enter into any consulting agreement or other contract or arrangement with any
venture capital firm (or affiliate thereof) providing financing to the
Management Company under which compensation will be payable to any such venture
capital firm (or affiliate thereof).
16.6 Stock Held by Certain Individuals or Entities. Xxxxxx Xxxxxx, M.D. and
any venture capital firm providing funds to the Management Company ("Selling
Shareholders") shall give to the Eligible Parties the right to participate on a
pro rata basis (based on the number of shares, whether preferred or common,
calculated on an as-converted basis, held by the Eligible Parties and by any
other shareholders who hold the same rights that are conferred by this Section
16.6, including members of other physician groups) in any proposed sale of stock
(whether preferred or common) in the Management Company from any of the Selling
Shareholders to any unaffiliated third party or parties, and the Management
Company shall require the Selling Shareholders to comply with the obligations
set forth in this Section 16.6; provided, however, that the obligations under
this Section 16.6 shall become null and void upon the consummation of an initial
public offering of the Management Company's common stock.
16.7 Convertible Preferred Stock. The Management Company shall not sell any
common stock or take any other action the effect of which sale or other action
would be to give a holder of convertible preferred stock the right to convert
any number of shares of convertible preferred stock into a greater number of
shares of common stock; provided, however, that the obligations under this
Section 16.7 shall become null and void upon the consummation of an initial
public offering of the Management Company's common stock.
16.8 Initial Public Offering. The Management Company shall not authorize an
initial public offering of its common stock for less than Four Dollars ($4.00)
per share (appropriately adjusted to reflect any stock dividends, stock splits,
or similar transaction). Without waiving or limiting any other right or remedy
available to the Medical Group for breach of this covenant
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by the Management Company, in the event of an initial public offering of the
Management Company's common stock at less than Four Dollars ($4.00) per share,
if the Medical Group so elects by written notice to the Management Company, such
initial public offering shall not be considered as the initial public offering
of the Management Company's common stock for any purpose under this Agreement or
any of the other Transaction Documents. The Management Company shall disclose
this provision to any potential underwriter in connection with the initial
public offering of the Management Company's common stock.
16.9 Representation on Board of Directors. The Management Company shall
take such actions as may be necessary to provide that a physician member of the
Medical Group be appointed as a member of the Management Company's Board of
Directors; provided, however, that the obligations under this Section 16.9 shall
become null and void upon the consummation of an initial public offering of the
Management Company's common stock.
SECTION 17. Assignment. The Management Company shall have the right to
assign its rights and delegate its obligations hereunder to any affiliate and to
assign its rights hereunder to any lending institution from which the Management
Company or any affiliate obtains financing for security purposes or as
collateral. Except as set forth in the preceding sentence, neither the
Management Company nor the Medical Group shall have the right to assign their
respective rights and delegate their respective obligations hereunder without
the prior written consent of the other party; provided, however, that after the
consummation of an initial public offering of the Management Company's common
stock, the Medical Group's consent shall not be required in connection with a
sale of all or substantially all of the stock or assets of the Management
Company or the merger, consolidation, or reorganization of the Management
Company.
SECTION 18. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed sufficient if
personally delivered, sent by nationally-recognized overnight courier, or by
registered or certified mail, return receipt requested and postage prepaid,
addressed as follows:
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If to the Management Company:
Bone, Muscle and Joint, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxx, M.D., President
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Held, Esq.
If to the Medical Group:
Southern California Orthopedic
Institute Medical Group
0000 Xxxxx Xxxxxx
Xxx Xxxx, Xxxxxxxxxx 00000
Attention: Managing Partner
with a copy to:
Xxxxxxx and Xxxxxx Law Corporation
1900 Avenue of the Stars, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, and (c) in the case of mailing, on the third business day following
the day on which the piece of mail containing such communication is posted.
SECTION 19. Benefits of Agreement. This Agreement shall bind and inure to
the benefit of any successors to or permitted assigns of the Management Company
and the Medical Group.
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SECTION 20. Governing Law; Jurisdiction. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
California without giving effect to the laws and principles thereof, or of any
other jurisdiction, which would direct the application of the laws of another
jurisdiction. The parties to this Agreement agree that jurisdiction and venue in
any action brought by any party hereto pursuant to this Agreement shall lie in
any Federal or state court located in the State of California. By execution and
delivery of this Agreement, the parties hereto irrevocably submit to the
nonexclusive jurisdiction of such courts for themselves and in respect of their
property with respect to such action. The parties hereto irrevocably agree that
venue would be proper in such court, and hereby waive any objection that such
court is an improper or inconvenient forum for the resolution of such action.
Nothing in this Agreement shall affect any right that any party may otherwise
have to bring any action or proceeding relating to this Agreement in the courts
of any other jurisdiction. The parties hereto shall act in good faith and shall
refrain from taking any actions to circumvent or frustrate the provisions of
this Agreement.
SECTION 21. Headings. Section headings are used for convenience only and
shall in no way affect the construction of this Agreement.
SECTION 22. Entire Agreement; Amendments. This Agreement and the various
exhibits hereto and thereto, contain the entire understanding of the parties
with respect to its subject matter, and neither this Agreement nor any part of
it may in any way be altered, amended, extended, waived, discharged or
terminated except by a written agreement signed by each of the parties hereto.
SECTION 23. Attorneys' Fees. In the event of any dispute or controversy
arising out of or relating to this Agreement, the prevailing party shall be
entitled to recover from the other party all reasonable costs and expenses,
including attorneys' fees and accountants' fees, incurred in connection with
such dispute or controversy.
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SECTION 24. Counterparts. This Agreement may be executed in counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
SECTION 25. Waivers. Any party to this Agreement may, by written notice to
the other party, waive any provision of this Agreement. The waiver by any party
of a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach.
SECTION 26. Survival of Termination. Notwithstanding anything contained
herein to the contrary, Sections 3.3(f), 3.6, 11, 12, 13.4, 13.5, 14, 15(a), 18,
19, 20, 23, 25, 27 and this Section 26 shall survive any expiration or
termination of this Agreement.
SECTION 27. Contract Modification for Prospective Legal Events.
In the event any state or Federal laws or regulations, now existing or
enacted or promulgated after the date hereof, are interpreted by judicial
decision, a regulatory agency or legal counsel of both parties in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or regulations, the Medical Group and the Management Company shall amend
this Agreement as necessary to avoid such violation. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between the Medical Group and the Management Company. If
an amendment is not possible, either party shall have the right to terminate
this Agreement. Any dispute between the parties hereto arising under this
Section 27 with respect to whether this Agreement violates any state or Federal
laws or regulations shall be jointly submitted by the parties and finally
settled by binding arbitration in Los Angeles, California, pursuant to the
arbitration rules of the National Health Lawyers Association Alternative Dispute
Resolution Service. Arbitration shall take place before one arbitrator appointed
in accordance with such rules. The governing law of the arbitration shall be the
law set forth in Section 21. Any decision rendered by the arbitrator shall
clearly set forth the factual and legal basis for such decision. The decision
rendered by the arbitrator shall be non-appealable and enforceable in any court
having jurisdiction thereof. The administrative costs of the arbitration and the
arbitrator fees shall be
-75-
equally borne by the parties. Each party shall pay its own legal costs and fees
in connection with such arbitration.
* * *
-76-
IN WITNESS WHEREOF, the parties have duly executed this Management Services
Agreement as of the date first above written.
SOUTHERN CALIFORNIA ORTHOPEDIC
INSTITUTE MEDICAL GROUP
XXXXX X. XXX, M.D., INC.
By: /s/ Xxxxx X. Xxx
-------------------------------------
Xxxxx X. Xxx, M.D., President
XXXXXX DEL XXXXX, M.D., INC.
By: /s/ Xxxxxx Del Xxxxx
-------------------------------------
Xxxxxx Del Xxxxx, M.D., President
XXXX X. XXXXXXXX, M.D., INC.
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------------
Xxxx X. Xxxxxxxx, M.D., President
/s/ Xxxxxxx X. Xxxxxx
------------------------------------------
XXXXXXX X. XXXXXX, M.D.
/s/ Xxxxxxx X. Xxxxxx
------------------------------------------
XXXXXXX X. XXXXXX, M.D.
/s/ Xxxx X. Xxxxxxxx, M.D.
------------------------------------------
XXXX X. XXXXXXXX, M.D.
/s/ Xxxxxxx X. Xxxxxx, M.D.
------------------------------------------
XXXXXXX X. XXXXXX, M.D.
[Signatures Continued]
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XXXXXXX XXXXXX XXXXXXXXXX, M.D., INC.
By:/s/ Xxxxxxx Xxxxxx Xxxxxxxxxx
---------------------------------------
Xxxxxxx Xxxxxx Xxxxxxxxxx, M.D., President
/s/ A. Xxxxxxxxx Xxxxx
------------------------------------------
A. XXXXXXXXX XXXXX, M.D.
/s/ Xxxx X. Xxxxxx
------------------------------------------
XXXX X. XXXXXX, M.D.
XXXXXX X. XXXXX, M.D., A Medical Corporation
By:/s/ Xxxxxx X. Xxxxx
---------------------------------------
Xxxxxx X. Xxxxx, M.D., President
XXXX X. XXXXXXXXX, M.D., INC.
By:/s/ Xxxx X. Xxxxxxxxx
---------------------------------------
Xxxx X. Xxxxxxxxx, M.D., President
/s/ Xxxxxx X. Xxxxxxxx
------------------------------------------
XXXXXX X. XXXXXXXX, M.D.
/s/ Xxxxxx X. Xxxxxx
------------------------------------------
XXXXXX X. XXXXXX, M.D.
/s/ Xxxxx X. Xxxxxxxxx
------------------------------------------
XXXXX X. XXXXXXXXX, M.D.
/s/ Xxxxxxxx X. Jaivin
------------------------------------------
XXXXXXXX X. JAIVIN, M.D.
[Signatures Continued]
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/s/ Xxxxxx X. Xxxx
------------------------------------------
XXXXXX X. XXXX, M.D.
/s/ Xxxxxxxx X. XxXxxxxx
------------------------------------------
XXXXXXXX X. XxXXXXXX, M.D.
/s/ Xxxxx X. Xxxxxxxx
------------------------------------------
XXXXX X. XXXXXXXX, M.D.
BONE, MUSCLE AND JOINT, INC.
By: /s/ Xxxxxx Xxxxxx, M.D.
-------------------------------------
Xxxxxx Xxxxxx, M.D., President
and Chief Executive Officer
ACCEPTED AND AGREED AS TO
THOSE PORTIONS OF SECTIONS
3.6(d)(xv), 5.3(c)(iii), and 5.3(c)(iv)
THAT PERTAIN SPECIFICALLY
TO THE UNDERSIGNED
/s/ Xxxxxxx X. Xxxxxx
------------------------------
XXXXXXX X. XXXXXX, M.D.
[Signatures Continued]
-79-
ACCEPTED AND AGREED
AS TO SECTION 16.6
/s/ Xxxxxx Xxxxxx, M.D.
----------------------------------------
XXXXXX XXXXXX, M.D.
DELPHI VENTURES III, L.P.
By: DELPHI MANAGEMENT PARTNERS
III, L.L.C., its General Partner
By: /s/ Xxxxxx X. Xxxxxxx
------------------------------------
Xxxxxx X. Xxxxxxx, Managing Member
DELPHI BIOINVESTMENTS III, L.P.
By: DELPHI MANAGEMENT PARTNERS
III, L.L.C., its General Partner
By: /s/ Xxxxxx X. Xxxxxxx
------------------------------------
Xxxxxx X. Xxxxxxx, Managing Member
OAK INVESTMENT PARTNERS VI, LIMITED
PARTNERSHIP
By: OAK ASSOCIATES VI, LIMITED
PARTNERSHIP, its General Partner
By: /s/ Xxx X. Xxxxxx
------------------------------------
Xxx X. Xxxxxx, Managing Member
OAK VI AFFILIATES FUND,
LIMITED PARTNERSHIP
By: OAK VI AFFILIATES, LLC,
its General Partner
By: /s/ Xxx X. Xxxxxx
------------------------------------
Xxx X. Xxxxxx, Managing Member
[Signatures Continued]
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EXECUTION COPY
AMENDMENT NO. 3 TO
THE MANAGEMENT SERVICES AGREEMENT
dated as of September 11, 0000,
xxxxxxx XXXXXXXX XXXXXXXXXX
ORTHOPEDIC INSTITUTE MEDICAL GROUP,
a California general partnership
(the "Medical Group"), and BONE,
MUSCLE AND JOINT, INC., a Delaware
corporation (the "Management
Company").
Reference is made to the Management Services Agreement effective as of
November 1, 1996 (as amended by Amendment No. 1 to the Management Services
Agreement dated as of March 31, 1997, the "Management Services Agreement"),
between the Medical Group and the Management Company, pursuant to which the
Management Company has agreed to provide the Medical Group with certain
management, administrative and other related services in connection with the
Medical Business (as defined in the Management Services Agreement). The parties
hereto desire to amend the Management Services Agreement to provide that the
Management Company arrange for the provision of Technical Personnel (as
hereinafter defined) to the Medical Group on the terms hereinafter set forth.
NOW, THEREFORE, in consideration for the mutual agreements contained in
this Amendment and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Medical Group and the
Management Company hereby agree as follows:
Section 1. All capitalized terms used but not defined herein have the
meanings ascribed thereto in the Management Services Agreement.
Section 2. Section 3.13(a) of the Management Services Agreement is hereby
amended by (a) inserting "and" at the end of clause (i) and (b) deleting ", and
(iii) Technicians who perform diagnostic tests or procedures" and inserting "."
in lieu thereof.
Section 3. Section 3 of the Management Services Agreement is hereby amended
by adding a new Section 3.19 thereto, to read in its entirety as follows:
"3.19 Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.19, the
Management Company shall employ or contract with, or shall arrange for, and
shall provide
to the Medical Group as leased employees, such Technical Personnel (as
defined below) as may reasonably be necessary for the conduct of the
Medical Business.
(b) For purposes of this Agreement, "Technical Personnel" means
nurses, medical assistants, x-ray technicians, other technicians, and other
personnel who perform diagnostic tests or other services that are covered
by Medicare or by other third party payors when performed by an employee of
a physician under the physician's supervision.
(c) The Medical Group shall have the right to exercise, and shall
exercise, such supervision and control over the activities of the Technical
Personnel as may be necessary for the Technical Personnel to be considered
leased employees under the Medicare program and under applicable law.
Without limiting the generality of the foregoing, the Medical Group shall:
(i) have the right to have any Technical Personnel terminated
from employment;
(ii) furnish the Technical Personnel with the equipment and
supplies needed by the Technical Personnel for their work;
(iii) provide the Technical Personnel with any necessary
training;
(iv) instruct the Technical Personnel regarding their activities
performed for the Medical Group;
(v) establish the hours of work for the Technical Personnel;
(vi) approve vacation time and other time off from work; and
(vii) provide that degree of supervision as is required by
Medicare and by other third party payors to satisfy applicable
conditions for coverage thereunder.
(d) With respect to each of the Technical Personnel, the Management
Company shall verify or arrange for the verification of educational and
employment experience, licensure and insurability, and shall review and
provide the Medical Group with copies of any complaints contained in public
files with applicable state and Federal commissions."
-2-
Section 4. Section 12.3 of the Management Services Agreement is hereby
amended by (a) inserting "or Technical Personnel" after "Medical Personnel" on
the eighth line thereof, and (b) inserting "and/or the Technical Personnel"
after "Medical Personnel" on the eleventh line thereof.
Section 5. Section 13.1 of the Management Services Agreement is hereby
amended by (i) inserting at the end of clause (b) thereof "; provided, however,
that if the Medical Group intends to terminate this Agreement due to the
Management Company's default under Section 16.9, the Medical Group must so
notify the Management Company within 60 days after the occurrence of such
default in order for such termination to be effective; or" and (ii) deleting
clauses (d), (e), (f), (g), (h), (i) and (j) therefrom.
Section 6. Section 16.8 of the Management Services Agreement is hereby
amended and restated in its entirety to read as follows:
"16.8 In the event of an initial public offering of the Management
Company's common stock at less than Four Dollars ($4.00) per share, if the
Medical Group so elects by written notice to the Management Company, such
public offering shall not be considered as the initial public offering of
the Management Company's common stock for any purpose under this Agreement
or any of the other Transaction Documents."
Section 7. Schedule V to the Management Services Agreement is hereby
amended by inserting the following after paragraph (iii) and renumbering the
last paragraph thereof to be paragraph (vi).
"(iv) Anything contained in this Agreement to the contrary
notwithstanding, if the commencement date of Phase II (as described in
Schedule V) has not occurred by January 1, 1998, the Applicable Percentage
shall, effective January 1, 1998, be two and one-half percent (2.5%), which
percentage shall remain in effect throughout the Term; provided, however,
that (A) such percentage shall increase to ten percent (10%) (pursuant to
paragraph (iii) above) once the Management Company files a Preliminary
Prospectus for the initial public offering of its stock with the Securities
and Exchange Commission and (B) if the Management Company does not
consummate the sale of shares pursuant to such public offering within
ninety (90) days of the filing of such Preliminary Prospectus, the
Applicable Percentage shall revert back to two and one-half percent (2.5%)
retroactively to the date of filing of such Preliminary Prospectus. In the
event the Management Company does not consummate an initial public offering
as described above, the provisions of
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the preceding proviso shall again become applicable upon any subsequent
filing of a Preliminary Prospectus in connection with an initial public
offering of the Management Company Common Stock or upon the consummation of
the sale of shares pursuant to the Management Company's previous filing of
such a Preliminary Prospectus.
(v) Notwithstanding the provisions of paragraphs (i), (ii), (iii) and
(iv) above, in the event that the common stock of the Management Company
has not, within forty-eight (48) months after the date hereof, commenced
trading at a price not less than $4.00 per share on NASDAQ, the New York
Stock Exchange, or any other established securities market pursuant to an
initial public offering of such common stock, the Applicable Percentage
shall be two and one-half percent (2.5%), which decreased percentage shall
become effective on the fourth anniversary of the date hereof and remain
effective throughout the Term or until the common stock of the Management
Company commences public trading as described above."
Section 8. Except as expressly provided in this Amendment No. 3, the
Management Services Agreement remains in full force and effect in accordance
with its terms.
Section 9. This Amendment No. 3 may be executed in more than one
counterparts, and by the parties hereto in separate counterparts, and each such
counterpart shall constitute an original instrument, but all such counterparts
taken together shall constitute one and the same Amendment.
Section 10. This Amendment No. 3 shall by governed by, construed and
interpreted in accordance with the laws of the State of California.
* * * *
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IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 3 to the Management Services Agreement as of the date first above written.
BONE, MUSCLE AND JOINT, INC.
By:
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Name:
Title:
SOUTHERN CALIFORNIA ORTHOPEDIC
INSTITUTE MEDICAL GROUP
By Its Partners:
XXXXX X. XXX, M.D., INC.
By:
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Xxxxx X. Xxx, M.D., President
XXXXXX DEL XXXXX, M.D., INC.
By:
--------------------------------
Xxxxxx Del Xxxxx, M.D., President
XXXX X. XXXXXXXX, M.D., INC.
By:
--------------------------------
Xxxx X. Xxxxxxxx, M.D., President
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Xxxxxxx X. Xxxxxx, M.D.
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Xxxxxxx X. Xxxxxx, M.D.
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Xxxx X. Xxxxxxxx, M.D.
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Xxxxxxx X. Xxxxxx, M.D.
XXXXXXX XXXXXX XXXXXXXXXX, M.D.,INC.
By:
--------------------------------
Xxxxxxx Xxxxxx Xxxxxxxxxx, M.D.,
President
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A. Xxxxxxxxx Xxxxx, M.D.
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Xxxx X. Xxxxxx, M.D.
XXXXXX X. XXXXX, M.D., A MEDICAL
CORPORATION
By:
--------------------------------
Xxxxxx X. Xxxxx, M.D., President
XXXX X. XXXXXXXXX, M.D., INC.
By:
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Xxxx X. Xxxxxxxxx, M.D., President
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Xxxxxx X. Xxxxxxxx, M.D.
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Xxxxxx X. Xxxxxx, M.D.
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Xxxxxxxx X. Jaivan, M.D.
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Xxxxxx X. Xxxx, M.D.
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Xxxxxxxx X. XxXxxxxx, M.D.
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Xxxxx X. Xxxxxxxx, M.D.
