EXECUTION COPY
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MANAGEMENT SERVICES AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
ORTHOPAEDIC SURGERY ASSOCIATES, INC.
Effective as of September 1, 1997
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TABLE OF CONTENTS
Page
SECTION 1 RETENTION OF THE MANAGEMENT COMPANY ............................. 2
1.1. Retention ..................................................... 2
1.2. Exclusivity ................................................... 2
1.3. Relationship of Parties ....................................... 2
1.4. No Referral Obligation ........................................ 3
SECTION 2 TERM ............................................................ 3
SECTION 3 MANAGEMENT SERVICES ............................................. 3
3.1. Management Services Generally ................................. 3
3.2. Premises ...................................................... 5
3.3. Equipment ..................................................... 7
3.4. New Ancillary Services ........................................ 9
3.5. Administration, Finance and Accounting ........................ 11
3.6. Billing and Collection ........................................ 14
3.7. Administrative Personnel ...................................... 19
3.8. Technical Personnel; Leased Employees ......................... 20
3.9 Medical Personnel Recruiting .................................. 22
3.10 Inventory and Supplies ........................................ 23
3.11. Taxes ......................................................... 23
3.12. Information Systems Management ................................ 23
3.13. Use of New Technologies in the Practice of Medicine ........... 25
3.14. Public Relations; Marketing and Advertising ................... 25
3.15. Insurance ..................................................... 25
3.16. Files and Records ............................................. 26
3.17. Managed Care Contracts ........................................ 27
3.18. Budgets ....................................................... 27
3.19. Force Majeure ................................................. 28
SECTION 4 CONSIDERATION ................................................... 28
SECTION 5 COSTS, COMPENSATION, AND OTHER PAYMENTS ......................... 28
5.1. Ownership of Accounts; Security ............................... 28
5.2. Bank Accounts ................................................. 29
5.3. Medical Group Compensation .................................... 29
5.4. Management Fee ................................................ 34
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5.5. Management Company Costs ...................................... 37
5.6. New Medical Office Start-Up Costs ............................. 40
5.7. Medical Group Costs ........................................... 42
5.8. New Ancillary Services Costs .................................. 43
5.9. Review and Audit of Books and Records ......................... 46
5.10. Start-Up Period ............................................... 46
5.11 New Physician Compensation Costs .............................. 47
SECTION 6 REPRESENTATIONS AND WARRANTIES OF THE MEDICAL GROUP ............. 48
6.1. Organization; Good Standing; Qualification and Power .......... 49
6.2. Equity Investments ............................................ 49
6.3. Authority ..................................................... 49
6.4. Financial Information ......................................... 50
6.5. Absence of Undisclosed Liabilities ............................ 51
6.6. Absence of Changes ............................................ 51
6.7. Tax Matters ................................................... 54
6.8. Litigation, Etc. .............................................. 56
6.9. Compliance; Governmental Authorizations ....................... 56
6.10. Accounts Receivable; Accounts Payable ......................... 57
6.11. Labor Relations; Employees .................................... 58
6.12. Employee Benefit Plans ........................................ 59
6.13. Insurance ..................................................... 60
6.14. Real Property ................................................. 61
6.15. Burdensome Restrictions ....................................... 61
6.16. Disclosure .................................................... 61
SECTION 7 REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT COMPANY ........ 62
7.1. Organization, Good Standing and Power ......................... 62
7.2. Authority ..................................................... 62
7.3. Capitalization ................................................ 64
7.4. Financial Information ......................................... 64
7.5. Absence of Undisclosed Liabilities ............................ 65
7.6. Absence of Changes ............................................ 65
7.7. Litigation, Etc. .............................................. 67
7.8. Compliance; Governmental Authorizations ....................... 67
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7.9. Employees ..................................................... 68
7.10. Insurance ..................................................... 68
7.11. Burdensome Restrictions ....................................... 68
7.12. Disclosure .................................................... 68
SECTION 8 OPERATIONS COMMITTEE ............................................ 69
8.1. Formation and Operation of the Operations Committee ........... 69
8.2. Authoritative Functions of the Operations Committee ........... 69
8.3. Committee Policies and Procedures ............................. 72
SECTION 9 OBLIGATIONS OF THE MEDICAL GROUP ................................ 73
9.1. Compliance with Laws .......................................... 74
9.2. Use of Facility ............................................... 74
9.3. Choice of Braces, Splints, Appliances, Medical Supplies,
and Allografts ................................................ 75
9.4. Choice of Radiologists, Anesthesiologists, Hospitals,
Physical Therapy, MRI, and Other Medical Professionals
and Facilities ................................................ 75
9.5. Insurability .................................................. 75
9.6. Medicare ...................................................... 76
9.7. Accounts Receivable; Billing .................................. 76
9.8. Medical Personnel Hiring ...................................... 76
9.9. Continuing Education .......................................... 76
9.10. Clinical Research ............................................. 77
SECTION 10 CERTAIN COVENANTS ............................................... 77
10.1. Change of Control ............................................. 77
10.2. Legend on Securities .......................................... 78
SECTION 11 RECORDS ......................................................... 78
11.1. Medical Records ............................................... 78
11.2. Management Business Records ................................... 78
11.3. Access to Records Following Termination ....................... 79
SECTION 12 INSURANCE AND INDEMNITY ......................................... 79
12.1. Professional Liability Insurance .............................. 79
12.2. Life Insurance; Business Interruption ......................... 80
12.3. Indemnification by Medical Group .............................. 81
12.4. Indemnification by Management Company ......................... 81
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SECTION 13 TERMINATION; RESCISSION ........................................ 82
13.1. Termination by Medical Group .................................. 82
13.2. Termination by Management Company ............................. 83
13.3. Termination by Medical Group or Management Company ............ 84
13.4. Effect of Termination ......................................... 84
13.5. Repurchase of Assets .......................................... 86
13.6 Rescission By Medical Group ................................... 88
SECTION 14 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION ...................... 89
14.1. Non-Disclosure ................................................ 89
SECTION 15 NON-COMPETITION ................................................. 91
SECTION 16 OBLIGATIONS OF THE MANAGEMENT COMPANY ........................... 91
16.1. No Practice of Medicine ....................................... 91
16.2. No Interference with Professional Judgment .................... 91
16.3 Market Development Limitation ................................. 92
16.4 Physician Advisory Board ...................................... 94
16.5 Ancillary Services Facilities ................................. 94
16.6 Business Plan ................................................. 94
16.7 Business Combination .......................................... 95
SECTION 17 ASSIGNMENT ...................................................... 95
SECTION 18 NOTICES ......................................................... 96
SECTION 19 BENEFITS OF AGREEMENT ........................................... 97
SECTION 20 SEVERABILITY .................................................... 97
SECTION 21 GOVERNING LAW ................................................... 97
SECTION 22 HEADINGS ........................................................ 98
SECTION 23 ENTIRE AGREEMENT; AMENDMENTS .................................... 98
SECTION 24 ATTORNEYS' FEES ................................................. 98
SECTION 25 COUNTERPARTS .................................................... 99
SECTION 26 WAIVERS ......................................................... 99
XXXXXXX 00 XXXXXXXX XX XXXXXXXXX0X ......................................... 99
SECTION 28 CONTRACT MODIFICATION FOR PROSPECTIVE LEGAL EVENTS .............. 99
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INDEX OF DEFINED TERMS
Page No.
Accounts.................................................................... 28
Acquired Company............................................................ 93
Acquired Physicians......................................................... 93
Acquisition................................................................. 93
Additional Term............................................................. 3
Administrative Personnel.................................................... 19
Agreement................................................................... 1
Ancillary Division.......................................................... 43
Ancillary Service Start-Up Costs............................................ 45
Ancillary Service Start-Up Period........................................... 45
Annual Draw Amount.......................................................... 31
Annual Medical Group Compensation Amount.................................... 30
Annual Overpayment.......................................................... 31
Annual Shortfall............................................................ 31
Applicable Percentage....................................................... 36
Articles of Incorporation................................................... 11
Asset Purchase Agreement.................................................... 1
Assignment of Lease......................................................... 5
Authorized Management Company Operating Costs............................... 39
Authorized Signatories...................................................... 16
Balance Sheet............................................................... 50
Balance Sheet Date.......................................................... 50
Bankruptcy Event............................................................ 82
Base Term................................................................... 3
Billable Medical Personnel.................................................. 42
Xxxxxxxx.................................................................... 32
Budgets..................................................................... 27
Business Plan............................................................... 94
Bylaws...................................................................... 11
Code........................................................................ 55
Collateral.................................................................. 28
Collections................................................................. 32
Combined Exclusivity Area................................................... 92
Commencement Date........................................................... 3
Confidential or Proprietary Information..................................... 90
Constituent Practices....................................................... 54
Conversion Notice........................................................... 36
Conversion Period........................................................... 36
Corporate Overhead.......................................................... 39
Departing Physician......................................................... 34
Documents................................................................... 16
Draw Percentage............................................................. 29
Eligible Parties............................................................ 28
Employee Plans.............................................................. 59
Employees................................................................... 58
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INDEX OF DEFINED TERMS
Page No.
Equipment................................................................... 8
ERISA....................................................................... 59
Excluded Costs.............................................................. 38
Exclusivity Period.......................................................... 92
Facility.................................................................... 74
FF&E........................................................................ 8
Financing Statement......................................................... 29
Guaranteed Minimum Fee...................................................... 34
Internal Financial Statements............................................... 51
Involuntary Departure....................................................... 35
Legal Determination......................................................... 99
Lender...................................................................... 28
LOA......................................................................... 77
Look Back Period............................................................ 37
Management Business......................................................... 1
Management Company.......................................................... 1
Management Company Balance Sheet............................................ 64
Management Company Balance Sheet Date....................................... 64
Management Company Bank..................................................... 29
Management Company Costs.................................................... 37
Management Company Operating Costs.......................................... 38
Management Company Transaction Documents.................................... 62
Management Fee.............................................................. 34
Management Services......................................................... 2
Medical Business............................................................ 1
Medical Equipment........................................................... 7
Medical Group............................................................... 1
Medical Group Bank.......................................................... 15
Medical Group Collections Account........................................... 15
Medical Group Costs......................................................... 42
Medical Group Services...................................................... 32
Medical Group Transaction Documents......................................... 49
Medical Personnel........................................................... 22
Monthly Draw................................................................ 30
New Ancillary Service Medical Equipment..................................... 44
New Ancillary Services....................................................... 9
New Medical Office.......................................................... 41
New Medical Office Start-Up Costs........................................... 41
New Medical Office Start-Up Period.......................................... 42
New Office Division......................................................... 40
New Physician............................................................... 48
New Physician Compensation.................................................. 48
New Physician Net Collections............................................... 47
Office Lease................................................................ 6
Operating Account........................................................... 29
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INDEX OF DEFINED TERMS
Page No.
Operations Committee........................................................ 69
Physician Advisory Board.................................................... 94
Physician Breakeven Date.................................................... 48
Physician Start Date........................................................ 48
Professional Management Cost Savings........................................ 36
Professional Medical Cost Savings........................................... 36
Professional Practice Cost Savings.......................................... 36
Promissory Note............................................................. 83
Real Property............................................................... 61
Rescission Effective Date................................................... 88
Rescission Notice........................................................... 88
Rescission Option........................................................... 88
Rescission Period........................................................... 88
Restricted Stock Agreement.................................................. 81
Returns..................................................................... 54
Review Financial Statements................................................. 51
Signature Date.............................................................. 1
Simplified Exclusivity Area................................................. 93
Specialty Care Network Profit............................................... 36
Tax......................................................................... 55
Taxes....................................................................... 55
Technical Personnel......................................................... 20
Tenant Improvements......................................................... 71
Term......................................................................... 3
Unaudited Financial Statements.............................................. 64
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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 6.2 -- Equity Investments
SCHEDULE 6.3 -- Consents
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 -- Consents
SCHEDULE 7.4 -- Financial Information
SCHEDULE 7.5 -- Absence of Undisclosed Liabilities
SCHEDULE 7.6 -- Absence of Changes
SCHEDULE 7.7 -- Litigation, Etc.
SCHEDULE 7.9 -- Employees
SCHEDULE 7.11 -- Burdensome Restrictions
EXHIBITS
--------
EXHIBIT A -- Asset Purchase Agreement
EXHIBIT B -- Assignment of Lease
EXHIBIT C -- Restricted Stock Agreement
EXHIBIT D -- Stockholder Non-Competition Agreement
THIS MANAGEMENT SERVICES
AGREEMENT (the "Agreement") is entered
into on October 16, 1997, (the
"Signature Date"), effective as of
September 1, 1997, by and between
ORTHOPAEDIC SURGERY ASSOCIATES, INC.,
a Florida corporation (the "Medical
Group"), and BMJ MEDICAL MANAGEMENT,
INC., a Delaware corporation (the
"Management Company"), with reference to
the facts set forth below:
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 are
entering into an Asset Purchase Agreement (the "Asset Purchase Agreement"), in
the form of Exhibit A attached hereto, pursuant to which the Management Company
is acquiring substantially all of the assets of the Medical Group.
D. The Management Company and the Medical Group desire to enter into this
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:
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.
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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.
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 September 1, 1997 (the "Commencement Date")
and shall expire on the fortieth (40th) 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 successive terms
(each, an "Additional Term," 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 so 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
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the Medical Group in connection with the provision of any and all of the Medical
Group Services (as hereinafter defined) 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),
and subject to the further provisions of this Agreement, the Management Services
shall include such management and administrative services as may be reasonably
required in connection with (i) all of the offices (including New Medical
Offices, as hereinafter defined) 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 specified by the Operations Committee, be in the name of the
Management Company; provided, however, that without the prior approval of the
Operations Committee (as hereinafter defined), the Management Company shall not
enter into any agreement pursuant to which an unaffiliated third party will
perform substantially all of the duties of the Management Company set forth in
Section 3.6(a) hereof. The Management Company shall have no authority, directly
or
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indirectly, to perform, and shall not perform or enter into any agreement to
perform, Medical Group 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, leases premises and
provides Medical Group Services at the following location(s):
0000 X.X. 0xx Xxxxxx
Xxxx Xxxxx, Xxxxxxx 00000
0000 X. Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxx 00000
0000 Xxxxxx Xxxxxxxxx
Xxxxx X0
Xxxxxx Xxxxx, Xxxxxxx 00000
Immediately prior to the Commencement Date, the above-identified premises were
leased to the Medical Group, in the Medical Group's name. Effective from and
after the Commencement Date, each of the leases for such premises (except for
9th Avenue) is to be assigned from the Medical Group to the Management Company
pursuant to an assignment (each, an "Assignment of Lease") substantially in the
form attached hereto as Exhibit B. During the Term, the Medical Group shall,
subject in all instances to the terms of such leases, have the right to use such
premises solely for the provision of Medical Group Services in accordance with
the terms of this Agreement. In connection therewith, the Medical Group agrees
in all instances to abide by all of the terms and provisions of all such leases.
Upon the expiration of any of the leases assigned in accordance with this
Section
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3.2(a), 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; 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 the terms of such lease, and if the Medical Group does not give such
approval, the failure to enter into such new 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."
(b) A New Medical Office (as hereinafter defined) may be opened only upon
approval of the Operations Committee. 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 by the Management Company, in the Management Company's
name unless otherwise specified by the Operations Committee, and the Medical
Group shall, subject in each instance to the terms of any such lease, have the
right to use the premises of any such New Medical Office solely for the
provision of Medical Group Services in accordance with the terms of this
Agreement. In connection therewith, the Medical Group agrees in all instances to
abide by all of the terms and provisions of all such leases. Notwithstanding
anything to the contrary contained in this Agreement, the Management Company
may, in its sole discretion, determine to permanently close any New Medical
Office if such office is not, after 12 months of operation, profitable (as
determined in the sole discretion of the Management Company).
(c) Except as set forth in Sections 3.2(a) or (b) above, the closing or
relocation of any offices of the Medical Group shall be subject to agreement by
the Medical Group and the Management Company.
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(d) The services to be provided by the Management Company with respect to
the premises leased in accordance with this Section 3.2 shall include, without
limitation, the negotiation and renegotiation of leases, provision of ongoing
liaison with the landlords of the respective premises, identification of
potential new locations for Medical Group offices, financial analysis relating
to the opening, closing, and relocation of any offices, arrangement of necessary
repairs, maintenance and improvements, procurement of property insurance,
arrangement of telephone and other utility services, and hazardous waste
disposal, and all other reasonably necessary or appropriate services related to
all of the offices of the Medical Group.
(e) 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.
(f) 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) During the Term, the Management Company shall provide to the Medical
Group all equipment, including diagnostic and therapeutic medical equipment,
reasonably required by the Medical Group in connection with the provision of
Medical Group Services (collectively, the "Medical Equipment"). The Management
Company shall acquire (or lease), at its cost, all Medical Equipment, and the
Management Company shall retain ownership of (or the leasehold interest with
respect to) all Medical Equipment; provided, however, that one hundred percent
(100%) of the cost of such Medical Equipment shall be charged back to the
Medical Group on a depreciated basis. As used herein, the term
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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, or
arrange for the provision of, 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. 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 Medical Group's right to use the Equipment shall be subordinate to
the rights of any unaffiliated third party to which the Management Company
elects, in its sole discretion, to grant any security interest, mortgage, lien
or other encumbrance in or on the Equipment. 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.
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(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. 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:
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(i) Physical therapy;
(ii) Rehabilitative therapy;
(iii) Occupational therapy;
(iv) Magnetic resonance imaging, CT and/or other imaging services
(except diagnostic radiology);
(v) Outpatient surgery, such as may be provided in an ambulatory
surgical center; and;
(vi) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Any services generally provided by the Medical Group
immediately prior to the Commencement Date, including
without limitation (1) plain film and other diagnostic
radiology (if any), (2) ultrasound, (3) bone densitometry,
(4) electromyogram, (5) psychological testing, and (6)
vascular studies; and
(B) 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.
New Ancillary Services do not include the sale or provision of (or services
rendered in connection with) prosthetics, prosthetic devices, orthotics, durable
medical equipment, braces, splints, appliances, crutches, casts, or any other
supplies or similar
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items which are billable to patients or payors, all of which are to be included
in the scope of Medical Group Services.
(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 may otherwise be agreed
upon 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, the following (if
applicable):
(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 articles of incorporation (the "Articles of
Incorporation") and its bylaws (the "Bylaws") 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 Articles of
Incorporation or Bylaws.
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(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
any of the Management Company's bank accounts, and all checks
drawn on any Medical Group account shall be signed by an
authorized representative of the Medical Group.
(f) Assisting the Medical Group in the procurement and negotiation of
vendor and managed care payor 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 Medical Office locations, and
coordinating all functions associated with opening New Medical
Office locations.
(j) Preparing monthly financial and medical practice statistics
reports by satellite office and by physician, and the Management
Company shall use its reasonable efforts to have such reports
available, with respect to any given month, 20 days after the end
of such month.
(k) If requested by the Medical Group, providing from the Medical
Group's bank account(s) compensation payments to physicians and
professional corporations pursuant to service agreements, monthly
profit and loss
-12-
distributions, and quarterly bonus calculations; provided,
however, that the Management Company shall not be responsible for
or liable with respect to interpretations of the Articles of
Incorporation or Bylaws; provided, further, that all checks drawn
on any Medical Group bank account shall be signed by an
authorized representative of the Medical Group.
(l) Calculating physicians' annual earnings based on the Medical
Group's physician compensation formulas.
(m) Ongoing day-to-day communication with the managing partner,
member or stockholder (or other manager of the Medical Group) and
assisting such person 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, including an initial long-term plan and capital
expenditures budget and the Management Company shall use its
reasonable efforts to have such plan and budget delivered to the
Medical Group within 180 days and 90 days, respectively, after
the Commencement Date.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
(r) Sponsoring employee benefit plans and providing administrative
services relating
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thereto for the Medical Personnel (as hereinafter defined),
provided that if the Medical Group elects not to participate in
the employee benefit plans established by the Management Company,
the Management Company shall not be required to perform the
services set forth in this clause (r).
(s) Coordinating recruitment, interviewing, and hiring of new
physicians approved by the Medical Group, in the sole discretion
of the Medical Group.
(t) Implementing fee schedule increases and/or decreases established
by the Medical Group.
(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) Acting as liaison to hospital administration, physical therapy,
surgery center, MRI, and other ancillary services entities.
(y) Cooperating with outside accountants in preparing various
schedules and providing other information.
(z) Interacting with legal counsel as necessary.
3.6. Billing and Collection.
(a) The Medical Group acknowledges that ownership of all Accounts (as
hereinafter defined) is transferred by the Medical Group to the Management
Company as provided in greater
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detail in Section 5.1 of this Agreement. In order to facilitate the collection
of the Accounts, the Management Company shall through its personnel retained to
work in the offices of the Medical Group (i) xxxx patients and third party
payors in the Medical Group's name; (ii) collect accounts receivable resulting
from such billing; (iii) receive payments and prepayments from the Medical
Group's patients, Blue Cross and Blue Shield organizations, insurance companies,
health care plans, Medicare, Medicaid, HMOs, and any and all other third party
payors; (iv) 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) 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 their fiscal intermediaries) as third-party
payors. The Medical Group shall promptly turn over to the Management Company for
deposit into the Medical Group Collections Account in accordance with this
Agreement all checks and other payments received by the Medical Group or by any
of its partners, equity owners or employees from any patient or third party
payor for Medical Group Services rendered during the Term.
(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
signatories (the "Authorized Signatories") 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 Company to
-15-
take the actions specified in this Section 3.6 and to perform its duties under
this Agreement. If the Management Company notifies the Medical Group that an
Authorized Signatory is not signing the Documents in a timely manner, the
Management Company shall not be liable for any failure to perform its duties
hereunder or for any failure to perform the Management Services to the extent
caused by the failure of an Authorized Signatory to sign the Documents in a
timely manner.
(c) 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 applicable law and
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, deductibles,
payments for non-covered medical services, and deposits for surgeries (if
applicable), and 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 mechanics for
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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 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 Florida workers' compensation fee schedule.
(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), determine that payments received from such PPOs and
HMOs are in compliance with their respective contracts with the Medical
Group.
(x) With respect to capitation fee contracts with HMOs:
(A) Follow-up to ensure that payments to the Medical Group are
made on a timely basis; and
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(B) Review and audit enrollment data provided by the HMO to
ensure that the capitation payments are based on 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 the 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 insurance 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, follow-up on a timely
basis to ensure that withheld amounts are paid to the Medical Group, if
warranted, and to ensure that amounts not paid are verified and audited for
appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and third
party payors when appropriate.
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3.7. Administrative Personnel.
(a) The Management Company shall retain and provide or arrange for the
retention and provision 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 filing and transcription;
(ix) Chart Preparation;
(x) Historians;
(xi) Clinic Support;
(xii) Marketing; and
(xiii) Contract procurement and negotiation.
(b) The Management Company shall determine and pay, or arrange for the
payment of, the salaries and fringe benefits of the Administrative Personnel,
and shall provide or arrange for other personnel services related to the
Administrative Personnel, including, but not limited to, scheduling, determining
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
-19-
reasonably necessary, verify, or arrange for the verification of, educational
and employment experience, licensure, and insurability.
(d) The Management Company shall attempt, consistent with sound business
practices, to honor Medical Group requests with regard to the retention or
assignment of specific Administrative Personnel to the Medical Group. In the
event that the Management Company receives a complaint from the Medical Group
that any of the Administrative Personnel is interfering with or disrupting the
provision of Medical Group Services by the Medical Group, the Management Company
will use reasonable efforts to attempt to promptly remedy any such complaint. If
any such complaint is not remedied to the reasonable satisfaction of the Medical
Group, then the Management Company shall remove such Administrative Personnel,
if requested by the Medical Group, from the Medical Group's facilities, if and
to the extent such action by the Management Company will not violate any
applicable law.
(e) All of the services provided by the Management Company under this
Section 3.7, including the obligations set forth in Section 3.7(d), shall be
performed in compliance with all applicable laws.
3.8. Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.8, 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
-20-
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, which equipment and
supplies will be provided to the Medical Group by the Management Company in
accordance with the terms of this Agreement;
(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
-21-
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.
3.9. Medical Personnel Recruiting.
(a) The Management Company shall, upon request by the Medical Group, assist
the Medical Group in recruiting Medical Personnel. The Medical Group shall be
solely responsible for the selection and retention of Medical Personnel,
provided that any such Medical Personnel shall possess all of the licensure
required under applicable Federal and state law for such individual to perform
his or her duties. "Medical Personnel" means:
(i) Physicians (including fellows and residents, if any) providing
professional medical services who are employees or independent contractors
of the Medical Group; and
(ii) Physician assistants, nurse practitioners, and other health care
professionals who provide services that are billable to patients or third
party payors under the name of such health care professional (as
distinguished from services that are billable under the name of the
supervising physician).
(b) With respect to each of the Medical 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.
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3.10. Inventory and Supplies.
The Management Company shall order and purchase, or arrange for the order
and purchase of, inventory and supplies on behalf of the Medical Group, and such
other ordinary or appropriate materials as the Medical Group reasonably deems
necessary for the Medical Group to carry out its Medical Group Services.
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 stationery supplies;
(f) Printer supplies; and
(g) Linen and laundry supplies.
3.11. 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 income tax returns for the Medical Group.
3.12. Information Systems Management.
(a) The Management Company shall provide or arrange for the provision of
management information systems services to be utilized by the Medical Group.
These services
-23-
shall include, but not be limited to, ongoing maintenance and
enhancement of the existing information systems used by the Medical Group in
connection with the provision of the following services:
(i) Accounts receivable - Billing/Insurance/ Collections;
(ii) On-line appointment scheduling;
(iii) Internal e-mail;
(iv) On-line transcription;
(v) Faxing subsystem;
(vi) Electronic claims submission;
(vii) Patient flow monitoring system;
(viii) Authorization module;
(ix) Prescription module;
(x) X-ray tracking system;
(xi) Voice mail;
(xii) Paperless medical records;
(xiii) Bar code chart tracking system;
(xiv) Utilization management information; and
(xv) Outcome studies.
(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.
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3.13. Use of New Technologies in the Practice of Medicine.
The Management Company shall utilize reasonable efforts to promote the
integration of new technologies into the professional practice of the Medical
Group, including, without limitation, the use of satellite and other
telecommunications 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.
3.14. 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. These programs
shall be developed in such manner as the Management Company (in consultation
with the Medical Group) deems practical, and shall be conducted in compliance
with applicable laws and regulations governing advertising by the medical
profession. Any promotional materials created solely for the purpose of
marketing the services provided by the Medical Group and the use of any
individual physician's name in any promotional materials shall require the
consent of the Medical Group or such physician, as the case may be.
3.15. Insurance.
The Management Company shall, to the extent permitted by applicable law,
provide the insurance coverage described in
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Section 12.1, and may obtain the insurance described in Section 12.2 of this
Agreement.
3.16. 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 and patient medical records. The management of
all files and records shall be in compliance with applicable state and Federal
statutes. 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 by applicable law 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 from time to
time. Any change in such policies shall be subject to the approval of the
Operations Committee.
(c) In the event of termination of this Agreement, the Management Company
shall deliver to the Medical Group at no charge a copy of the books and records
of the Medical Group in the Management Company's possession. In the event any
physician of the Medical Group terminates his affiliation with the Medical Group
during the Term, the Management Company shall, within 30
-26-
days after receipt of written instructions from the Medical Group, deliver to
such physician a copy of the books and records pertaining to the Medical Group
Services provided by such physician during the five years prior to such
physician's departure from the Medical Group; provided that the Management
Company shall not be obligated to return any books and records pertaining to
Medical Group Services provided prior to the Commencement Date.
3.17. Managed Care Contracts.
The Management Company shall assist the Medical Group in soliciting,
negotiating and administering all managed care contracts on behalf of the
Medical Group based on parameters and 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.
3.18. 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 (all as hereinafter defined); provided,
however, that the Medical Group and the Management Company hereby agree that the
budget attached hereto as Schedule II is the Budget for the Medical Group with
respect to the initial three-month period under this Agreement. All other
budgets shall be on a calendar year basis. The Management Company shall prepare
and submit to the Operations Committee all subsequent
-27-
Budgets on or before December 15 of the year immediately preceding the calendar
year for which such Budget is applicable.
3.19. 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,
lock-outs, 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. Consideration.
In consideration of the Medical Group's entering into this Agreement, the
Management Company shall provide to each person identified on Schedule III
attached hereto (the "Eligible Parties"), the consideration set forth opposite
such person's name on Schedule III, the allocation of which has been determined
and apportioned by the Medical Group.
SECTION 5. Costs, Compensation, and Other Payments.
5.1. Ownership of Accounts; Security.
The Medical Group hereby transfers to the Management Company ownership of
all accounts receivable and other rights to payment arising from the provision
by the Medical Group of the Medical Group Services and related services to the
general public during the Term (the "Accounts"); provided, however, that the
right to payment of Medicaid and Medicare receivables shall remain with the
Medical Group in accordance with applicable Federal and state law. The
Management Company shall have the right to grant to any lender (the "Lender") a
lien and security interest in and with respect to the Accounts, together with
all books, records, computer information and other general intangibles relating
thereto (collectively, the "Collateral"), as
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security for the obligations of the Management Company to the Lender, and the
Medical Group shall execute a financing statement (the "Financing Statement")
for the benefit of the Management Company evidencing the foregoing transfer of
the Accounts and perfecting the Management Company's ownership interests
therein. The Medical Group hereby acknowledges that the Lender is a third party
beneficiary of the benefits granted to the Management Company under this Section
5.1. The Medical Group shall cooperate with the Lender as reasonably requested
in the event the Lender seeks to enforce its rights and remedies under its
agreement with the Management Company, including granting the Lender access, to
the extent permitted by law, to all books and records associated with the
Collateral. Neither the Management Company nor the Lender shall be required to
give the Medical Group any notice in connection with any loan or related
financing arrangements affecting the Accounts or other Collateral.
5.2. Bank Accounts.
The Medical Group shall instruct the Medical Group Bank to transfer, on a
daily basis, all funds in the Medical Group Collections Account (less the amount
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").
5.3. Medical Group Compensation.
(a) Monthly Draw.
(i) On each Draw Date (as hereinafter defined) 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 (as hereinafter defined) for Medical Group
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Services provided during the previous month (the "Monthly Draw"). The Draw
Date and the initial Draw Percentage are as set forth on 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 (as
hereinafter defined) for the previous year, and the denominator of which is
the total amount of Xxxxxxxx for the previous year. Additionally, the
Management Company shall adjust the Draw Percentage from time to time (but
in no event less than one additional time during any twelve-month period)
based on the actual Collections year-to-date in order to minimize the
amount of any annual settlement payment reasonably anticipated to be
required under Section 5.3(b).
(b) Annual Settlement.
(i) On or before April 30 of each year beginning 1998, the
Management Company shall calculate the compensation (the "Annual Medical
Group Compensation Amount") earned by the Medical Group with respect to
the prior calendar year in accordance with the following:
(A) The total Collections for all Medical Group Services
rendered during such year, minus
(B) the sum of the following:
(1) the Management Fee earned by the Management Company for
the previous calendar year; and
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(2) the Authorized Management Company Operating Costs (as
hereinafter defined) incurred by the Management Company
during such year.
(ii) If the Annual Medical Group Compensation Amount thus determined
exceeds (the "Annual Shortfall") 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 the Annual
Shortfall. If the Annual Medical Group Compensation is less (the "Annual
Overpayment") than the Annual Draw Amount, the Management Company shall
withhold from the Monthly Draw otherwise payable to the Medical Group,
during each of the following six (6) months, an amount equal to one-sixth
(1/6) of such Annual Overpayment.
(iii) With respect to this Section 5.3(b), for purposes of determining
the total Collections for all Medical Group Services provided during any
calendar year or portion thereof during the Term, all Collections during
January, February, and March of such 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. The foregoing shall also apply with respect to determining
the Management Fee earned by the Management Company for the previous
calendar year, for purposes of this Section 5.3(b).
(iv) Notwithstanding anything to the contrary set forth herein, the
first period for which the annual
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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) 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 for Medical Group Services,
including any capitation payments, less any refunds, recoupments,
repayments or reductions applied during such period.
(iii) "Medical Group Services" means the following services rendered
by, through, or on behalf of the Medical Group: all professional services
rendered by or under the supervision of any of the Medical Personnel
(including professional services rendered in connection with New Ancillary
Services); all plain film and other 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 ultrasound; all
prosthetics, prosthetic devices, orthotics, braces, splints, appliances,
durable medical equipment, and other items and supplies that are billable
to patients or to third party payors; depositions, record review services,
court appearances, and independent medical exams; and all other services
provided on a regular basis by the Medical Group immediately prior to the
Commencement Date (except as set forth below).
(iv) It is the intent of the parties that Xxxxxxxx, Collections, and
Medical Group Services not include any of the following:
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(A) New Ancillary Services (excluding professional services
rendered by Medical Personnel in connection therewith,
which professional services are included under Section
5.3(c)(iii) above);
(B) interest income;
(C) royalties payable to any Medical Group physician for
medical inventions;
(D) fees payable under consulting agreements entered into
by Medical Group physicians, including any such
agreements set forth on Annex I attached hereto;
(E) revenues from presentations, publications, medical
directorships, service as the head of a department in a
hospital or other health care facility, clinical
trials, investigations and endorsements, including any
such activities set forth on Annex I attached hereto;
(F) proceeds from the sale of any capital assets of the
Medical Group; and
(G) any income from investments.
Notwithstanding anything to the contrary contained therein, any revenues
received by any Billable Medical Personnel (as hereinafter defined) from any
source set forth in clauses (D) and (E) above, shall be included in Xxxxxxxx,
Collections and Medical
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Group Services if the revenues from Medical Group Services generated by such
Billable Medical Personnel during any year are materially reduced by the
Billable Medical Personnel's participation in such activities.
(v) For illustrative purposes only, an example of the computation of
the Annual Settlement is set forth on Schedule VII attached hereto.
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 retain from funds received by the Management Company from
time to time at its discretion, shall be equal to (i) the sum of (A) an amount
equal to the Applicable Percentage (as hereinafter defined) of Collections, (B)
an amount equal to sixty six and two-thirds percent (66-2/3%) of the
Professional Management Cost Savings (as hereinafter defined) and (C) any
amounts owed to the Management Company pursuant to Section 5.11 hereof, if any,
less (ii) an amount equal to the Medical Group's pro rata portion of the
Specialty Care Network Profit (as hereinafter defined) for such period, if any,
based on the number of claims generated by the Medical Group through the
specialty care network owned or operated by the Management Company during the
applicable period; provided, however, that in the event the Applicable
Percentage of Collections shall equal an amount that is less than $799,000 for
any calendar year ending on or before December 31, 2001, the Management Fee for
such period shall, notwithstanding anything to the contrary contained herein,
equal $799,000 plus the amounts described in clauses (B) and (C) above (the
"Guaranteed Minimum Fee"). The Guaranteed Minimum Fee shall be decreased by an
amount determined in accordance with the formula set forth below in the event
that any physician equity owner (the "Departing Physician") of the Medical Group
(1) retires from, or terminates
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his or her equity owner status in, the Medical Group and the Departing Physician
pays the Buyout Amount (as defined in the Stockholder Non-Competition
Agreement), in full, to the Management Company pursuant to Section 5 of the
Stockholder Non-Competition Agreement (as hereinafter defined), or (2) dies or
becomes permanently disabled (as such term is defined in the Restricted Stock
Agreement (as hereinafter defined)) (such death or permanent disability being
referred to herein as an "Involuntary Departure"). Any such event shall cause a
decrease in the Guaranteed Minimum Fee only for the year in which the Buyout
Amount is paid or the Involuntary Departure occurs, as the case may be. The
amount of the decrease in the Guaranteed Minimum Fee shall be determined
pursuant to the following:
Q = IC / MGC x GMF
where,
Q = the amount by which the Guaranteed Minimum Fee shall be
reduced;
IC = the aggregate Collections of the Departing Physician for the
12-month period ending on the last day of the month prior to the
date the Departing Physician leaves the Medical Group;
MGC = the aggregate Collections of the Medical Group for the
12-month period ending on the last day of the month prior to the
date the Departing Physician leaves the Medical Group; and
GMF = $799,000.
The Guaranteed Minimum Fee for the year following the year in which the
Departing Physician pays the Buyout Amount or the Involuntary Departure occurs
shall again equal $799,000. The
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Management Fee shall not include any Professional Medical Cost
Savings (as hereinafter defined), but all of such savings will
accrue for the benefit of the Medical Group. For illustrative
purposes only, an example of the computation of the Management
Fee is set forth on Schedule VII attached hereto.
(b) For purposes of this Section 5.4, the following terms have the meanings
set forth below:
(i) "Applicable Percentage" has the meaning set forth on Schedule V;
(ii) "Professional Management Cost Savings" means the actual
Professional Practice Cost Savings described in Section A.1 of Schedule VI;
(iii) "Professional Medical Cost Savings" means the actual
Professional Practice Cost Savings described in Section A.2 of Schedule VI.
(iv) "Professional Practice Cost Savings" means the actual cost
savings determined in the manner described on Schedule VI; and
(v) "Specialty Care Network Profit" means the excess of the fee(s)
received by the Management Company over the costs incurred by the
Management Company, each in connection with its ownership and/or operation
of a specialty care network.
(c) Notwithstanding anything contained herein to the contrary, during the
30 day period from September 1, 2000 to September 30, 2000 (the "Conversion
Period"), the Medical Group shall have the right, upon delivery of a written
notice (the "Conversion Notice") to the Management Company, to cause the
Management Fee to be converted from a fee based upon the Applicable Percentage
of Collections to a fee that is based upon
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the applicable Percentage of Net Operating Income (as hereinafter defined). For
purposes hereof, Net Operating Income shall mean Collections less the Management
Company Operating Costs (without deduction of the Management Fee). In such a
case, the parties will review the 12 month period from September 1, 1999 to
August 31, 2000 (the "Look Back Period") and will determine the Collections and
Management Company Operating Costs for the Look Back Period. The parties will
then determine the Management Fee payable during the Look Back Period (based
upon the Applicable Percentage of Collections) and divide such amount by the Net
Operating Income for the Look Back Period. The resulting percentage will then be
deemed to be the new Applicable Percentage, which will thereafter be multiplied
by the Net Operating Income to determine future Management Fees. In the event
the Medical Group delivers the Conversion Notice, the parties will amend this
Management Services Agreement within 90 days of the expiration of the Conversion
Period to so reflect the afore-referenced change, which amendment shall be
satisfactory to the Medical Group and the Management Company.
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"). 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.
(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.
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(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 to the Medical Group, including, without limitation, those
costs and expenses set forth in the Budget, except that any costs and expenses
defined as Medical Group Costs in Section 5.7 hereof, and any Excluded Costs (as
hereinafter defined) shall not be deemed Management Company Operating Costs. To
the extent that the Medical Group and the Management Company mutually determine
that an expenditure not included in the Budget needs to be incurred in
connection with the provision of Management Services hereunder, such expenditure
shall be included in Management Company Operating Costs for purposes of this
Agreement. "Excluded Costs" means all of the following costs and expenses
incurred in connection with the provision of the Management Services hereunder:
(i) Ancillary Service Start-Up Costs (as hereinafter defined);
(ii) New Medical Office Start-Up Costs (as hereinafter defined);
(iii) the cost of any FF&E provided by the Management Company to the
Medical Group, including the capital costs associated with any information
systems technology implemented by the Management Company (subject to the
provisions of Section 8.2(e) hereof); provided that the costs associated
with the maintenance of such technology shall be an expense included in the
Budget and shall be deemed an Authorized Management Company Operating Cost
for purposes of this Agreement;
(iv) depreciation, amortization, and interest; and
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(v) corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following conditions are
satisfied, as determined by the Operations Committee:
(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 by the Management Company in the provision of Management Services hereunder
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
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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 this Agreement.
5.6. New Medical Office Start-Up Costs.
(a) The Management Company shall pay, to the extent provided herein, all
New Medical Office Start-Up Costs incurred in connection with the establishment
of any New Medical Office. The Management Company shall create a separate
division (the "New Office Division") for purposes of accounting for the income,
costs, profits, and losses of any New Medical Office. 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
Medical Office. Notwithstanding anything to the contrary contained herein,
Corporate Overhead shall not be included in determining the costs and expenses
associated with any New Medical Office. At the end of the New Medical Office
Start-Up Period (as hereinafter defined), (i) the Management Company shall be
reimbursed for all of the Management Company Operating Costs incurred by the
Management Company for each New Medical Office, (ii) the Management Company
shall be entitled to receive the aggregate Management Fee as described in
Section 5.4 and (iii) the Medical Group shall be entitled to receive the Annual
Medical Group Compensation Amount for such new Medical Office, in each case, as
if such New Medical Office had been any other office of the Medical Group during
the New Medical Office Start-Up Period; provided, however, that notwithstanding
the foregoing, if the aggregate Collections for such New Medical Office during
the New Medical Office Start-Up Period is equal to or less than the New Medical
Office Start-Up Costs associated with such New Medical
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Office during the New Medical Office Start-up Period, then (A) the Management
Company and the Medical Group shall not be entitled to receive the Management
Fee or the Annual Medical Group Compensation Amount, as applicable, and (B) the
Management Company shall be responsible for the deficit, if any, associated with
such New Medical Office; provided that the aggregate amount of Collections
received during the New Medical Office Start-Up Period for such New Medical
Office shall belong solely to the Management Company.
(b) Except to the extent provided in Section 5.6(a) above, the xxxxxxxx,
collections, costs and expenses relating to any New Medical Office shall not,
during the New Medical Office Start-Up Period, be included in the computations
of Medical Group Compensation, the Management Fee, Management Company Costs,
Ancillary Services, or Medical Group Costs as described in Sections 5.3, 5.4,
5.5, 5.8, or 5.7, respectively.
(c) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and provided to the Medical Group in
accordance with the terms of Section 3.3 hereof.
(d) 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 Section 3.2(a) hereof.
(e) 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 Operating Costs and all costs associated with the development of such
New Medical Office other than Medical Group Costs, provided that, the costs
incurred in connection with any New Physician (as hereinafter defined) shall be
borne in accordance with the provisions of Section 5.11 hereof.
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(f) 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 last
day of the calendar month in which a period of twelve (12) months has elapsed
from and after the date on which the New Medical Office first opened for the
treatment of patients. In the event that the New Medical Office is profitable
(as determined by the Management Company) as of the end of the New Medical
Office Start-Up Period, at all times thereafter such New Medical Office shall,
for all purposes of this Agreement, be treated as any other office of the
Medical Group.
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 any bank account of the Management Company. The
Medical Group Costs are as follows:
(a) compensation of all Medical Personnel that (i) are authorized to
directly xxxx patients, Medicare, Medicaid and third party payors
and (ii) are employed directly by the Medical Group (such persons
being referred to herein as the "Billable 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, disability insurance, life insurance, 401(k)
retirement plan, business
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buy-out disability insurance and continuing education; and
(c) 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, to the extent permitted by applicable law:
(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. Notwithstanding anything to the contrary contained
herein, Corporate Overhead shall not be included in determining the costs
and expenses associated with any 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
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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 shall be provided to the
Medical Group on terms substantially similar to those set forth in Section
3.3 hereof.
(iv) The Management Company shall pay all of the Ancillary Service
Start-Up Costs. Beginning with the month immediately following the
expiration of the Ancillary Service Start-Up Period (as hereinafter
defined), 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 lower of the prevailing prime rate
as set forth in the Wall Street Journal 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, if applicable.
(v) The Management Company shall provide, in connection with any New
Ancillary Service, the full range of management services described in this
Agreement.
(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
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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
earlier to occur of (i) the last day of the first period of two (2) consecutive
calendar months for which the New Ancillary Service shows a profit (as
determined by the Management Company) or (ii) the last day of the twelfth month
after the establishment of such New Ancillary Service.
(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 prepaid rent, and tenant improvements;
(iv) All costs related to the acquisition of materials and supplies
related to the provision of such New Ancillary Service; and
(v) All ongoing costs of the New Ancillary Service, including but
not limited to personnel (other than the Billable Medical Personnel) and
related benefits, the
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cost of operating any equipment utilized in providing the service,
supplies, insurance, rent, repairs and 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 three percent (3%) of the total amount of Medical Group
Compensation otherwise 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, in whole or in part and at any time during
the period commencing on the Commencement Date and ending 90 days thereafter
(subject to extension by agreement of the Medical Group and the Management
Company), rather than being fully
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implemented immediately on the Commencement Date. Accordingly, the parties
further agree that the Management Fee and Monthly Draw 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.
5.11. New Physician Compensation Costs.
(a) Notwithstanding anything contained herein to the contrary, during the
period beginning on the New Physician Start Date (as hereinafter defined) and
ending on the Physician Breakeven Date (as hereinafter defined), the Management
Company shall be responsible for the payment of all New Physician Compensation
(as hereinafter defined) and notwithstanding anything to the contrary contained
in this Agreement, shall receive, in consideration therefor, sixty six and
two-thirds percent (66-2/3%) (such amount being referred to herein as the "New
Physician Net Collections") of all Collections generated by such New Physician
for those Medical Group Services performed by such New Physician until the
Physician Breakeven Date, and such amounts shall not be included in determining
Collections for purposes of this Agreement. The remaining thirty three and
one-third percent (33 1/3%) of such Collections shall belong to the Medical
Group until the Physician Breakeven Date, and such amounts shall not be included
in determining Collections for purposes of this Agreement. As of the Physician
Breakeven Date, the New Physician Compensation shall be payable by, and become
the responsibility of, the Medical Group in accordance with Section 5.7 hereof,
and one hundred percent (100%) of all of the Xxxxxxxx and Collections generated
by such New Physician thereafter shall be considered Xxxxxxxx and Collections of
the Medical Group for purposes of this Agreement.
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(b) "New Physician" means, any physician who, at any time after the
Commencement Date, becomes affiliated with or employed by the Medical Group;
provided that if such physician becomes affiliated with or employed by the
Medical Group pursuant to a transaction between the Management Company and such
physician or a medical group with which such physician is affiliated in which
the Management Company acquires any assets or accounts receivable from such
physician or such medical group or pays any other consideration to such
physician or such medical group in connection with such physician's affiliation
or employment with the Medical Group and/or the Management Company, then such
physician shall not be deemed to be a New Physician for purposes of this
Agreement.
(c) "Physician Breakeven Date" means, with respect to any New Physician,
the date on which the New Physician Net Collections for the period beginning on
the New Physician Start Date and ending on the date of determination first equal
or exceed (i) the aggregate amount of New Physician Compensation paid to such
New Physician for the foregoing period plus (ii) that portion of the Management
Company Costs associated with such New Physician and/or the Medical Group
Services provided by such New Physician.
(d) "New Physician Compensation" means, with respect to any New Physician
and for any period in question, the amount of compensation (wages and otherwise)
payable to such New Physician by the Medical Group.
(e) "Physician Start Date" means, with respect to any New Physician, the
date such New Physician becomes affiliated with or employed by the Medical
Group.
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, as follows:
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6.1. Organization; Good Standing; Qualification and Power.
The Medical Group is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida 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 Assignments of Lease, the
Financing Statement and the Stockholder Non-Competition Agreements (as
hereinafter defined) (collectively, the "Medical Group Transaction Documents"),
to perform its obligations hereunder and 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 Articles of Incorporation
and its Bylaws, each as in effect on the date hereof.
6.2. Equity Investments.
Except as set forth on Schedule 6.2, 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 this Agreement and the other
Medical Group Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Medical Group. This Agreement and the other
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
-49-
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 this
Agreement or any other Medical Group Transaction Document 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 conflict with or result in a breach of any provision of the
formation documents of the Medical Group, 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 is a party or by which the Medical Group or
any of its 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 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 or any of its properties or
assets or the Medical Business. Except as provided on Schedule 6.3, to the best
of the Medical Group'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 Medical Group of this Agreement or any other Medical Group Transaction
Document or the consummation of the transactions contemplated hereby and
thereby.
6.4. Financial Information.
Schedule 6.4 contains the internal statement of assets, liabilities and
stockholders' equity of the Medical Business at July 31, 1997 (the "Balance
Sheet"; and the date thereof being referred to as the "Balance Sheet Date"), and
the related
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internal statements of revenue and expenses for the seven-month period then
ended (including the notes thereto and other financial information included
therein) (collectively, the "Internal Financial Statements"), and (b) the
compiled financial statements of the Medical Business for the periods ended
December 31, 1996, December 31, 1995, and December 31, 1994 (the "Review
Financial Statements"). The Internal Financial Statements and the Review
Financial Statements (i) are 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) have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods covered thereby.
6.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 6.5, as of the Balance Sheet Date, 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 for or
disclosed on the Balance Sheet, all liability reserves established by the
Medical Business on the Balance Sheet were adequate and 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,
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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;
(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
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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 (such as that payable to Xxxxxx Xxxxx through
1997), 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) any agreement or commitment relating to the sale of any material fixed
assets of the Medical Business;
(l) any other transaction relating to the Medical Business other than in
the ordinary course of the Medical Business and consistent with past practice;
or
(m) any agreement or understanding, whether in writing or otherwise, for
the Medical Business to take any of the actions specified in items (a) through
(l) above.
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6.7. Tax Matters.
(a) Except as set forth on Schedule 6.7, (i) all Taxes (as hereinafter
defined) 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 or the constituent medical practices that
combined to form the Medical Group (the "Constituent Practices") 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 Taxes
are
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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 Constituent Practices 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
ss.1.1445-2(b) of the Regulations under Section 1445 of the Internal Revenue
Code of 1986, as amended (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, 1996 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
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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 the best knowledge of the Medical Group, threatened against the
Medical Group, or any equity owner of 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 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
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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. To the best knowledge
of the Medical Group, neither the Medical Group, nor any of the Medical
Personnel employed by the Medical Group is now or in the last four years has
been the subject of or involved in any investigation by any Federal, state or
local regulatory agency related to its or his Medicare, Medicaid or other third
party payor billing practices.
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 no account receivable or note receivable of the
Medical Business pledged to any third party. The Medical Group has provided the
Management Company with an accounts receivable aging report dated as of October
1, 1997 that is true and complete as of the date thereof.
(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.
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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) to
the best knowledge of the Medical Group, 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.
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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 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
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 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.
(c) To the best knowledge of the Medical Group, except as set forth on
Schedule 6.12; (i) each Employee Plan has been operated and administered in
compliance with ERISA, the Code
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and in accordance with the provisions of all other applicable Federal and state
laws; (ii) all reporting and disclosure obligations imposed under ERISA and the
Code have been satisfied with respect to each Employee Plan; (iii) to the best
knowledge of the Medical Group, no breaches of fiduciary duty or prohibited
transactions have occurred with respect to any Employee Plan; and (iv) all
reporting, disclosure and bonding obligations have been satisfied with respect
to each Employee Plan.
(d) The Medical Group has made available to the Management Company a true
and complete copy of each Employee Plan and a true and complete copy of each of
the following documents, prepared in connection with such Employee Plan; (i)
each trust or other funding arrangement, (ii) the two most recently filed Annual
Reports (Form 5500), including attachments, for each Employee Plan, and (iii)
the most recently received IRS determination letter.
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 or 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. True and complete copies of all leases to which the Medical
Group is a party or by which the Medical Group leases space have been delivered
to the Management Company.
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 or restricts 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
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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, as follows:
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, to execute and
deliver this Agreement and each of the Asset Purchase Agreement, the Restricted
Stock Agreements (as hereinafter defined), the Assignments of Lease, and the
Stockholder Non-Competition Agreements (collectively, the "Management Company
Transaction Documents"), to perform its obligations hereunder and thereunder,
and to consummate the transactions contemplated hereby and thereby.
7.2. Authority.
The execution, delivery and performance of this Agreement and the other
Management Company Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Management
Company. This Agreement and each Management Company Transaction Document has
been duly and validly executed and delivered by the Management
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Company, and this Agreement and each such Management Company Transaction
Document is the valid and binding obligation of the Management Company,
enforceable in accordance with its 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 this Agreement or any other Management Company
Transaction Document, nor the consummation by the Management Company of the
transactions contemplated hereby or thereby, nor compliance by the Management
Company with any provision hereof or thereof, will (a) conflict with or result
in a breach of any provisions of the Amended and Restated Certificate of
Incorporation or the Bylaws 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 (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) 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 set forth on
Schedule 7.2, 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 any other Management Transaction Document or the consummation by the
Management Company of the transactions contemplated hereby or thereby.
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7.3. Capitalization.
(a) The total authorized capital of the Management Company consists of
25,000,000 shares of common stock, of which 10,105,518 shares are issued and
outstanding, and 9,233,049 shares of preferred stock, of which (i) 999,999
shares of Series A Convertible Preferred Stock, (ii) 2,000,001 shares of Series
B Convertible Preferred Stock, (iii) 254,999 shares of Series C Convertible
Preferred Stock, (iv) 188,072 shares of Series D Convertible Preferred Stock,
and (v) 741,667 shares of Series E Convertible Preferred Stock are issued and
outstanding. Each of the outstanding shares of capital stock has been duly and
validly authorized and issued, is fully paid for and non-assessable, and was
issued in compliance with all applicable Federal and state securities laws.
(b) 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. Financial Information.
Schedule 7.4 contains (a) the unaudited statements of assets, liabilities
and stockholders' equity of the Management Business at the date set forth
therein (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)
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were prepared in accordance with the books and records of the Management
Business and (ii) fairly present the financial position of the Management
Business as of the dates thereof.
7.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 7.5, as of the Management Company Balance
Sheet Date, (a) the Management Business did not have any material liability of
any nature required to be disclosed on a balance sheet (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.
7.6. Absence of Changes.
Except as set forth on Schedule 7.6, 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, 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;
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(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);
(e) any license, sale, transfer, pledge, mortgage or other disposition of
any material tangible or intangible asset of the Management Business except in
the ordinary course of the Management Business and consistent with past
practice;
(f) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Management
Business;
(g) 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;
(h) any other transaction relating to the Management Business other than in
the ordinary course of the Management Business and consistent with past
practice; or
(i) any agreement or understanding, whether in writing or otherwise, for
the Management Business to take any of the actions specified in items (a)
through (h) above.
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7.7. Litigation, Etc.
Except as set forth on Schedule 7.7, 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,
which, if adversely determined, could have a material adverse effect on the
Management Company 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.
7.8. 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.
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7.9. Employees.
Except as set forth on Schedule 7.9, the Management Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them
through the date hereof.
7.10. Insurance.
The Management Company has obtained such policies of insurance as are usual
and customary for businesses of the type conducted by the Management Company.
All such policies of insurance are valid and enforceable policies, and all
premiums with respect thereto are currently paid.
7.11. Burdensome Restrictions.
Except as set forth on Schedule 7.11, 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).
7.12. 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.
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SECTION 8. Operations Committee.
8.1. Formation and Operation of the Operations Committee.
The Management Company and the Medical Group shall establish a committee
(the "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 two (2) members. All of the equity owners
of the Medical Group shall constitute one member of the Operations Committee and
the Management Company shall designate a representative to be the other member
of the Operations Committee. The equity owners of the Medical Group shall vote
as a unit (with the vote of the majority of such equity owners determining the
vote for the Medical Group's representative to the Operations Committee). The
business of the Operations Committee shall be conducted in accordance with the
policies and procedures described in Section 8.3 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) Capital expenditures to be made by the Management Company in
fulfillment of its obligations hereunder;
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(iv) Management Company Operating Costs (which, in the absence of
approval by the Operations Committee, shall be increased by
two and one-half percent (2.5%) 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 (including the location from
which such services may be provided) 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
(vii) Claim review requests
(viii) "Insurance only" and other courtesy write-off policies
(ix) Lien account collection policies
(x) Student Athlete account policies
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(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 Equipment (including any
Medical Equipment, FF&E or other items relating to or necessary
in connection with the integration of new technologies into the
professional practice of the Medical Group), (ii) the undertaking
of any Tenant Improvements relating to patient care facilities,
or (iii) the undertaking of any other Tenant Improvements, if,
with respect to any of the foregoing, the cost would exceed
$10,000.
(f) Establish parameters and criteria for off-site storage of files
and records of the Medical Group.
(g) Identification of physician subspecialties required for the
efficient operation of the Medical Group; advice regarding all
Medical Personnel employment and recruitment contracts to be
utilized by the Medical Group.
(h) Development of long-term strategic planning objectives for the
Medical Group.
(i) Public relations, advertising, and other marketing of Medical
Group Services, including design of exterior signs.
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(j) The establishment of fees for professional services and ancillary
services rendered by the Medical Group.
(k) Access and quality issues pertaining to ancillary services.
(l) Insurance limits and insurance coverage of the Medical Group and
the Management Company, as such coverage may relate to Medical
Group operations and activities.
(m) 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.
Notwithstanding anything to the contrary contained in this Section 8.2, the
Operations Committee does not have the power to bind the Medical Group on any
decision with respect to which discretion regarding such matters is vested in
the Medical Group under the terms of this Agreement or by applicable law and, in
such case, the Medical Group shall have ultimate responsibility for the exercise
of such discretion.
8.3. Committee Policies and Procedures.
(a) One of the equity owners of the Medical Group (which individual shall
be appointed by vote of a majority of the equity owners) shall act as Chairman
of the Committee, and the Management Company representative shall 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
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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 8.3.
(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 8.3(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 both members of the Operations Committee present or
represented by proxy at the applicable meeting. A quorum of the Operations
Committee consist of both members of the Operations Committee, 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 consent, without a meeting, as the Operations Committee determines are
advisable, provided that both members (in person or by proxy) must sign any
written consent.
SECTION 9. Obligations of the Medical Group.
The Medical Group shall have the following obligations during the Term:
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9.1. Compliance with Laws.
The Medical Group shall use its best efforts to provide professional
services to patients in compliance at all times with those ethical standards,
laws and regulations to which they are subject, including, without limitation,
Medicare and Medicaid regulations. 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 appropriately licensed. 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 medical malpractice actions are filed or any disciplinary 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 use its best efforts to
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 office or laboratory
controlled, managed or operated by
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the Management Company or (ii) any hospital at which any Medical Personnel
practices medicine or maintains admitting privileges.
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 be
considered New Ancillary Services or New Medical Offices, as the case may be,
unless the parties have agreed thereto in accordance with Section 3.4(b) or
3.2(b), as the case may be.
9.5. Insurability.
The Medical Group shall cooperate with the Management Company in (i)
ensuring that its Medical Personnel are insurable under commercially available
malpractice insurance policies or (ii) instituting proceedings to terminate
within thirty business days any Medical Personnel who is not so insurable or who
loses his or her malpractice insurance eligibility unless the Medical Group
makes (within such 30-day period) other arrangements reasonably appropriate
under the circumstances and reasonably acceptable to the Management Company. 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
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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. Accounts Receivable; Billing.
From the Commencement Date, the Medical Group acknowledges and agrees that
all Accounts of the Medical Group or its Medical Personnel shall be the property
of the Management Company hereunder and the Medical Group and the Medical
Personnel hereby transfer and assign all of their right, title and interest to
such Accounts to the Management Company; provided, however, that the right to
payment of Medicaid and Medicare receivables shall remain with the Medical Group
in accordance with applicable Federal law. 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.
9.9. Continuing Education.
The Medical Group and its Medical Personnel shall be solely responsible for
ongoing membership in professional
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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. Clinical Research.
The Medical Group shall have the ultimate control over and responsibility
for any 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.
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 stockholders, the transfer of
ownership interests, or the 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. The Management Company hereby consents to the proposed business
combination between the Medical Group and Lighthouse Orthopedic Associates, P.A.
("LOA"), as described in that certain letter agreement dated the Signature Date,
provided that such combined entity enters into a management services agreement
identical to this agreement in all material respects, and each of those
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physicians practicing within each of the Medical Group and LOA transfer his
respective medical practice to such combined entity.
SECTION 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 SEPTEMBER 1, 1997, BETWEEN ORTHOPAEDIC SURGERY ASSOCIATES,
INC., A FLORIDA CORPORATION, AND BMJ MEDICAL MANAGEMENT, INC., A DELAWARE
CORPORATION."
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, if such has not been issued prior to the date hereof.
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.
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 property of the Management Company. The Management Company shall maintain
custody of such records, and the Medical Group shall, upon its
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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.
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.
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 and to the extent commercially available, 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 the greater of what each
physician shareholder or the Medical Group has in place
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immediately prior to the Commencement Date or $250,000 per claim and with
aggregate policy limits of not less than $750,000 (or such higher amounts as may
be necessary to comply with any regulatory requirement and/or contractual
requirement to which such Medical Personnel or the Medical Group may be subject)
covering the Medical Group and each of the Medical Personnel of the Medical
Group , including coverage for claims made eight (8) years before, during and
eight (8) years after the termination date of this Agreement 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, which payments shall be considered Management
Company Operating Costs under this Agreement, subject to recoupment by the
Management Company under Section 5 hereof. The Management Company shall be
designated as an additional insured under all such insurance policies.
12.2. Life Insurance; Business Interruption.
The Management Company may, at its option, obtain a $500,000 life insurance
policy for each duly licensed physician partner in or equity owner of the
Medical Group. The Medical Group shall, and shall cause each such partner in or
equity owner of the Medical Group to, cooperate with the Management Company in
the procurement of such policies. The Management Company shall be designated as
the beneficiary under any 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.
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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 Medical Group Transaction Documents (which, for purposes
hereof, shall be deemed to include the Restricted Stock Agreement to be signed
by the Management Company and each partner, stockholder or employee of the
Medical Group receiving stock of the Management Company, in the form of Exhibit
C attached hereto (the "Restricted Stock Agreement")) 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, 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 Management Services, (ii) any other acts or omissions of the
Management Company and its
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employees or (iii) any breach of or failure to perform any obligation under this
Agreement or the Management Company Transaction Documents by the Management
Company and/or its agents, personnel and/or subcontractors (other than the
Medical Group) during the Term, including, without limitation, any such acts or
omissions that occurred prior to the Commencement Date.
SECTION 13. Termination; Rescission.
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 (i)
the Management Company shall not have cured such default within thirty (30) days
after written notice specifying the default has been given to the Management
Company by the Medical Group, (ii) if such default cannot be cured within such
thirty (30) day period, the Management Company shall not have taken reasonable
action commencing curing of such default within such thirty (30) day period or
(iii) the Management Company does not thereafter diligently prosecute such
action to completion; provided, however, that the Management Company shall have
only 10 days after written notice to cure a default arising as a result of its
failure to pay the Monthly Draw pursuant to Section 5.3(a) or any other monetary
obligation owed to the Medical Group hereunder, (c) in the event that any of the
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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) the Management Company shall have been sanctioned in writing by the Health
Care Finance Administration or the Medicaid Program Office of the Department of
Health of the State of Florida for any violation of the Social Security Act, the
Health Care Quality Improvement Act or any similar Federal or state law in a
final, nonappealable proceeding and such sanction prevents the Management
Company from fulfilling its obligations hereunder in accordance with all
applicable law; or (e) in the event that the Management Company fails to pay all
amounts due under that certain promissory note dated as of the Signature Date
(the "Promissory Note") and issued by the Management Company in favor of the
Medical Group in connection with the Asset Purchase Agreement, by March 31,
1998.
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 (i) the Medical Group shall not
have cured such default within thirty (30) days after written notice specifying
the default has been given to the Medical Group by the Management Company, (ii)
if such default cannot be cured within such thirty (30) day period, the Medical
Group shall not have taken reasonable action commencing curing of such default
within such thirty (30) day period or (iii) the Medical Group does not
thereafter diligently prosecute such action to completion; provided, however,
that the Medical Group
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shall have only 10 days after written notice to cure a default arising as a
result of its failure to pay any monetary obligation owed to the Management
Company hereunder, (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 and the
Medical Group has not successfully appealed such exclusion within 120 days after
the effectiveness thereof.
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 28 of this Agreement.
13.4. Effect of Termination.
(a) 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 Sections 3.15(c), 5.3(b) (as
modified by Section 13.4(b) below), 13.5, 26 and this Section 13.4, and except
to pay in full and satisfy any and all outstanding obligations of the parties
accruing through the effective date of termination.
(b) Upon the termination of this Agreement, 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
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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); provided,
however, that in the event the Medical Group terminates this Agreement pursuant
to Section 13.1, such calculation shall be made within 90 days following such
termination. 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. All Collections
during the three-month period following termination shall continue to be owned
by the Management Company (and the Medical Group shall immediately forward any
amounts received in connection therewith to the Management Company) and all
Collections thereafter shall be owned by the Medical Group. 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.
(c) Upon termination of this Agreement, the Management Company agrees to
deliver to the Medical Group upon request by the Medical Group, a Financing
Statement amending the terms of any Financing Statement filed with the Secretary
of State of the State of Florida, excluding from the collateral thereunder any
accounts receivable generated after the date of termination of this Agreement.
(d) Notwithstanding anything contained herein to the contrary, in the event
that the Medical Group terminates this Agreement pursuant to Section 13.1(e)
hereof, the Medical Group shall deliver to the Management Company an amount in
cash or certified or cashier's check equal to $6,435,253.45, which amount shall,
upon delivery to the Management Company of the Promissory Note, be decreased by
an amount equal to the outstanding balance (including principal and interest) of
the Promissory Note. The Medical Group shall also cause each physician
affiliated with the
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Medical Group who received shares of capital stock of the Management Company in
connection with the execution and delivery of this Agreement to, and each such
physician shall, return and deliver to the Management Company the certificates
representing all of such shares of capital stock. Certificates delivered shall
be duly endorsed for transfer to the Management Company.
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, 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 but otherwise
free and clear of any liens, claims or encumbrances; provided that any leased
equipment or property shall be assigned to the Medical Group subject to the
applicable lease agreement and any liens granted thereunder:
(a) the Medical Equipment owned by the Management Company and used
solely in connection with the Medical Business;
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Management Company and used solely in connection
with the Medical Business;
(c) the Management Company's rights and interests in any equipment
leased by the Management
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Company for the sole use of the Medical Group, 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 and used solely in
connection with the Medical Business;
(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.
Notwithstanding anything contained herein to the contrary, the consideration
payable by the Medical Group to the Management Company under this Section 13.5
shall be reduced by the aggregate amount, if any, payable by the Management
Company to the Stockholders (as such term is defined in the Restricted Stock
Agreements).
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13.6. Rescission By Medical Group.
The Medical Group may, in its sole discretion at any time during the period
beginning August 1, 2004 and ending August 31, 2004 (such 30-day period being
referred to herein as the "Rescission Period"), rescind (the "Rescission
Option") this Agreement and disengage itself from its obligations under this
Agreement. The Medical Group may exercise its Rescission Option during the
Rescission Period by giving written notice (the "Rescission Notice") to the
Management Company and by complying with the other provisions contained in this
Section 13.6. The effective date (the "Rescission Effective Date") of the
rescission shall be that date which is 30 days after the date of the Rescission
Notice; provided that such date shall not be prior to the seventh anniversary of
the Commencement Date. The Medical Group must comply with the provisions set
forth in this Section 13.6 in order to effectively exercise its Rescission
Option.
(a) Effect of Rescission. In the event that the Medical Group exercises its
Rescission Option pursuant to this Section 13.6, the procedures set forth in
Section 13.4 above shall apply.
(b) Repurchase of Assets. Within 30 days following the Rescission Effective
Date the Management Company shall, subject to the prior receipt of any required
landlord and third party consents, transfer, convey and assign to the Medical
Group, and the Medical Group shall purchase, assume and accept from the
Management Company, the property described in Section 13.5 above according to
the provisions set forth in such Section.
(c) Repayment of Consideration. In the event that the Medical Group elects
to exercise its Rescission Option, the Medical Group shall pay to the Management
Company $2,974,184.55, half of which shall be payable in cash, by cashier's or
certified check or by wire transfer of funds delivered to a depository
institution designated by the Management Company and the other
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half of which shall be payable by delivery of a promissory note from the Medical
Group to the Management Company, which note shall bear interest (payable
quarterly) at a rate per annum equal to the greater of either the prime rate
announced from time to time by The Chase Manhattan Bank (National Association)
plus 1/2% or the "applicable Federal rate" (as defined in Section 1274(d) of the
Internal Revenue Code) in effect from time to time and shall be payable in full
12 months after the Rescission Effective Date.
(d) Repayment of Management Fee. Notwithstanding anything contained herein
to the contrary, in the event that the Medical Group exercises its Rescission
Option under this Section 13.6, the Management Company shall not be required to
refund to the Medical Group any portion of the Management Fees paid, or due to
be paid, by the Medical Group under the terms of this Agreement for the period
beginning on the Commencement Date and ending on the Rescission Effective Date.
(e) Waiver of Rescission Option. Notwithstanding anything contained herein
to the contrary, the parties hereto expressly agree and acknowledge that if the
Medical Group shall fail to deliver the Rescission Notice prior to the end of
the Rescission Period, then the Medical Group shall be deemed to have expressly
and irrevocably waived its right to rescind this Agreement and to disengage
itself from its obligations hereunder.
SECTION 14. Non-Disclosure of Confidential Information.
14.1. Non-Disclosure.
(a) 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
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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
(a) to have 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. Nothing
contained herein shall be construed to prevent any party hereto from disclosing
any Confidential or Proprietary Information of any other party to its
professional advisers for purposes of evaluating, negotiating or otherwise
assisting such party in connection with the transactions contemplated by this
Agreement; provided that such party shall be liable to such other party for the
disclosure by any of its professional advisers of such other party's
Confidential or Proprietary Information, unless such information falls within
one of the categories set forth in clauses (a), (b) or (c) of the preceding
sentence.
(b) For purposes of this Section 14, 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.
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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 covenants attached hereto
as Schedule VIII and (b) agrees to require each of the physicians receiving
capital stock of the Management Company as of the date hereof, and each person
who after the date hereof becomes entitled to receive stock (or options to
receive stock) 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
D.
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
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other licensed health care professional in connection with the provision of
Medical Group 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. Market Development Limitation.
The Management Company shall not at any time during the period beginning on
the Commencement Date and ending on May 31, 1998 (the "Exclusivity Period"),
without the prior written consent of the Medical Group (which consent shall not
be unreasonably withheld), provide management services substantially similar to
those provided to the Medical Group hereunder to any orthopedic surgeon or group
of orthopedic surgeons (other than LOA and Lauderdale Orthopaedic Surgeons) that
practices in the Combined Exclusivity Area (as hereinafter defined) nor shall
the Management Company employ any such orthopaedic surgeon; provided, however,
that notwithstanding the foregoing restrictions, the Management Company may,
without the consent of the Medical Group, provide contract management services
to an independent physician association. In the event that the Medical Group has
combined with LOA on or before May 31, 1998, the Exclusivity Period shall be
extended to August 31, 2000; provided, that if the Medical Group, as combined,
consists of at least 15 practicing orthopedic surgeons as of August 31, 2000,
the Exclusivity Period shall extend throughout the Term, but if the Medical
Group, as combined, consists of less than 15 practicing orthopedic surgeons as
of such date, the Exclusivity Period shall terminate as of August 31, 2000. As
used herein, the "Combined Exclusivity Area" means and includes the physical
land area bounded on the north by Lake Worth Road, bounded on the south by McNab
Road, bounded on the east by the Atlantic Ocean and bounded on the west by the
Everglades.
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In the event that the Medical Group and LOA have not combined on or before
May 31, 1998, the Exclusivity Period shall be extended to August 31, 2000 and
the boundaries for such exclusivity shall be reduced from the Combined
Exclusivity Area to the Simplified Exclusivity Area (as hereinafter defined),
provided, that if the Medical Group has increased the number of practicing
orthopedic surgeons within the Medical Group to eight (8) by August 31, 2000,
then the Exclusivity Period shall extend throughout the Term in the Simplified
Exclusivity Area, but if the Medical Group consists of less than eight (8)
practicing orthopedic surgeons as of such date, the Exclusivity Period shall
terminate as of August 31, 2000. As used herein, the "Simplified Exclusivity
Area" means and includes the physical land area bounded on the north by Lake
Worth Road, bounded on the south by Hillsboro, bounded on the east by the
Atlantic Ocean and bounded on the west by the Everglades.
Notwithstanding the foregoing, in the event that the Management Company
acquires (the "Acquisition") a company (the "Acquired Company") that provides
management services to orthopaedic surgeons (the "Acquired Physicians")
practicing medicine in the Combined Exclusivity Area or the Simplified Area, as
applicable, the Management Company may provide to such Acquired Physicians
management services substantially similar to those provided to the Medical Group
hereunder if, during the twelve-month period prior to the consummation of the
Acquisition, the Acquired Company earned at least 51% of its revenues through
the provision of management services to medical groups practicing in
musculoskeletal specialties; provided, however, that the Management Company
shall not permit the Acquired Company to solicit any additional orthopaedic
surgeons in the Combined Exclusivity Area or the Simplified Exclusivity Area, as
applicable, after consummation of such Acquisition.
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16.4. Physician Advisory Board.
The Management Company is developing an advisory group (the "Physician
Advisory Board") to be comprised of physicians practicing in the State of
Florida. Upon the establishment of the Physician Advisory Board, and in
accordance with the governing documents thereof, the Management Company shall,
or shall cause the Physician Advisory Board to, appoint one representative from
the Medical Group, which representative shall be a physician equity owner of the
Medical Group, to serve on the Physician Advisory Board.
16.5. Ancillary Services Facilities.
(a) The Management Company shall use its reasonable best efforts to develop
and establish (i) a diagnostic services facility within 12 months after the
Signature Date and (ii) an ambulatory surgery center within 18 months after the
Signature Date, each for use by the Medical Group.
(b) The Management Company shall perform or cause to be performed
feasibility studies for a hand center and a joint center for use by the Medical
Group, and if either such center is deemed commercially feasible, then the
Management Company shall use its best efforts to develop and establish such
center within 18 months after the Signature Date.
16.6. Business Plan.
The Management Company shall cooperate with the Operations Committee in
developing an annual business plan (the "Business Plan") for the Medical Group.
The Business Plan shall include the goals and objectives of the Medical Group,
and will set forth the efforts, methods and resources to be used by the
Management Company and the Medical Group to achieve such annual goals and
objectives. The Business Plan shall be prepared and delivered by the Operations
Committee to the Medical Group and
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the Management Company within 60 days after the end of each fiscal year. The
Management Company shall, as soon as reasonably practicable after the end of
each year, deliver to the Operations Committee a written annual report on the
completion of the goals and objectives set forth in the Business Plan.
16.7. Business Combination.
In the event the Medical Group and LOA agree to consummate a business
combination between them, the Management Company shall use its best efforts to
effectuate such combination. The Management Company shall pay all costs
(excluding legal fees and disbursements) actually incurred by any party hereto
relating to the administrative changes required in connection with such
combination.
SECTION 17. Assignment.
The Management Company shall have the right to assign its rights and
delegate its obligations hereunder for security purposes or as collateral to any
affiliate and to assign its rights hereunder to any lending institution from
which the Management Company or any affiliate obtains financing. 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 any assignment by the Management
Company arising out of or 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.
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SECTION 18. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed sufficient if personally delivered, telecopied
(with original sent by mail), sent by nationally-recognized overnight courier,
or by registered or certified mail, return receipt requested and postage
prepaid, addressed as follows:
If to the Management Company:
BMJ Medical Management, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxx, M.D., President
Telecopier: (000) 000-0000;
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Held, Esq.
Telecopier: (000) 000-0000; and
If to the Medical Group:
Orthopaedic Surgery Associates, INC.
0000 X.X. 0xx Xxxxxx
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxx X. Xxx Xxxxxx, M.D.
Telecopier: (000) 000-0000;
with a copy to:
Xxxxxx, Xxxxxxxx & Xxxxx, P.A.
00 Xxxxxxxxx Xxxxxx Xxxxxx
Xxxxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telecopier: (000) 000-0000;
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 and telecopier, on the date of such delivery, (b) in the case
of nationally-recognized overnight courier, on the next business day
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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.
SECTION 20. Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 21. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida 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
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party hereto pursuant to this Agreement may lie in any Federal or state court
located in Broward County, Florida or the Southern District of Florida. By
execution and delivery of this Agreement, the parties hereto irrevocably submit
to the non-exclusive jurisdiction of such courts for themselves and in respect
of their property with respect to 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 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. 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 22. Headings.
Section headings are used for convenience only and shall in no way affect
the construction of this Agreement.
SECTION 23. Entire Agreement; Amendments.
This Agreement and the exhibits and schedules hereto 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 all of
the parties against whom enforcement is sought.
SECTION 24. 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 25. 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 26. 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 27. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections 3.3(f),
11, 12.3, 12.4, 13, 14, 15, 18, 19, 20, 21, 23, 24 and this Section 27 shall
survive any expiration or termination of this Agreement.
SECTION 28. Contract Modification for Prospective Legal Events.
In the event that legal counsel for either party determines (the "Legal
Determination") that the ability of the parties to fulfill their material
obligations hereunder are materially and adversely impacted by any change in
Federal, state or local law, rules, regulations or any published official
interpretation of any of the foregoing, as applied to this Agreement, and such
Legal Determination is confirmed in writing by independent legal counsel jointly
selected by the parties, then the parties shall negotiate in good faith to amend
this Agreement to avoid such materially adverse impact, while maintaining the
material economic benefits intended to be conferred hereby, if possible. If this
Agreement is not so amended within thirty (30) days after confirmation by the
independent legal counsel, then this Agreement may be terminated
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by either party. The fees and expenses of the independent counsel shall be borne
equally by the parties if such independent counsel confirms the Legal
Determination, and shall be borne solely by the initiating party if the Legal
Determination is not so confirmed. Each party shall pay its own legal costs and
fees in connection with the foregoing.
* * * * *
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IN WITNESS WHEREOF, the parties have duly executed this Management Services
Agreement as of the date first above written.
ORTHOPAEDIC SURGERY ASSOCIATES, INC.
By:
-----------------------------------
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By:
-----------------------------------
Name:
Title:
Acknowledged and Agreed to
(as to Sections 4, 9.7,
12.2, 14 and 15):
------------------------------
Xxxxxxx Xxxxxxxx, M.D.
------------------------------
Xxxx XxxXxxxxx, M.D.
------------------------------
Xxxxxx Xxxx, M.D.
------------------------------
Xxxx Xxxxxxx, M.D.
------------------------------
Xxxxx Xxxxxx, M.D.
------------------------------
Xxxxxxx Xxxxxx, M.D.
