MANAGEMENT SERVICES AGREEMENT
AMONG
SUN VALLEY ORTHOPAEDIC SURGEONS
AND
BONE, MUSCLE AND JOINT, INC.
AND
THE INDEMNIFYING PARTIES
Effective as of July 1, 1997
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..............................................4
3.1 Management Services Generally....................................4
3.2 Premises.........................................................5
3.3 Equipment........................................................7
3.4 New Ancillary Services...........................................9
3.5 Administration, Finance and Accounting..........................10
3.6 Billing and Collection..........................................12
3.7 Administrative Personnel........................................16
3.8 Technical Personnel: Leased Employees...........................17
3.9 Medical Personnel...............................................18
3.10 Inventory and Supplies..........................................19
3.11 Taxes...........................................................19
3.12 Information Systems Management..................................19
3.13 Use of New Technologies in the Practice of Medicine.............20
3.14 Public Relations; Marketing and Advertising.....................20
3.15 Insurance.......................................................21
3.16 Files and Records...............................................21
3.17 Managed Care Contracts..........................................21
3.18 Budgets.........................................................22
3.19 Force Majeure...................................................22
SECTION 4. Equity Participation and Other Consideration....................22
SECTION 5. Ownership of Accounts; Costs, Compensation, and Other Payments..22
5.1 Ownership of Accounts; Security.................................22
5.2 Bank Accounts and Payments......................................23
5.3 Medical Group Compensation......................................24
5.4 Management Fee..................................................27
5.5 Management Company Costs........................................28
5.6 New Medical Office Start-Up Costs...............................30
5.7 New Physician Start-Up Costs....................................31
5.8 Medical Group Costs.............................................33
5.9 New Ancillary Services Costs....................................34
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5.10 Review and Audit of Books and Records...........................36
5.11 Start-Up Period.................................................37
SECTION 6. Representations and Warranties of the Medical Group.............38
6.1 Organization; Good Standing; Qualification and Power............38
6.2 Equity Investments..............................................38
6.3 Authority.......................................................38
6.4 Financial Information...........................................39
6.5 Absence of Undisclosed Liabilities..............................40
6.6 Absence of Changes..............................................40
6.7 Tax Matters.....................................................42
6.8 Litigation, Etc.................................................44
6.9 Compliance; Governmental Authorizations.........................44
6.10 Accounts Receivable; Accounts Payable...........................44
6.11 Labor Relations; Employees......................................45
6.12 Employee Benefit Plans..........................................46
6.13 Insurance.......................................................46
6.14 Real Property...................................................47
6.15 Burdensome Restrictions.........................................47
6.16 Disclosure......................................................47
SECTION 7. Representations and Warranties of the Management Company........48
7.1 Organization, Good Standing and Power...........................48
7.2 Authority.......................................................48
7.3 Issuance of Common Stock........................................49
7.4 Issued and Outstanding Stock....................................49
7.5 Permits, Authorizations, Consents, Approvals,
Notifications, and Filings......................................49
7.6 Financial Information...........................................49
7.7 Absence of Undisclosed Liabilities..............................50
7.8 Absence of Changes..............................................50
7.9 Tax Matters.....................................................52
7.10 Litigation, Etc.................................................53
7.11 Compliance; Governmental Authorizations.........................53
7.12 Accounts and Notes Payable......................................54
7.13 Employees.......................................................54
7.14 Employee Benefit Plans..........................................54
7.15 Insurance.......................................................54
7.16 Real Property...................................................54
7.17 Burdensome Restrictions.........................................54
7.18 Disclosure......................................................55
SECTION 8. Operations Committee............................................55
8.1 Formation and Operation of the Operations Committee.............55
8.2 Authoritative Functions of the Operations Committee.............55
8.3 Advisory Functions of the Operations Committee..................57
8.4 Committee Policies and Procedures...............................58
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SECTION 9. Obligations of the Medical Group................................59
9.1 Compliance with Laws............................................60
9.2 Choice of Braces, Splints, Appliances, Medical Supplies,
and Allografts..................................................60
9.3 Choice of Radiologists, Anesthesiologists, Hospitals, Physical
Therapy, MRI, and Other Medical Professionals and Facilities....60
9.4 Insurability....................................................60
9.5 Medicare........................................................61
9.6 Billing.........................................................61
9.7 Medical Personnel Hiring........................................61
9.8 Continuing Education............................................61
SECTION 10. Certain Covenants...............................................61
10.1 Change of Control...............................................61
10.2 Legend on Securities............................................61
10.3 Non-Disclosure of Confidential Information......................62
10.4 Confidential or Proprietary Information.........................62
SECTION 11. Records.........................................................63
11.1 Medical Records.................................................63
11.2 Management Business Records.....................................63
11.3 Access to Records Following Termination.........................63
SECTION 12. Insurance and Indemnity.........................................63
12.1 Professional Liability Insurance................................63
12.2 Life Insurance..................................................64
12.3 Indemnification by Medical Group................................64
12.4 Indemnification by Certain Individuals..........................65
12.5 Indemnification by Management Company...........................65
12.6 Notice and Control of Litigation................................66
SECTION 13. Termination.....................................................66
13.1 Termination by Medical Group....................................66
13.2 Termination by Management Company...............................67
13.3 Termination by Medical Group or Management Company..............67
13.4 Effect of Termination...........................................68
13.5 Repurchase of Assets............................................68
13.6 Phase II........................................................69
SECTION 14. Rescission/Disengagement........................................71
14.1 Seventh Anniversary of Agreement................................71
14.2 Rescission/Disengagement by Medical Group.......................71
14.3 Waiver of Rescission/Disengagement Right........................73
14.4 Continuation of Management Fees.................................73
SECTION 15. Non-Competition.................................................73
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SECTION 16. Obligations of the Management Company...........................74
16.1 No Practice of Medicine.........................................74
16.2 No Interference with Professional Judgment......................74
16.3 Compensation Committee..........................................74
16.4 Budgets.........................................................74
16.5 Contracts with Venture Capital Firms............................75
16.6 Convertible Preferred Stock.....................................75
16.7 Initial Public Offering.........................................75
SECTION 17. Assignment......................................................76
17.1 Generally.......................................................76
17.2 Assignment to Partners..........................................76
SECTION 18. Notices.........................................................76
SECTION 19. Benefits of Agreement...........................................77
SECTION 20. Governing Law; Jurisdiction.....................................78
SECTION 21. Headings........................................................78
SECTION 22. Entire Agreement; Amendments....................................78
SECTION 23. Severability....................................................78
SECTION 24. Counterparts....................................................79
SECTION 25. Waivers.........................................................79
SECTION 26. Survival of Termination.........................................79
SECTION 27. Contract Modification for Prospective Legal Events..............79
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ATTACHMENTS
SCHEDULES
SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation and Other Consideration
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 6.4 -- 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 7.4 -- Issued and Outstanding Stock
SCHEDULE 7.5 -- Permits, Authorizations, Consents, Approvals,
Notifications, and Filings
SCHEDULE 7.6 -- Financial Information
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SCHEDULE 7.7 -- Absence of Undisclosed Liabilities
SCHEDULE 7.8 -- Absence of Changes
SCHEDULE 7.9 -- Tax Matters
SCHEDULE 7.10 -- Litigation, Etc.
SCHEDULE 7.13 -- Employees
SCHEDULE 7.18 -- Disclosure
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INDEX OF DEFINED TERMS
Term Page
---- ----
Accounts....................................................................23
Additional Terms.............................................................3
Administrative Personnel....................................................16
AGC ......................................................................70
Agreement....................................................................1
Ancillary Service Start-Up Costs............................................35
Ancillary Service Start-Up Period...........................................35
Annual Draw Amount..........................................................25
Annual Medical Group Compensation Amount....................................24
Applicable Percentage.......................................................27
Asset Purchase Agreement.....................................................1
Assignment of Office Lease...................................................5
Authorized Management Company Operating Costs...............................29
Authorized Signatory........................................................13
Balance Sheet...............................................................39
Balance Sheet Date..........................................................39
Bankruptcy Event............................................................66
Base Term....................................................................3
Billable Items..............................................................33
Xxxxxxxx....................................................................26
Budgets.....................................................................22
Code ......................................................................43
Collateral..................................................................23
Collections.................................................................26
Compensation Committee......................................................74
Competitive Business........................................................93
Confidential or Proprietary Information.....................................62
Corporate Overhead..........................................................29
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Cost Savings................................................................89
Documents...................................................................13
Draw Date...................................................................87
Draw Percentage.............................................................24
Effective Date..............................................................71
Eligible Parties............................................................22
Employee Plans..............................................................46
Employees...................................................................45
Equipment....................................................................7
ERISA ......................................................................46
Excess Net Collections......................................................32
Excluded Costs..............................................................28
FF&E .......................................................................7
Financing Statement.........................................................23
Historical Collections Information..........................................39
Incentive Based Costs.......................................................89
Indemnifying Party..........................................................65
Indemnitee..................................................................66
Indemnitor..................................................................66
Internal Financial Statements...............................................39
Lender......................................................................23
Management Business..........................................................1
Management Company...........................................................1
Management Company Balance Sheet............................................49
Management Company Balance Sheet Date.......................................49
Management Company Bank.....................................................23
Management Company Costs....................................................28
Management Company Operating Costs..........................................28
Management Company Returns..................................................52
Management Fee..............................................................27
Management Services..........................................................2
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Medical Business.............................................................1
Medical Equipment............................................................7
Medical Equipment Master Lease...............................................7
Medical Equipment Master Lease Payments.....................................27
Medical Group................................................................1
Medical Group Bank..........................................................13
Medical Group Collections Account...........................................13
Medical Group Costs.........................................................33
Medical Group Governance Documents..........................................38
Medical Group Services......................................................26
Medical Personnel...........................................................18
Monthly Draw................................................................24
MSAs ......................................................................70
Net Collections.............................................................32
New Ancillary Service Medical Equipment.....................................34
New Ancillary Services.......................................................9
New Medical Office..........................................................30
New Medical Office Start-Up Costs...........................................30
New Medical Office Start-Up Period..........................................30
New Physician...............................................................33
New Physician Start-Up Costs................................................31
New Physician Start-Up Period...............................................32
Non-Compete Period..........................................................93
Office Lease.................................................................5
Office Sublease..............................................................5
Partner......................................................................1
Phase II....................................................................69
Principal....................................................................1
Professional Practice Cost Savings..........................................28
Provider Account Agreement..................................................24
Real Property...............................................................47
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Restricted Stock Agreement..................................................22
Returns.....................................................................42
Review Financial Statements.................................................39
Stock ......................................................................83
Stockholder Non-Competition Agreement.......................................73
Tax ......................................................................43
Taxes ......................................................................43
Technical Personnel.........................................................17
Tenant Improvements.........................................................56
Term .......................................................................3
Transaction Documents.......................................................38
Unaudited Financial Statements..............................................49
Xxxxxx MSA...................................................................2
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MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is entered into as of
July 1, 1997, by and among SUN VALLEY ORTHOPAEDIC SURGEONS, an Arizona general
partnership (the "Medical Group"), the INDEMNIFYING PARTIES referred to in
Section 12.4 whose signatures appear on the signature page hereto, those persons
who hereafter sign a written agreement agreeing to be bound by the terms of
Section 12.4 hereof, and BONE, MUSCLE AND JOINT, INC., a Delaware corporation
(the "Management Company"), with reference to the following facts:
A. The Medical Group is an Arizona general partnership comprised of
individual physicians and Arizona professional corporations, and 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. (Each partner in the Medical Group is referred to herein as a "Partner,"
and each shareholder of a professional corporation that is a Partner is referred
to herein as a "Principal.")
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 has entered into an Asset
Purchase Agreement with the Medical Group (the "Asset Purchase Agreement"),
pursuant to which the Management Company has acquired substantially all of the
assets owned by the Medical Group.
D. The Management Company and the Medical Group now desire to enter into
this Management Services Agreement, pursuant to which, among other things, the
Management Company will render certain management and administrative services to
the Medical Group.
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E. Concurrently herewith, the Management Company is entering into a
Management Services Agreement with Xxxxxx X. Xxxxxx, M.D., P.C. (the "Xxxxxx
MSA").
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. Notwithstanding the foregoing, the parties hereby
agree that to the extent that any of the services provided (or required to be
provided) by the Management Company to the Medical Group pursuant to this
Agreement relate to Xxxxxx X. Xxxxxx, M.D., P.C. or Xxxxxx X. Xxxxxx, M.D., the
Xxxxxx MSA and the other agreements, documents, and instruments referred to
therein (rather than this Agreement and the other agreements, documents, and
instruments referred to herein) shall govern.
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
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Group and shall not interfere with, control, direct, or supervise the Medical
Group or any medical professional employed by the Medical Group in connection
with the provision of professional medical services.
1.4 No Referral Obligation. The parties agree that the benefits to the
Medical Group hereunder do not require, are not payment for, and are not in any
way contingent upon the admission, referral, purchase, or any other arrangement
for the provision of any item or service to or for any of the Medical Group's
patients in or from any medical facility or laboratory or from any other entity
owned, operated, controlled, or managed by the Management Company. The
Management Company shall provide prior written notice to the Medical Group
before acquiring any ownership, investment interest, or control in, or entering
into any agreement or arrangement pursuant to which the Management Company would
become responsible for all or any part of the operations or management of, any
medical facility, laboratory, or any provider or supplier of ancillary services,
diagnostic or therapeutic equipment, prosthetic or orthotic devices, medical
supplies, or other items or services furnished to or for use by patients, but
only if any of the foregoing serves the geographic area served by the Medical
Group.
SECTION 2. Term. Provided that the Closing under the Asset Purchase
Agreement shall have occurred as provided therein, and subject to such start-up
procedures as the parties may agree upon for purposes of facilitating the
transition of responsibilities required by this Agreement, the performance of
services under this Agreement shall commence as of the date hereof and shall
expire on the fortieth anniversary of the date hereof unless terminated earlier
pursuant to the terms hereof (the "Base Term"). The Base Term of this Agreement
shall be automatically extended for additional terms ("Additional Terms" and
together with the Base Term, the "Term") of five years each, unless either party
delivers to the other party, not less than six (6) months nor more than nine (9)
months prior to the expiration of the then-current Term, written notice of such
party's intention not to extend the Term of this Agreement.
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SECTION 3. Management Services.
3.1 Management Services Generally.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company shall
provide all of the management and administrative services reasonably required by
the Medical Group in connection with the provision of any and all of the Medical
Group Services and as otherwise provided in this Agreement, including without
limitation the services described in Sections 3.2 through 3.18 hereof.
(b) Without limiting the generality of the provisions of Section 3.1(a),
the Management Services shall include such management and administrative
services as may be reasonably required in connection with (i) all of the offices
(including New Medical Offices) of the Medical Group, and (ii) all professional
services and all ancillary services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described in
this Agreement shall be applicable with respect to the items identified as
Medical Group Costs in Section 5.8 hereof, except that such Medical Group Costs
shall be paid by the Medical Group rather than by the Management Company.
Accordingly, the Management Company shall provide accounting, bookkeeping, and
related services with respect to all such costs.
(d) The Management Company may enter into such contracts and agreements
with outside services and suppliers as the Management Company shall reasonably
deem necessary in connection with the provision of the Management Services, and,
to the extent permitted by applicable law, such contracts and agreements shall,
except as otherwise expressly provided in this Agreement, be in the name of the
Management Company. The Management Company shall have no authority, directly or
indirectly, to perform, and shall not perform or enter into any agreement to
perform, professional medical services or any other medical function required by
law to be performed by a licensed physician or by any other licensed health care
professional.
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(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 date of this Agreement, leases premises
and provides professional medical services at the following locations:
00000 Xxxx Xxxxxxx Xxxxxx Xxxxx, #000
Xxx Xxxx Xxxx, Xxxxxxx 00000
0000 Xxxx Xxxxxxxxxxx Xxxx
Xxxxxx, Xxxxxxx 00000
Immediately prior to the date of this Agreement, the premises were leased to the
Medical Group, in the Medical Group's name. Effective from and after the date of
this Agreement, the leases of such premises are to be assigned from the Medical
Group to the Management Company pursuant to two Assignment of Lease agreements
(each, an "Assignment of Office Lease") entered into as of the date hereof.
Additionally, the Management Company shall sublease the premises of both offices
to the Medical Group pursuant to subleases (each, an "Office Sublease") entered
into as of the date hereof, in consideration of the payments to be made by the
Medical Group under such Office Subleases. Upon the expiration of each premises
lease assigned in accordance with this Section 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, and the parties shall
amend the applicable Office Sublease or enter into a new sublease relating to
such new premises lease; provided, however, that the approval of the Medical
Group, which shall not be unreasonably withheld, shall be required in the event
of any substantial changes in the terms of the premises lease, and if the
Medical Group does not give such approval, the failure to enter into such new
premises lease shall not constitute a default of the Management Company. Each
assigned lease and each new lease entered into between the Management Company
and the landlord is referred to herein as an "Office Lease."
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(b) A New Medical Office (as hereinafter defined) may be opened only upon
the agreement of the Medical Group and the Management Company. The capital costs
and start-up costs reasonably required in connection with the opening of any New
Medical Office shall be borne as set forth in Section 5 hereof. The premises of
any New Medical Office shall be leased to the Management Company, in the
Management Company's name, and the Medical Group shall not be required to lease
any such premises. Additionally, the Management Company shall sublease such
premises to the Medical Group pursuant to a sublease substantially in the form
of the Office Sublease, in consideration of the payments to be made by the
Medical Group under such sublease.
(c) The closing or relocation of any offices of the Medical Group shall be
subject to agreement by the Medical Group and the Management Company.
(d) The premises services to be provided by the Management Company shall
include, without limitation, the negotiation and renegotiation of leases,
provision of ongoing liaison with the landlords of the respective office
premises of the Medical Group, identification of potential new locations for
Medical Group offices, including a review of current satellite offices of the
Medical Group and potential satellite offices to be considered by the Medical
Group, financial analysis relating to the opening, closing, and relocation of
offices, arranging for necessary repairs, maintenance and improvements,
procurement of property insurance, arranging for telephone and other utility
services, arranging for hazardous waste disposal, and all other reasonably
necessary or appropriate services related to all of the office premises of the
Medical Group.
(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(e) 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.
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3.3 Equipment.
(a) The Management Company shall provide or arrange for the provision of
all of the diagnostic and therapeutic medical equipment reasonably required by
the Medical Group in connection with the provision of Medical Group Services
(the "Medical Equipment"). All Medical Equipment shall be provided by the
Management Company to the Medical Group in consideration of the rental payments
to be made by the Medical Group to the Management Company pursuant to an
equipment lease entered into as of the date hereof (the "Medical Equipment
Master Lease"). As used herein, the term Medical Equipment shall not include
medical equipment used in connection with a New Ancillary Service (as
hereinafter defined).
(b) The Management Company also shall provide or arrange for the provision
of all furniture, furnishings, trade fixtures, and office equipment (including
computer hardware and software) reasonably required in connection with the
provision of Medical Group Services pursuant to this Agreement (collectively,
"FF&E"). The Management Company shall acquire, at its cost, all FF&E, and the
Management Company shall retain ownership of all FF&E. The Management Fee
payable to the Management Company under this Agreement is intended to compensate
the Management Company for the provision of FF&E for use by the Medical Group.
As used herein, the term FF&E does not include furniture, furnishings, trade
fixtures, and office equipment used in connection with a New Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred to
collectively as the "Equipment." The acquisition, replacement, relocation, or
other disposition of any Equipment shall require prior approval as provided in
Section 8.2 hereof.
(d) The Management Company's obligations with respect to the Equipment are
subject and subordinate to the provisions and obligations contained in any
financing, security interest, mortgage, lien or other encumbrance the Management
Company may, in its reasonable discretion, place upon the Equipment through an
unaffiliated third party. The Medical Group shall use the Equipment only in
connection with its provision of the Medical Group Services, and the Medical
Group shall not alter, repair, augment, or remove the Equipment from the
premises of the Medical Group without the prior written consent of the
Management Company
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and any lessor thereof, which approval may be granted or withheld in the
Management Company's or such lessor's sole discretion. Notwithstanding the
foregoing, in the event of an emergency relating to the provision of patient
care, the Medical Group may order repairs and replacements of Equipment not
exceeding $5,000, and the Medical Group shall notify the Management Company
immediately in any such event. To the extent the Equipment is utilized by the
Medical Group in the provision of Medical Group Services, the Medical Group
shall have the right to exercise reasonable control over the use of such
Equipment.
(e) From time to time, and as reasonably requested by the Medical Group,
the Management Company shall use reasonable efforts to cause the Equipment
manufacturer or its authorized agent to provide service and maintenance for the
Equipment as needed to maintain the Equipment in an operable condition, so that
all such Equipment shall function continuously (subject to interruptions not
reasonably avoidable) in accordance with the manufacturer's specifications and
so that all conditions imposed by the manufacturer to maintaining the continued
effectiveness of any warranty on such Equipment shall be satisfied. The
Management Company shall take all reasonable steps to provide that all necessary
service and maintenance is obtained in a prompt and timely manner, so as to
minimize the amount of time that any of the Equipment is not available for usage
by or for patients of the Medical Group.
(f) THE MEDICAL GROUP ACKNOWLEDGES THAT THE MANAGEMENT COMPANY MAKES NO
WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER
RELATING TO THE EQUIPMENT PROVIDED TO THE MEDICAL GROUP PURSUANT TO THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DESIGN CONDITION OF THE EQUIPMENT,
THE CONFORMANCE THEREOF TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER RELATING THERETO, OR THE FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR
PURPOSE. NOTWITHSTANDING THE FOREGOING DISCLAIMER, THE MANAGEMENT COMPANY DOES
WARRANT TO THE MEDICAL GROUP THAT THE X-RAY EQUIPMENT AND THE COMPUTER HARDWARE
AND COMPUTER SOFTWARE THAT THE MANAGEMENT COMPANY SELECTS FOR USE BY THE MEDICAL
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GROUP SHALL BE SUITABLE FOR USE BY THE MEDICAL GROUP FOR SUCH INTENDED USES.
Nothing in this Agreement shall be construed to affect or limit in any way the
professional discretion of the Medical Group to select and use any Equipment
acquired by the Management Company in accordance with the terms of this
Agreement insofar as such selection or use constitutes or might constitute the
practice of medicine.
3.4 New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Physical therapy;
(ii) Magnetic resonance imaging and/or other imaging services (except
diagnostic radiology);
(iii) Outpatient surgery;
(iv) Densitometry; and
(v) Other revenue-producing services generally recognized as ancillary
services, but excluding the following:
(A) Plain film radiography;
(B) Any other services provided on a regular basis by the Medical
Group immediately prior to the date of this Agreement; and
(C) Any service performed in connection with new Medical
Equipment acquired to replace existing Medical Equipment so long as
the new Medical Equipment performs substantially the same functions as
the replaced Medical Equipment.
New Ancillary Services do not include the sale or provision of (or services
rendered in connection with) prosthetics, prosthetic devices, orthotics, braces,
splints, appliances, crutches, casts, or any other supplies or similar items
which are billable to patients or payors.
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(b) The Management Company shall review the ancillary services currently
provided by the Medical Group and potential New Ancillary Services opportunities
to be considered by the Medical Group. 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 5.9 of this Agreement, except as
otherwise agreed by the parties.
3.5 Administration, Finance and Accounting. The Management Company shall
provide or arrange for the provision of all administrative, financial, and
accounting functions necessary for the operation of the Medical Group, including
without limitation --
(a) Creation and maintenance of bank accounts.
(b) Deposits of receipts.
(c) Preparing accounts receivable summary reports, including various
analyses of delinquent accounts.
(d) Receiving appropriate approvals as required by the Medical Group
Governance Documents 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 Medical Group Governance
Documents.
(e) Disbursement of payables, including payables of the Medical Group;
provided, however, that payables of the Medical Group shall be paid from an
account of the Medical Group and not from the Management Company's Operating
Account, and all checks drawn on any Medical Group account shall be signed by an
officer or other authorized representative of the Medical Group.
(f) Negotiation of vendor contracts.
(g) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and preparation of financial
statements.
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(h) Analyzing financial data as reasonably requested by physicians.
(i) Analyzing potential new office locations, and coordinating all
functions associated with opening new office locations.
(j) Preparing monthly financial and medical practice statistics reports (i)
By satellite office (ii) By physician
(k) Providing from the Medical Group's bank account(s) monthly compensation
payments to physicians; provided, however, that the Management Company shall not
be responsible for or liable with respect to interpretations of the Medical
Group Governance Documents; provided, further, that all checks drawn on any
Medical Group account shall be signed by an authorized representative of the
Medical Group.
(l) Calculating physicians' annual compensation based on the Medical
Group's physician compensation formulas.
(m) Ongoing day-to-day communication with the designated representative(s)
of the Medical Group and assisting such representative(s) in fulfilling his, her
or their responsibilities.
(n) Preparing agendas and information packages for Medical Group meetings.
(o) Developing budgets and long-term strategies for the Medical Group.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
(r) Providing administrative services (excluding the services of a plan
administrator) in connection with any pension or profit-sharing plan of the
Medical Group; provided, however, that the Management Company shall not be
responsible for investment decisions.
(s) Reviewing current physician makeup of the Medical Group, particularly
with respect to subspecialty coverage, and potential physician additions to be
considered by the Medical Group.
(t) Coordinating recruitment, interviewing, and hiring of new physicians.
(u) Implementing fee schedule increases and/or decreases established by the
Medical Group.
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(v) Coordinating depositions and court appearances.
(w) Assisting in the coordination of call schedules.
(x) Assisting in the coordination of coverage of athletic team events.
(y) Acting as liaison to hospital administration, physical therapy, surgery
center, MRI, and other ancillary services entities.
(z) Cooperating with outside accountants in preparing various schedules and
providing other information.
(aa) Interacting with legal counsel as necessary.
(bb) Providing a complete operational review of the practice, involving a
breakdown of each practice component and relevant statistics on each component.
(cc) Reviewing current managed care contracts the Medical Group has
executed, and potential managed care relationships to be considered by the
Medical Group.
(dd) Reviewing current workers' compensation relationships the Medical
Group has developed, and potential workers' compensation relationships to be
considered by the Medical Group.
The Management Company shall provide to the Medical Group, upon written request
by the Medical Group (but not more frequently than annually), within sixty (60)
days after receipt of any such request, written reports addressing the points
identified in items (s), (aa), (bb), and (cc) above.
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 detail in Section 5.1 of this Agreement. In order
to facilitate the collection of the Accounts, the Medical Group hereby
authorizes the Management Company (i) to xxxx patients and third party payors in
the Medical Group's name; (ii) to collect accounts receivable resulting from
such billing; (iii) to receive payments and prepayments from the Medical Group's
patients, Blue Cross and Blue Shield organizations, insurance companies, health
care plans,
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Medicare, Medicaid, HMOs, and any and all other third party payors; (iv) to take
possession of and deposit into such bank (the "Medical Group Bank") as the
Medical Group designates, in an account established by the Medical Group in the
name of the Medical Group (the "Medical Group Collections Account"), any and all
checks, insurance payments, cash, cash equivalents and other instruments
received for Medical Group Services; and (v) to initiate with the consent of the
Medical Group, which consent may be withheld by the Medical Group in its sole
and absolute discretion, legal proceedings in the name of the Medical Group to
collect any accounts and monies owed to the Medical Group, to enforce the rights
of the Medical Group as a creditor under any contract or in connection with the
rendering of any service, and to contest adjustments and denials by governmental
agencies (or its fiscal intermediaries) as third party payors. The 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 shareholders from any
patient or third party payor for Medical Group Services rendered hereunder.
Following termination of this Agreement, the Management Company shall continue
to use reasonable efforts to collect the Accounts for a period of ninety (90)
days thereafter (and any amounts collected during such period shall be
considered as Collections under this Agreement).
(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
representatives (each, an "Authorized Signatory") 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 perform
its duties under this Section 3.6 and its other 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.
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(d) Without limiting the generality of the foregoing, the Management
Company shall xxxx patients, xxxx and submit claims to third party payors,
perform appropriate coding for each xxxx, and collect all fees for professional
and other services rendered and for items supplied to patients by the Medical
Group, all in a timely manner and in accordance with parameters and criteria
established by the Operations Committee (as hereinafter defined). The Management
Company may discharge its billing and collection responsibilities hereunder by
arranging for such duties to be carried out by the billing service that
furnished such services to the Medical Corporation immediately prior to the date
hereof, or by such other billing service as the Management Company may in its
discretion select. Additionally, the Management Company shall provide or arrange
for the provision of the following services:
(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 additionally shall
obtain all appropriate insurance and other information required.
(ii) Submit claims utilizing electronic billing submission, whenever
appropriate.
(iii) Perform delinquent account collection calls and other appropriate
follow-up mechanisms for delinquent accounts of all insurance
classifications, all in a timely fashion as determined by the
Operations Committee.
(iv) Turn over to outside collection agencies all delinquent accounts
satisfying the criteria established by the Operations Committee,
follow-up on the performance of the outside collection agencies
and make changes if necessary, and reconcile each account turned
over to the summary data provided by the collection agency.
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(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 state 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 from the PPOs and
HMOs are in compliance with the contract with the Medical Group.
(x) With respect to capitation fee contracts with HMOs --
(A) Follow-up to ensure that payments by the HMOs are made on a
timely basis;
(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 --
(A) Ensure that appropriate documents are signed and agreed to
initially as between Medical Group, attorney and patient;
(B) Follow-up on a regular basis as to the status of the
account; and
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(C) Apply the policies of the Operations Committee in resolving
open account balances.
(xii) With respect to student athlete accounts, coordinate insurances
and other information in compliance with the policy of the
Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance with
contracts between the payor and the Medical Group, follow-up on a
timely basis to ensure that withheld amounts are paid, if
warranted, and to ensure that any withheld amounts that are not
paid are verified and audited for appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and third
party payors when appropriate.
3.7 Administrative Personnel.
(a) The Management Company shall retain and provide or arrange for the
retention and provision of all of the following non-medical personnel necessary
for the conduct of the Medical Group's business operations (collectively,
"Administrative Personnel"):
(i) Administration
(ii) Accounting
(iii) Billing and Collection
(iv) Secretarial
(v) Transcription
(vi) Appointments
(vii) Switchboard
(viii) Medical Records
(ix) Chart Preparation
(x) Historians
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(xi) Clinic Support
(xii) Marketing
(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, personnel
policies, administering continuing education benefits, and payroll
administration.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as reasonably necessary, verify or
arrange for the verification of educational and employment experience,
licensure, and insurability.
(d) All of the personnel services shall be performed in compliance with all
applicable state and Federal labor 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 be reasonably necessary for the conduct of the Medical Group's
professional practice.
(b) For purposes of this Agreement, "Technical Personnel" means nurses,
medical assistants, x-ray technicians, other technicians, and other personnel
who perform diagnostic tests or other services that are covered by Medicare or
by other third party payors when performed by an employee of a physician under
the physician's supervision.
(c) The Medical Group shall have the right to exercise, and shall exercise,
such supervision and control over the activities of the Technical Personnel as
may be necessary for the Technical Personnel to be considered leased employees
under the Medicare program and under applicable law. Without limiting the
generality of the foregoing, the Medical Group --
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(i) shall have the right to have any Technical Personnel terminated
from employment;
(ii) shall furnish the Technical Personnel with the equipment and
supplies needed by the Technical Personnel for their work;
(iii) shall provide the Technical Personnel with any necessary training;
(iv) shall instruct the Technical Personnel regarding their activities
performed for the Medical Group;
(v) shall establish the hours of work for the Technical Personnel;
(vi) shall approve vacation time and other time off from work; and
(vii) shall provide that degree of supervision as is required by
Medicare and by other third party payors to satisfy applicable
conditions for coverage thereunder.
(d) With respect to each of the Technical Personnel, the Management Company
shall verify or arrange for the verification of educational and employment
experience, licensure and insurability, and shall review and provide the Medical
Group with copies of any complaints contained in public files with applicable
state and federal commissions.
3.9 Medical Personnel.
(a) The Management Company shall, upon request by the Medical Group, assist
the Medical Group in recruiting Medical Personnel. "Medical Personnel" means:
(i) Physicians (including fellows and residents, if any) providing
professional medical services for or in connection with 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).
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(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.
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 to be necessary for it to carry out its
professional medical activities. Inventory and supplies shall include, but not
be limited to:
(a) Medical supplies
(b) Office supplies
(c) Postage
(d) Computer forms and supplies
(e) Printing and stationery supplies
(f) Printer supplies
(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 the payment of
the Medical Group's taxes.
3.12 Information Systems Management.
(a) The Management Company shall provide or arrange for the provision of
all management information systems services to be utilized by the Medical Group.
These services shall include, but not be limited to, ongoing maintenance and
development of the following information systems:
(i) Accounts receivable - Billing/Insurance/Collections
(ii) On-line appointment scheduling
(iii) Internal e-mail
(iv) On-line transcription
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(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
(b) The acquisition, replacement, relocation, or other disposition of any
equipment described above shall be governed by Section 3.3 hereof.
(c) The services provided by the Management Company shall protect the
confidentiality of patient medical records to the extent required by applicable
law or the Medical Group's payor agreements; provided, however, that in no event
shall a breach of such confidentiality be deemed a default under this Agreement
if the Management Company acted reasonably and in good faith to protect such
confidentiality.
3.13 Use of New Technologies in the Practice of Medicine. The Management
Company shall promote the integration of new technologies into the professional
practice of the Medical Group, including without limitation the use of satellite
and other telecommunications 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
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advertising programs as reasonably required to promote and expand the Medical
Business, subject to any approved budgets. The programs shall be conducted in
compliance with applicable laws and regulations governing advertising by the
medical profession.
3.15 Insurance. The Management Company shall provide the insurance coverage
described in Sections 12.1 and 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 be kept at a location that is readily
accessible for patient care. The Management Company shall preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purposes necessary to perform the management
services set forth herein; provided, however, that in no event shall a breach of
such confidentiality be deemed a default under this Agreement if the Management
Company acted reasonably and in good faith to protect such confidentiality.
(b) The Management Company shall provide all off-site storage of files and
records as required and in conjunction with policies established by the
Operations Committee. The Management Company shall provide the Medical Group
with all requested off-site files and records on a timely basis, consistent with
the policies of the Medical Group in effect immediately prior to the date
hereof. Any change in such policies shall be subject to the approval of the
Operations Committee.
3.17 Managed Care Contracts. The Management Company shall solicit,
negotiate and administer all managed care contracts on behalf of the Medical
Group based on parameters and 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
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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; provided, however, that the
Medical Group and the Management Company hereby agree that the Budget covering
the initial period under this Agreement shall be the Budget attached hereto as
Schedule II. All other budgets shall be on a calendar year basis. The Management
Company shall prepare and submit to the Operations Committee all subsequent
Budgets on or before December 15 of the year immediately preceding the calendar
year to which such Budgets are applicable.
3.19 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, lockouts, calamities, acts of God, unavailability of supplies,
changes in applicable law or regulations or other events over which the
Management Company has no control for so long as such events continue and for a
reasonable time thereafter.
SECTION 4. Equity Participation and Other Consideration. In consideration
of the Medical Group's entering into this Agreement, the Management Company
shall provide to the persons identified in Schedule III attached hereto (the
"Eligible Parties") and to the Medical Group the consideration set forth on
Schedule III, provided that the Eligible Parties execute the Restricted Stock
Agreement presented for signature herewith (the "Restricted Stock Agreement").
SECTION 5. Ownership of Accounts; 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 the other rights
to payment arising from the provision by the Medical Group of Medical Group
Services during the term
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hereof (the "Accounts"); provided, however, that the right to payment of
Medicare and Medicaid receivables shall remain with the Medical Group in
accordance with applicable Federal and state law. The Medical Corporation agrees
to execute the Financing Statement presented for signature herewith (the
"Financing Statement") and such additional financing statements and continuation
statements as the Management Company may reasonably request to evidence,
protect, or perfect the Management Company's ownership interest in the Accounts.
The Management Company shall have the right to grant to any lender (the
"Lender") a first priority 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
security for the obligations of the Management Company to the Lender. The
Medical Group hereby irrevocably constitutes and appoints the Management Company
as the true and lawful attorney-in-fact for the Medical Group to execute in the
name of the Medical Group such financing statements, continuation statements,
and other documentation as may be necessary or appropriate to evidence, protect,
or perfect the Management Company's interest in and/or the Lender's lien and
security interest in and with respect to all Accounts and other Collateral. The
Medical Group shall cooperate with the Lender as reasonably requested by the
Lender in the event that 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 and other Collateral.
5.2 Bank Accounts and Payments.
(a) 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 of the Management Company in the Management Company's
name. Concurrently herewith, the Medical Corporation is entering into a Provider
Account Agreement with the Medical Corporation Bank, the
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Management Company, and the Management Company's lender (the "Provider Account
Agreement"), in order to implement the foregoing obligation.
(b) The Management Company shall pay all of the Medical Group Compensation
and all of the Management Company Costs, as hereinafter defined, and the
Management Company shall be entitled to retain for itself the Management Fee, as
hereinafter defined.
5.3 Medical Group Compensation.
(a) Monthly Draw.
(i) On each Draw Date during the Term hereof, the Management Company
shall distribute to the Medical Group an amount equal to a percentage (the
"Draw Percentage") of the Medical Group's total Xxxxxxxx for Medical Group
Services provided during the previous month (the "Monthly Draw"). The Draw
Date and the initial Draw Percentage are as set forth in Schedule IV, and
the Draw Percentage shall be adjusted as provided in Section 5.3(a)(ii).
(ii) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction, the
numerator of which is the Annual Medical Group Compensation Amount for the
previous year, and the denominator of which is the total amount of Xxxxxxxx
for the previous year. Additionally, the Management Company may adjust the
Draw Percentage from time to time based on the actual amount of 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, 1998, and on or before April 30 of each
year thereafter, the Management Company shall calculate the following (the
"Annual Medical Group Compensation Amount"):
(A) The total Collections for all Medical Group Services rendered
during the previous calendar year, less --
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(B) the sum of the following:
(1) the Management Fee earned by the Management Company for the
previous calendar year; and
(2) the Authorized Management Company Operating Costs incurred
by the Management Company during the previous calendar year.
(ii) If the Annual Medical Group Compensation Amount thus determined
exceeds the total of the twelve (12) Monthly Draws paid by the Management
Company to the Medical Group during the previous calendar year (the "Annual
Draw Amount"), the Management Company shall pay to the Medical Group,
together with the compensation amount otherwise payable to the Medical
Group, during each of the following twelve (12) months, an amount equal to
one-twelfth (1/12) of such excess. If the Annual Draw Amount for the
previous calendar year exceeds the Annual Medical Group Compensation Amount
for the previous calendar year, the Management Company shall withhold from
the Medical Group compensation otherwise payable to the Medical Group,
during each of the following twelve (12) months, an amount equal to
one-twelfth (1/12) of such excess. Notwithstanding the foregoing, the party
which is required to pay to the other any such excess may elect to pay such
excess in equal installments over a period that is shorter than twelve (12)
months.
(iii) For purposes of determining the total Collections for all
Medical Group Services provided during any calendar year, all Collections
during January, February, and March of each year shall be deemed to be for
Medical Group Services rendered during the previous calendar year, and all
Collections during April through December shall be deemed to be for Medical
Group Services rendered during the calendar year in which such Collections
were received; provided, however, that for purposes of determining the
total Collections during the period commencing on the date hereof and
ending December 31, 1997, all Collections from and after the date hereof
through March 31, 1998, shall be deemed to be for Medical Group Services
rendered during the period commencing on the date hereof and ending
December 31, 1997. Notwithstanding the foregoing, the Management Fee
applicable to any calendar year shall be based on the Collections actually
received during such calendar year.
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(iv) Notwithstanding anything to the contrary set forth herein, the
first period for which the annual settlement described in this Section
5.3(b) shall be applicable is the period commencing on the date hereof 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 received during such
period, less any refunds paid during such period.
(iii) "Medical Group Services" means the following services rendered by,
through, or on behalf of the Medical Group during the Term at the
offices identified in Section 3.2 hereof or at any other location:
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), except for
services rendered by or under the supervision of Xxxxxx X. Xxxxxx,
M.D., P.C. and Xxxxxx X. Xxxxxx, M.D.; all diagnostic radiology
services rendered by or under the supervision of any of the
Medical Personnel; all diagnostic tests and other services
rendered by Technical Personnel; all other ancillary services
(other than New Ancillary Services); all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, and other items
and supplies that are billable to patients or to third party
payors; and depositions, record review services, court
appearances, independent medical exams, and athletic team
services.
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(iv) It is the intent of the parties that Xxxxxxxx, Collections, and
Medical Group Services not include any of the following: services
rendered by or under the supervision of Xxxxxx X. Xxxxxx, M.D.,
P.C. and Xxxxxx X. Xxxxxx, M.D. (which are included under the
Xxxxxx MSA); 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); interest income; sublease income, if any; royalties
payable to any Medical Group physician for medical inventions;
income from presentations, writings, and endorsements; proceeds
from the sale of any capital assets of the Medical Group; or
income from investments.
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 the aggregate of the
following: (i) An amount equal to the Applicable Percentage of Collections,
provided that the amount thus determined shall be reduced by the Medical
Equipment Master Lease Payments; and (ii) An amount equal to sixty-six and
two-thirds percent (66-2/3%) of the Professional Practice Cost Savings.
(b) For purposes of this Agreement --
(i) "Applicable Percentage" has the meaning set forth in Schedule V.
(ii) "Medical Equipment Master Lease Payments" means the monthly lease
amounts payable for all Medical Equipment (except for any amounts
payable by or on behalf of Xxxxxx X. Xxxxxx, M.D., P.C. or Xxxxxx
X. Xxxxxx, M.D.) determined in accordance with the
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Medical Equipment Master Lease referenced in Section 3.3(a)
hereof.
(iii) "Professional Practice Cost Savings" means the cost savings
determined in the manner described in Schedule VI.
(c) An example of the computation of Medical Group Compensation and the
Management Fee is attached hereto as Schedule VII.
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 date of this Agreement.
(b) The Management Company shall provide to the Medical Group, upon
reasonable request by the Medical Group from time to time, supporting
documentation and other backup detail relating to any or all of the Management
Company Costs.
(c) For purposes of this Agreement, "Management Company Operating Costs"
means all costs and expenses incurred in connection with the provision of the
Management Services, except for any costs and expenses defined as Medical Group
Costs in Section 5.8 hereof, and except for Excluded Costs. Management Company
Operating Costs also include the cost of billing and collecting any accounts
receivable generated prior to the date hereof and purchased by the Management
Company pursuant to the Asset Purchase Agreement. "Excluded Costs" means all of
the following costs and expenses incurred in connection with the provision of
the Management Services hereunder:
(i) New Medical Office Start-Up Costs;
(ii) New Physician Start-Up Costs;
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(iii) The rent and any other payments due under any of the Office
Leases;
(iv) The cost of any Medical Equipment leased by the Management Company
to the Medical Group;
(v) The cost of any FF&E provided by the Management Company to the
Medical Group;
(vi) Depreciation, amortization, and interest; and
(vii) Corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following
conditions are satisfied:
(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. Under no circumstances
shall any Corporate Overhead cost allocation include
compensation payable to corporate staff, nor shall there be
any other Corporate Overhead cost allocation of any kind
except to the extent that the conditions set forth in this
item (vii) above are satisfied.
(d) For purposes of this Agreement, "Authorized Management Company
Operating Costs" means all Management Company Operating Costs incurred in any
year, reduced by any or all of the following costs if and to the extent that
such costs were under the sole control of the Management Company and were not
approved by the Operations Committee or by the Medical Group:
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(i) any costs that exceed the applicable Management Company Operating
Costs Budget;
(ii) any costs with respect to which the Medical Group has reasonably
requested supporting documentation or other backup detail which
has not been furnished by the Management Company or which does not
reasonably establish the appropriateness of such costs; and
(iii) any costs that have been determined pursuant to an audit under
Section 5.10 not to have been reasonably incurred in connection
with the Management Services required to be provided under of this
Agreement.
5.6 New Medical Office Start-Up Costs.
(a) The Management Company shall pay all New Medical Office Start-Up Costs
incurred in connection with the establishment of any New Medical Office.
(b) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and leased to the Medical Group in accordance
with Section 3.3 hereof.
(c) For purposes of this Agreement, "New Medical Office" means any office
of the Medical Group other that the office(s) identified in Section 3.2(a)
hereof.
(d) For purposes of this Agreement, "New Medical Office Start-Up Costs"
means the following costs incurred in connection with the establishment of a New
Medical Office during the New Medical Office Start-Up Period: all Management
Company Costs and all costs other than physician Medical Personnel costs that,
but for this provision, would have been considered Medical Group Costs.
(e) For purposes of this Agreement, "New Medical Office Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the
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establishment of a New Medical Office and ending on the earlier of (i) the last
day of the calendar month in which a period of eighteen (18) months has elapsed
from and after the date on which the New Medical Office first opened for the
treatment of patients, or (ii) the last day of the first period of two (2)
consecutive calendar months for which Collections reach a level such that the
costs borne by the Management Company in connection with the New Medical Office
are less than sixty percent (60%) of the Collections for Medical Group Services
provided at the New Medical Office during such two-month period. In no event
shall the Management Company have any obligation under this Section 5.6 to pay
any New Medical Office Start-Up Costs incurred later than eighteen (18) months
after the New Medical Office first opened for the treatment of patients.
5.7 New Physician Start-Up Costs.
(a) Upon the request of the Medical Group and approval by the Management
Company, which approval shall not be unreasonably withheld, the Management
Company shall pay all New Physician Start-Up Costs (as defined below) to the
extent authorized hereunder, subject to recoupment by the Management Company as
provided herein.
(b) The Management Company shall be entitled to retain all Net Collections
(as defined below) during the New Physician Start-Up Period (as defined below),
which shall be offset against the New Physician Start-Up Costs that the Medical
Group has previously paid and is entitled to recoup as provided in Section
5.7(c) below.
(c) Beginning with the month immediately following the expiration of the
New Physician Start-Up Period, the Management Company shall be entitled to
recoup all of the New Physician Start-Up Costs previously paid by the Management
Company by retaining any and all Excess Net Collections (as defined below) until
the Management Company has recouped the full amount of New Physician Start-Up
Costs previously paid by the Management Company, without interest.
(d) "New Physician Start-Up Costs" means the following costs (whether
otherwise considered Management Company Costs or Medical Group Costs hereunder)
payable
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to or incurred in connection with a New Physician during the New Physician
Start-Up Period, but only to the extent approved by the Operations Committee:
all salary and other compensation payable to the New Physician; the cost of
health insurance and any other employee benefits provided for the benefit of the
New Physician; the cost of professional liability insurance coverage for the New
Physician; the cost of continuing professional education incurred for the
benefit of the New Physician (including the cost of travel, meals, and lodging
incurred in connection with attendance at seminars and similar professional
events); and all other direct out-of-pocket costs (but not indirect costs),
determined on an incremental basis.
(e) "New Physician Start-Up Period" means the period commencing on the date
that the New Physician commences performing professional medical services as an
employee or independent contractor of the Medical Group and ending on the
earlier of (i) the last day of the calendar month in which a period of eighteen
(18) months has elapsed from and after the date on which the New Physician
commenced performing such services, or (ii) the last day of the first period of
two (2) consecutive calendar months for which the amount of Net Collections (as
defined below) attributable to the services performed by the New Physician
equals or exceeds the amount of New Physician Start-Up Costs paid or payable
during such period. In no event shall the Management Company have any obligation
under this Section 5.7 to pay any New Physician Start-Up Costs incurred later
than eighteen (18) months after the New Physician commenced performing
professional medical services as an employee or independent contractor of the
Medical Group.
(f) "Net Collections" in any period means total Collections in such period
less that portion of the Management Fee which is based on the Applicable
Percentage of Collections. At all times during and after the New Physician
Start-Up Period, the Management Company shall be entitled to receive, as part of
its compensation under this Agreement, that portion of the Management Fee which
is based on the Applicable Percentage of Collections attributable to the
services provided by the New Physician.
(g) "Excess Net Collections" means the amount (if any) by which Net
Collections in any month attributable to services performed by the New Physician
exceed the
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amount of costs paid or payable during such month which would have been
considered New Physician Start-Up Costs had they been paid or payable during the
New Physician Start-Up Period.
(h) "New Physician" means any physician who becomes an employee or
independent contractor of the Medical Group after the date hereof and who
practices with the Medical Group on a substantially full-time basis.
5.8 Medical Group Costs. Except as otherwise provided in this Agreement,
the Medical Group shall pay all of the costs specified in this Section 5.8 (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. The Medical Group Costs are as
follows:
(a) Compensation of all Medical Personnel;
(b) Any applicable fringe benefits for all Medical Personnel, including,
but not limited to, payroll taxes, workers' compensation, health
insurance (including drug coverage), dental insurance, individual
disability insurance, life insurance, business buy-out disability
insurance, continuing education, and medical dues and licenses;
(c) The cost of prosthetics, prosthetic devices, orthotics, braces,
splints, appliances, allografts, x-ray films, and other items and
supplies that are billable to patients or to third party payors (the
"Billable Items");
(d) The Medical Equipment Master Lease Payments;
(e) Any lease payments for New Ancillary Service Medical Equipment;
(f) The rent payable under any Office Sublease described in Section 3.2
hereof or under any other office sublease entered into with the
Management Company; and
(g) 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
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limited to the cost of accounting, legal, consulting, or other
professional or advisory services, business meetings, and business
taxes.
5.9 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:
(i) The Management Company shall create a separate division for
purposes of accounting for the income, costs, profits, and losses of any
New Ancillary Service. The Management Company shall utilize generally
accepted accounting principles in determining and accounting for the
profits and losses related to the operations of each New Ancillary Service.
(ii) Profits and/or losses of any New Ancillary Service shall be
divided equally between the Medical Group and the Management Company, and
all distributions to the Medical Group and to the Management Company shall
be made in equal amounts to each from available cash (after payment of all
currently due obligations incurred in connection with such New Ancillary
Service, including without limitation any principal and interest amounts
then due and payable under Section 5.9(a)(iv) below, and after retention of
reasonable reserves) derived from the operation of such New Ancillary
Service.
(iii) All diagnostic and therapeutic equipment utilized in connection
with any New Ancillary Service ("New Ancillary Service Medical Equipment")
shall be acquired by the Management Company and leased to the Medical Group
pursuant to an equipment lease substantially in the form of the Medical
Equipment Master Lease.
(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, 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
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at the prevailing prime rate as set forth in the Wall Street Journal and/or
at the actual rate paid by the Management Company (but in no event greater
than prime plus two percent (2%)) with respect to any part of such costs
that have been financed by the Management Company.
(v) The Management Company shall provide, in connection with any New
Ancillary Service, the full range of management services described in this
agreement.
(vi) The xxxxxxxx, collections, costs and expenses relating to any New
Ancillary Service shall not be included in the computations of Medical
Group Compensation, the Management Fee, Management Company Costs, New
Medical Office Start-Up Costs, New Physician Start-Up Costs, or Medical
Group Costs as described in Sections 5.3, 5.4, 5.5, 5.6, 5.7, or 5.8,
respectively.
(b) For purposes of this Section 5.9, "Ancillary Service Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of the New Ancillary Service and ending on the
last day of the first period of two (2) consecutive calendar months for which
the New Ancillary Service shows a profit.
(c) For purposes of this Section 5.9, "Ancillary Service Start-Up Costs"
means the total of all of the following costs incurred in connection with the
establishment of a New Ancillary Service during the Ancillary Service Start-Up
Period (whether such costs would otherwise be considered Management Company
Costs or Medical Group Costs) --
(i) Any lease payments for New Ancillary Service Medical Equipment;
(ii) All costs of acquiring furniture, fixtures, and office equipment;
(iii) All initial occupancy costs, if any, including but not limited to
rent deposits, prepaid rent, and tenant improvements;
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(iv) All other start-up costs, including but not limited to legal,
accounting and consulting fees, and the cost of initial
inventories of supplies and other items; and
(v) All ongoing costs of the New Ancillary Service, including but not
limited to personnel (other than physician Medical Personnel) and
related benefits, the cost of operating any equipment utilized in
providing the service, supplies, insurance, rent, repairs and
maintenance, outside services, telephone, taxes, utilities,
storage and other ordinary ongoing expenses of providing the New
Ancillary Service.
(d) New Ancillary Services shall be provided through legal structures as
agreed to by the parties, including but not limited to limited partnerships.
Additionally, upon agreement of the parties, New Ancillary Services may be
structured to permit the participation of physicians who are not members of the
Medical Group and/or who do not have contracts with the Management Company.
5.10 Review and Audit of Books and Records. Each of the parties shall have
the right, during ordinary business hours and upon reasonable notice, to review
and make copies of, or to audit through a qualified certified public accountant
approved by the other party (which approval shall not be unreasonably withheld),
the books and records of the other party relating to the billing, collection,
and disbursement of fees, and the determination of costs, under this Agreement.
Any such review or audit shall be performed at the cost of the requesting party;
provided, however, that in the event that such review or audit requested by the
Medical Group discloses a discrepancy indicating that the Medical Group has
actually been underpaid by an amount in excess of two percent (2%) of the total
amount of Medical Group Compensation payable to the Medical Group for the period
covered by the audit, the cost of the audit shall be borne by the Management
Company. All documents and other information obtained in the course of such
review or audit shall be held in strict confidence.
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5.11 Start-Up Period.
(a) Consistent with the provisions of Section 2 of this Agreement, the
parties acknowledge and agree that, in order to facilitate the transition of
responsibilities hereunder, certain requirements and procedures agreed to under
this Agreement may be implemented over the course of a period of time commencing
on the date hereof and ending two (2) months thereafter (subject to extension by
agreement of the Medical Group and the Management Company), rather than being
fully implemented immediately on the date hereof. Accordingly, the parties may
implement interim procedures during such start-up period, including the
procedures set forth in Section 5.11(b) hereof. The parties further agree that
the Management Fee and Medical Group Compensation payable in respect of the
Management Services and the Medical Group Services applicable to such period of
time shall be computed, and any appropriate adjustments shall be made, such that
no material financial advantage or disadvantage shall accrue to either party as
a result of implementing such requirements and procedures over the course of
such start-up period rather than immediately on the date hereof.
(b) Until such time as the Management Company is able to pay directly, from
an account of the Management Company, all Authorized Management Company
Operating Costs, the Management Company shall advance to the Medical Group, on
or before the first business day of each calendar month, such amount as may be
reasonably necessary to pay, on a timely basis, the estimated amount of such
costs for such month that the Management Company is not able to pay directly.
The Medical Group shall pay such costs on a timely basis, on behalf of the
Management Company, from such funds. If additional funds are needed to pay such
costs during such month, the Management Company shall provide additional funds
to the Medical Group as reasonably required. Any such funds received by the
Medical Group from the Management Company which have not been applied by the
Medical Group in payment of Authorized Management Company Operating Costs during
such month shall be applied to such costs during the subsequent month or
refunded to the Management Company. This arrangement shall terminate at such
time as procedures have been developed that enable the Management Company to pay
all Authorized Management Company Operating Costs directly from an account of
the Management Company. Any direct costs incurred in order to implement this
interim arrangement shall be borne by the Management Company, and not by the
Medical Group.
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SECTION 6. Representations and Warranties of the Medical Group. The Medical
Group hereby represents and warrants to the Management Company, as of the date
hereof, as follows:
6.1 Organization; Good Standing; Qualification and Power. The Medical Group
is a general partnership duly organized, validly existing, and in good standing
under the laws of the State of Arizona 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 execute and deliver this
Agreement, the Asset Purchase Agreement, the Stockholder Non-Competition
Agreement, the Restricted Stock Agreement, the Provider Account Agreement, the
Financing Statement, the Medical Equipment Master Lease, each Assignment of
Lease, and each Office Sublease (collectively, the "Transaction Documents"), to
perform its obligations thereunder, and to consummate the transactions
contemplated thereby. The Medical Group has delivered to the Management Company
a true and correct copy of its partnership agreement and all amendments thereto
(the "Medical Group Governance Documents"), in effect on the date hereof.
6.2 Equity Investments. The Medical Group currently has no subsidiaries,
nor does the Medical Group currently own any capital stock or other proprietary
interest, directly or indirectly, in any corporation, association, trust,
partnership, joint venture, or other entity. The foregoing shall not be
interpreted to be applicable to any of the Partners, individually.
6.3 Authority. The execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby have
been duly and validly authorized by all necessary action on the part of the
Medical Group. The Transaction Documents have been duly and validly executed and
delivered by the Medical Group and constitute the legal, valid and binding
obligations of the Medical Group enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally or by applicable laws pertaining to the enforceability of
non-competition agreements. Neither the execution, delivery or performance of
the Transaction Documents by
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the Medical Group nor the consummation by the Medical Group of the transactions
contemplated thereby, nor compliance by the Medical Group with any provision
thereof will (a) conflict with or result in a breach of any provision of the
Medical Group Governance Documents, (b) cause a default (with due notice, lapse
of time or both), or give rise to any right of termination, cancellation or
acceleration, under any of the terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license or other instrument, obligation or
agreement to which the Medical Group or the Medical Business is a party or by
which they or any of its respective properties or assets may be bound (with
respect to which defaults or other rights all requisite waivers or consents
shall have been obtained at or prior to the date hereof) or (c) to the best
knowledge of the Medical Group, but without expressing any opinion regarding the
enforceability of non-competition agreements, violate any law, statute, rule or
regulation or order, writ, judgment, injunction or decree of any court,
administrative agency or governmental body applicable to the Medical Group, the
Medical Business or any of their respective properties or assets. To the best
knowledge of the Medical Group, no permit, authorization, consent or approval of
or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery or performance
by the Medical Group of the Transaction Documents or the consummation of the
transactions contemplated thereby.
6.4 Financial Information. Schedule 6.4 contains (a) the Medical Group's
internal statement of assets, liabilities, and partners' equity of the Medical
Business as of March 31, 1997 (the "Balance Sheet"; and the date thereof being
referred to as the "Balance Sheet Date"), and the related internal statements of
revenue and expenses for the period then ended (including the notes thereto and
other financial information included therein) (collectively, the "Internal
Financial Statements"), (b) the review financial statements of the Medical
Business for the periods ended December 31, 1996 and December 31, 1995 (the
"Review Financial Statements"), and (c) the historical collections information
of the Medical Group for the periods ended April 30, 1997, December 31, 1996,
December 31, 1995, and December 31, 1994 (the "Historical Collections
Information"). The Internal Financial Statements, the Review Financial
Statements, and the Historical Collections Information (i) were prepared in
accordance with the books and records of the Medical Business, (ii) fairly
present the financial position of the
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Medical Business as of the dates thereof, and (iii) are true, correct and
complete in all material respects as of the dates thereof.
6.5 Absence of Undisclosed Liabilities. Except as set forth on Schedule
6.5, as of the Balance Sheet Date, (a) the Medical Business did not have any
material liability of any nature (matured or unmatured, fixed or contingent,
known or unknown) which was not provided for or disclosed on the Balance Sheet,
(b) all liability reserves established by the Medical Business on the Balance
Sheet were adequate and (c) there were no loss contingencies (as such term is
used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975) which were not adequately
provided for or disclosed on the Balance Sheet.
6.6 Absence of Changes. Except as set forth on Schedule 6.6, since the
Balance Sheet Date, the Medical Business has been operated in the ordinary
course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation, levels of working
capital and the components thereof), liabilities, operations, results of
operations, earnings, business or prospects of the Medical Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Medical Business;
(c) any obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Medical Business
other than such items created or incurred in the ordinary course of the
Medical Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Medical Business outside the
ordinary course of the Medical
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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 any reason or with respect to which such account debtor has become
insolvent or bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Medical
Business;
(i) any general uniform increase in the compensation of employees of
the Medical Group or the Medical Business (including, without limitation,
any increase pursuant to any bonus, pension, profit-sharing, deferred
compensation arrangement or other plan or commitment) or any increase in
compensation payable to any Partner or Principal, or the entering into of
any contract with any Partner or Principal, or the making of any loan to,
or the engagement in any transaction with, any Partner or Principal;
(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;
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(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.
6.7 Tax Matters.
(a) Except as set forth on Schedule 6.7, (i) all Taxes relating to the
Medical Business required to be paid by the Medical Group through the date
hereof have been paid and all returns, declarations of estimated Tax, Tax
reports, information returns and statements required to be filed by the Medical
Group in connection with the Medical Business prior to the date hereof (other
than those for which extensions shall have been granted prior to the date
hereof) relating to any Taxes with respect to any income, properties or
operations of the Medical Group prior to the date hereof (collectively,
"Returns") have been duly filed; (ii) as of the time of filing, the Returns
correctly reflected in all material respects (and, as to any Returns not filed
as of the date hereof, will correctly reflect in all material respects) the
facts regarding the income, business, assets, operations, activities and status
of the Medical Business and any other information required to be shown therein;
(iii) all Taxes relating to the operations of the Medical Business that have
been shown as due and payable by the Medical Group on the Returns have been
timely paid and filed or adequate provisions made to the books and records of
the Medical Business; (iv) in connection with the Medical Business (A) 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 (B) provision has been made for all Taxes payable by the
Medical Group for any periods that end on or before the date hereof for which no
Returns have then been filed and for any periods that begin on or before the
date hereof and end after such date to the extent such
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Taxes are attributable to the portion of any such period ending on such
date; (v) no tax liens have been filed with respect to any of the assets of
the Medical Business, and there are no pending tax audits of any Returns
relating to the Medical Business; and (vi) no deficiency or addition to
Taxes, interest or penalties applicable to the Medical Group for any Taxes
relating to the operation of the Medical Business has been proposed,
asserted or assessed in writing (or any member of any affiliated or
combined group of which the Medical Group or any previous operator of the
Medical Business was a member for which the Medical Group could be liable).
(b) The Medical Group is not a foreign person within the meaning of
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, 1995 and 1996.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or entity, (i) all federal, state,
local and foreign income taxes (including any tax on or based upon net income,
or gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all Federal, state, local and
foreign gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties or other Federal, state, local and foreign taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign) on such person or entity and (ii) any liability for the payment of
any amount of the type described in the immediately preceding clause (i) as a
result of being a `transferee' (within the meaning of Section 6901 of the Code
or any other applicable law) of another person or entity or a member of an
affiliated or combined group.
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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 Partner or Principal 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, all
Partners and Principals, and the Medical Business shall have complied in all
material respects with all applicable material Federal, state, local or foreign
laws, ordinances, regulations and orders. The Medical Group and all Partners and
Principals have all Federal, state, local and foreign governmental licenses and
permits necessary in the conduct of the Medical Business, the lack of which
would have a material adverse effect on the Medical Group's ability to operate
the Medical Business after the date hereof on substantially the same basis as
presently operated, such licenses and permits are in full force and effect, the
Medical Group has not received any notice indicating that any violations are or
have been recorded in respect of any thereof, and no proceeding is pending or,
to the best knowledge of the Medical Group, threatened to revoke or limit any
thereof. To the best knowledge of the Medical Group, none of such licenses and
permits shall be affected in any material respect by the transactions
contemplated hereby.
6.10 Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 6.10, all of the accounts receivable
owing to the Medical Group in connection with the Medical Business as of the
date hereof constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of the Medical Business, the amounts of
which are actually due and owing, and as of the date hereof, to the best
knowledge of the Medical Group, there are no claims, refusals to pay or other
rights of set-off against any thereof. Except as set forth on Schedule 6.10, as
of the date hereof, there
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is (i) no account debtor or note debtor of the Medical Business delinquent in
its payment by more than 60 days, (ii) no account debtor or note debtor of the
Medical Business who or which has refused to pay its obligations for any reason
or is the subject of a bankruptcy proceeding and (iii) no account receivable or
note receivable of the Medical Business pledged to any third party.
(b) All accounts payable and notes payable by the Medical Business to third
parties arose in the ordinary course of business and, except as set forth in
Schedule 6.10, there is no account payable or note payable past due or
delinquent in its payment.
6.11 Labor Relations; Employees. Schedule 6.11 contains a true and complete
list of the persons employed by the Medical Group as of the date hereof (the
"Employees"). Except as set forth on Schedule 6.11, (a) the Medical Group and
the Medical Business are not delinquent in payments to any of the Employees for
any wages, salaries, commissions, bonuses or other compensation for any services
performed by them to the date hereof or amounts required to be reimbursed to the
Employees; (b) upon termination of the employment of any of the Employees,
neither the Medical Group, the Medical Business nor the Management Company will
by reason of anything done prior to the date hereof, or by reason of the
consummation of the transactions contemplated hereby, be liable for any excise
taxes pursuant to Section 4980B of the Code or to any of the Employees for
severance pay or any other payments; (c) there is no unfair labor practice
complaint against the Medical Group or in connection with the Medical Business
pending before the National Labor Relations Board or any comparable state, local
or foreign agency; (d) there is no labor strike, dispute, slowdown or stoppage
actually pending or, to the best knowledge of the Medical Group, threatened
against or involving the Medical Group or Medical Business; (e) there is no
collective bargaining agreement covering any of the Employees; and (f) to the
best knowledge of the Medical Group, no Employee or consultant is in violation
of any (i) employment agreement, arrangement or policy between such person and
any previous employer (private or governmental) or (ii) agreement restricting or
prohibiting the use of any information or materials used or being used by such
person in connection with such person's employment by or association with the
Medical Group or the Medical Business.
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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, any Partner, or the Medical Business, on
one hand, and any Employee or former employee of the Medical Group or of a
Partner 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 any
Partner, or in connection with the Medical Business for the benefit of any
Employee or former employee of the Medical Group or any Partner, or in
connection with the Medical Business under which the Medical Group, any Partner,
any affiliate of the Medical Group, or the Medical Business has any present or
future obligation or liability (the "Employee Plans"). The Medical Group has
provided the Management Company with true and complete age, salary, service and
related data for Employees of the Medical Group and in connection with the
Medical Business.
(b) Schedule 6.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits currently
maintained by the Medical Group or in connection with the Medical Business.
6.13 Insurance. Schedule 6.13 contains a list of all policies of
professional liability (medical malpractice), general liability, theft,
fidelity, fire, product liability, errors and omissions, health and other
property and casualty forms of insurance held by the Medical Group covering the
assets, properties or operations of the Medical Group and the Medical Business
(specifying the insurer, amount of coverage, type of insurance, policy number
and any pending claims thereunder). All such policies of insurance are valid and
enforceable policies and are outstanding and duly in force and all premiums with
respect thereto are currently paid. Neither
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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.
6.14 Real Property. Schedule 6.14 sets forth an accurate and complete legal
description of the entire right, title and interest of the Medical Group in and
to all real property, together with all buildings, facilities, fixtures and
improvements located on such real property, owned or leased by the Medical Group
(the "Real Property"), together with an accurate description of the title
insurance policy or other evidence of title issued with respect thereto, the
most current survey of such real property and a description of the use thereof.
Other than the Real Property, the Medical Group has no other interest (leasehold
or otherwise) in real property used, held for use or intended to be used in the
Medical Business. The Medical Group has a valid leasehold interest in all Real
Property leased by the Medical Group.
6.15 Burdensome Restrictions. Except as set forth on Schedule 6.15, neither
the Medical Group nor the Medical Business is bound by any oral or written
agreement or contract which by its terms prohibits it from conducting the
Medical Group or the Medical Business (or any material part thereof).
6.16 Disclosure. Neither the Transaction Documents (including the Exhibits
and Schedules attached thereto) nor any other document, certificate or written
statement furnished to the Management Company by or on behalf of the Medical
Group in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
Except as set forth on Schedule 6.16, there have been no events or transactions,
or information which has come to the attention of the Medical Group, which, as
they relate directly to the Medical Group or the Medical Business, could
reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Medical Group and the Medical
Business.
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SECTION 7. Representations and Warranties of the Management Company. The
Management Company represents and warrants to the Medical Group, as of the date
hereof, 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 and as proposed to be conducted, to execute and deliver this Agreement
and each of the other 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 the Transaction
Documents, and the consummation of the transactions contemplated thereby have
been duly and validly authorized by all necessary corporate action on the part
of the Management Company. The Transaction Documents to which it is a party have
been duly and validly executed and delivered by the Management Company, and such
Transaction Documents are valid and binding obligations of the Management
Company, enforceable in accordance with their respective terms except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally. Neither
the execution, delivery or performance of the Transaction Documents, nor the
consummation by the Management Company of the transactions contemplated thereby,
nor compliance by the Management Company with any provision thereof, will (a)
conflict with or result in a breach of any provisions of the Certificate of
Incorporation or By-laws of the Management Company, (b) cause a default (with
due notice, lapse of time or both), or give rise to any right of termination,
cancellation or acceleration, under any of the terms, conditions or provisions
of any material note, bond, lease, mortgage, indenture, license or other
instrument, obligation or agreement to which the Management Company is a party
or by which it or any of its properties or assets is or may be bound or (c)
violate any law, statute, rule or regulation or order, writ, judgment,
injunction or decree of any court, administrative agency or governmental body
applicable to the Management Company or any of its properties or assets.
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7.3 Issuance of Common Stock. 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
Agreement, 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 Issued and Outstanding Stock. Set forth in Schedule 7.4 is an accurate
and complete list of the number and class of issued and outstanding shares of
stock of the Management Company as of the date specified therein. Each of the
outstanding shares of capital stock has been duly and validly authorized and
issued, is fully paid and non-assessable.
7.5 Permits, Authorizations, Consents, Approvals, Notifications, and
Filings. Except as provided in Schedule 7.5, to the best of the Management
Company's knowledge, no permit, authorization, consent or approval of or by, or
any notification of or filing with, any person (governmental or private) is
required in connection with the execution, delivery or performance by the
Management Company of this Agreement or the consummation by the Management
Company of the transactions contemplated hereby.
7.6 Financial Information. Schedule 7.6 contains (a) the unaudited
statements of assets, liabilities and stockholders' equity of the Management
Business as 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) were prepared in accordance
with the books and records of the Management Business, (ii) fairly present the
financial position of the Management Business as of the dates thereof, and (iii)
are true, correct and complete in all material respects as of the date thereof.
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7.7 Absence of Undisclosed Liabilities. Except as set forth on Schedule
7.7, as of the Management Company Balance Sheet Date, (a) the Management
Business did not have any material liability of any nature (matured or
unmatured, fixed or contingent, known or unknown) which was not provided for or
disclosed on the Management Company Balance Sheet, (b) all liability reserves
established by the Management Business on the Management Company Balance Sheet
were adequate and (c) there were no loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5 issued by the Financial
Accounting Standards Board in March 1975) which were not adequately provided for
or disclosed on the Management Company Balance Sheet.
7.8 Absence of Changes. Except as set forth on Schedule 7.8, since the
Management Company Balance Sheet Date, the Management Business has been operated
in the ordinary course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation, levels of working
capital and the components thereof), liabilities, operations, results of
operations, earnings, business or prospects of the Management Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Management Business;
(c) any obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Management
Business other than such items created or incurred in the ordinary course
of the Management Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Management Business outside the
ordinary course of the Management Business (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
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(e) any license, sale, transfer, pledge, mortgage or other disposition
of any tangible or intangible asset of the Management Business except in
the ordinary course of the Management Business and consistent with past
practice;
(f) any write-off as uncollectible of any accounts receivable in
connection with the Management Business or any portion thereof in excess of
$5,000 in the aggregate exclusive of all normal contractual adjustments
from third party payors;
(g) except for all normal contractual adjustments from third party
payors, any account receivable in connection with the Management Business
in an amount greater than $10,000 which (i) has become delinquent in its
payment by more than 90 days, (ii) has had asserted against it any claim,
refusal to pay or right of set-off, (iii) an account debtor has refused to
pay for any reason or with respect to which the Management Business, such
account debtor has become insolvent or bankrupt or (iv) has been pledged to
any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Management
Business;
(i) any general uniform increase in the compensation of employees of
the Management Company or the Management Business (including, without
limitation, any increase pursuant to any bonus, pension, profit-sharing,
deferred compensation arrangement or other plan or commitment) or any
increase in compensation payable to any officer, employee, consultant or
agent thereof, or the entering into of any employment contract with any
officer or employee, or the making of any loan to, or the engagement in any
transaction with, any officer of the Management Company or the Management
Business;
(j) any change in the accounting methods or practices followed in
connection with the Management Business or any change in depreciation or
amortization policies or rates theretofore adopted;
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(k) any agreement or commitment relating to the sale of any material
fixed assets of the Management Business;
(l) any other transaction relating to the Management Business other
than in the ordinary course of the Management Business and consistent with
past practice; or
(m) any agreement or understanding, whether in writing or otherwise,
for the Management Business to take any of the actions specified in items
(a) through (l) above.
7.9 Tax Matters.
(a) Except as set forth on Schedule 7.9, (i) all Taxes relating to the
Management Business required to be paid through the date hereof have been paid
and all returns, declarations of estimated Tax, Tax reports, information returns
and statements required to be filed in connection with the Management Business
prior to the date hereof (other than those for which extensions shall have been
granted prior to the date hereof) relating to any Taxes with respect to any
income, properties or operations of the Management Company prior to the date
hereof (collectively, "Management Company Returns") have been duly filed; (ii)
as of the time of filing, the Management Company Returns correctly reflected in
all material respects (and, as to any Management Company Returns not filed as of
the date hereof, will correctly reflect in all material respects) the facts
regarding the income, business, assets, operations, activities and status of the
Management Business and any other information required to be shown therein;
(iii) all Taxes relating to the operations of the Management Business that have
been shown as due and payable on the Management Company Returns have been timely
paid and filed or adequate provisions made to the books and records of the
Management Business; (iv) in connection with the Management Business (A) the
Management Company has made provision on the Management Company Balance Sheet
for all Taxes payable for any periods that end on or before the Management
Company Balance Sheet Date for which no Management Company Returns have yet been
filed and for any periods that begin on or before the Management Company Balance
Sheet Date and end after the Management Company Balance Sheet Date to the extent
such Taxes are attributable to the portion of any such period ending on the
Management Company Balance Sheet Date and (B) provision has been made for all
Taxes payable for any
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periods that end on or before the date hereof for which no Management Company
Returns have then been filed and for any periods that begin on or before the
date hereof and end after such date to the extent such Taxes are attributable to
the portion of any such period ending on such date; (v) no tax liens have been
filed with respect to any of the assets of the Management Business, and there
are no pending tax audits of any Management Company Returns relating to the
Management Business; and (vi) no deficiency or addition to Taxes, interest or
penalties for any Taxes relating to the operation of the Management Business has
been proposed, asserted or assessed in writing (or any member of any affiliated
or combined group of which the Management Company or any previous operator of
the Management Business was a member for which the Management Company could be
liable).
(b) The Management Company is not a foreign person within the meaning of
ss.1.1445-2(b) of the Regulations under Section 1445 of the Code.
7.10 Litigation, Etc. Except as set forth on Schedule 7.10, there are no
(a) actions, suits, claims, investigations or legal or administrative or
arbitration proceedings pending or, to the best knowledge of the Management
Company, threatened against the Management Company or in connection with the
Management Business, whether at law or in equity, or before or by any Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality or (b) judgments, decrees, injunctions or orders of
any court, governmental department, commission, agency, instrumentality or
arbitrator against the Management Company its assets or affecting the Management
Business.
7.11 Compliance; Governmental Authorizations. The Management Company and
the Management Business 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, and such
licenses and permits are in full force
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and effect. To the best knowledge of the Management Company, none of such
licenses and permits shall be affected in any material respect by the
transactions contemplated hereby.
7.12 Accounts and Notes Payable. All accounts payable and notes payable by
the Management Company to third parties arose in the ordinary course of
business, and there is no account payable or note payable which is delinquent.
7.13 Employees. Except as set forth on Schedule 7.13, the Management
Company is not delinquent in payments to any of the Management Company employees
for any wages, salaries, commissions, bonuses or other compensation for any
services performed by them to the date hereof.
7.14 Employee Benefit Plans. The Management Company is not delinquent in
its payments or otherwise in default under any `employee benefit plan', as
defined in Section 3(3) of ERISA.
7.15 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. The
Management Company has not been denied or had revoked or rescinded any policy of
insurance relating to the assets, properties or operations of the Management
Company or the Management Business.
7.16 Real Property. The Management Company has a valid leasehold interest
in all real property leased by the Management Company.
7.17 Burdensome Restrictions. 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).
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7.18 Disclosure. Neither the Transaction Documents (including the Exhibits
and Schedules attached thereto) nor any other document, certificate or written
statement furnished to the Medical Group by or on behalf of the Management
Company in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
Except as set forth on Schedule 7.18, there have been no events or transactions,
or information which has come to the attention of the Management Company, which,
as they relate directly to the Management Company or the Management Business,
could reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Management Company and the
Management Business.
SECTION 8. Operations Committee.
8.1 Formation and Operation of the Operations Committee.
(a) The Management Company and the Medical Group shall establish an
Operations Committee responsible for directing the Management Company in
connection with the development of certain specific management and
administrative policies for the overall operation of the Medical Group. The
business of the Operations Committee shall be conducted in accordance with the
policies and procedures described in Section 8.4 hereof.
(b) The Operations Committee shall consist of four (4) members. The Medical
Group shall designate two (2) members of the Operations Committee, each of whom
shall be a physician in the Medical Group, and the Management Company shall
designate two (2) members of the Operations Committee.
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
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(iii) Management Company Operating Costs (which, in the absence of
approval by the Operations Committee, shall be increased by one
percent (1.0%) over the total amount approved for the preceding
period)
(b) Approve costs and expenses that exceed the Management Company
Operating Costs Budget.
(c) Establish parameters and criteria with respect to the establishment
and maintenance of relationships with institutional providers and
payors and managed care contracts (except with respect to the
establishment of professional fees).
(d) Establish parameters and criteria with respect to:
(i) Xxxxxxxx
(ii) Claims submission
(iii) Collections of fees
(iv) Delinquent account collection policies
(v) Turnover of delinquent accounts to outside collection
agencies
(vi) Write-offs of account balances
(vii) Claim review requests
(viii) "Insurance only" and other courtesy write-off policies
(ix) Lien account collection policies
(x) Student Athlete account policies
(e) Approve the acquisition, replacement, relocation, or other disposition
of Medical Equipment and FF&E, approve the integration of new
technologies into the professional practice of the Medical Group as
contemplated by Section 3.13 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
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shall be required prior to (i) the acquisition of any Medical
Equipment or FF&E (including any Medical Equipment or FF&E relating to
the integration of new technologies into the professional practice of
the Medical Group) if and to the extent that the aggregate cost of
such items in any calendar year exceeds five percent (5%) of the
Management Fee for such year, (ii) the undertaking of any Tenant
Improvements relating to patient care facilities that cost more than
$10,000 in the aggregate at any one of the Medical Group's office
locations in any calendar year, or (iii) the undertaking of any other
Tenant Improvements.
(f) Establish parameters and criteria for off-site storage of files and
records of the Medical Group.
(g) Approve any change in the insurance carrier that provides professional
liability coverage to the Medical Group.
(h) Approve all New Physician Start-Up Costs in accordance with Section
5.7 hereof.
8.3 Advisory Functions of the Operations Committee. The Operations
Committee shall review, evaluate and make recommendations to the Medical Group
and the Management Company with respect to the following matters:
(a) Identification of physician subspecialties required for the efficient
operation of the Medical Group; advice regarding all Medical Personnel
employment and recruitment contracts to be utilized by the Medical
Group.
(b) Development of long-term strategic planning objectives for the Medical
Group.
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(c) Public relations, advertising, and other marketing of Medical Group
services, including design of exterior signs.
(d) The establishment of fees for professional services and ancillary
services rendered by the Medical Group.
(e) Access and quality issues pertaining to ancillary services.
(f) Insurance limits and insurance coverage of the Medical Group and the
Management Company, as such coverage may relate to Medical Group
operations and activities.
(g) Any matters arising in connection with the operations of the Medical
Group that are not specifically addressed in this Agreement and as to
which the Management Company or the Medical Group requests
consideration by the Operations Committee.
The recommendations of the Operations Committee with respect to the matters
described in this Section 8.3 are intended for the advice and guidance of the
Management Company and the Medical Group, and except as provided herein, the
Operations Committee does not have the power to bind the Management Company or
the Medical Group. Where discretion with respect to any matters is vested in the
Management Company or the Medical Group under the terms of this Agreement, the
Management Company or the Medical Group, as the case may be, shall have ultimate
responsibility for the exercise of such discretion, notwithstanding any
recommendation of the Operations Committee. The Management Company and the
Medical Group shall, however, take such recommendations of the Operations
Committee into account in good faith in the exercise of such discretion.
8.4 Committee Policies and Procedures.
(a) The Medical Group shall designate one of its members to act as Chairman
of the Committee, and the Management Company shall designate one of its members
to act as
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Vice Chairman. Each party may substitute or change its designated Operations
Committee members at any time upon notice to the other party, and any Operations
Committee member may designate his or her own substitute at any meeting without
notice. Each member shall have one vote and shall have the right to grant his or
her proxy to another member of the Operations Committee. The Chairman, if
present, shall preside at all meetings of the Operations Committee. In the
absence of the designated Chairman, the Vice Chairman shall preside. The only
powers of the Chairman and the Vice Chairman that differ from those of the other
members of the Operations Committee shall be to call and preside over meetings
in accordance with this Section 8.4.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to time
determine. A meeting of the Operations Committee also may be called by at least
two (2) members of the Operations Committee or by the Chairman or Vice Chairman
thereof upon at least three (3) days' written notice to the other members of the
Operations Committee. Such notice requirement shall be deemed waived with
respect to any member of the Operations Committee who attends such meeting.
Meetings may be held in person or by telephone. The Operations Committee also
may act by written consent as provided in Section 8.4(c). Minutes shall be kept
of all formal actions taken by the Operations Committee.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of the four (4) members of the Operations Committee
present or represented by proxy at the applicable meeting. A quorum of the
Operations Committee shall be the four (4) members, in person, by telephone, or
by proxy, and a quorum must remain for the duration of the meeting. The
Operations Committee may establish such procedures to act by written consent,
without a meeting, as the Operations Committee determines are advisable,
provided that all four (4) members (in person or by proxy) must sign any written
consent.
SECTION 9. Obligations of the Medical Group. The Medical Group shall
perform the following obligations during the Term:
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9.1 Compliance with Laws. The Medical Group shall provide professional
services to patients in compliance at all times with ethical standards, laws and
regulations to which they are subject. The Medical Group shall verify, with the
assistance of the Management Company, that each physician and other Medical
Personnel associated with the Medical Group for the purpose of providing medical
care to patients of the Medical Group is 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 disciplinary actions or medical malpractice actions are initiated against
any such physician by any payor, patient, state or federal regulatory agency or
any other person or entity, the Medical Group shall immediately inform the
Management Company of such action and its underlying facts and circumstances.
9.2 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.
9.3 Choice of Radiologists, Anesthesiologists, Hospitals, Physical Therapy,
MRI, and Other Medical Professionals and Facilities. The Medical Group shall
have exclusive control over the choice of specific physicians and facilities to
be utilized by the Medical Group with respect to radiology, anesthesiology,
hospitals, physical therapy, MRI, and other medical professionals and
facilities; provided, however, that the foregoing shall not limit the provisions
of Section 3.4(b) hereof.
9.4 Insurability. The Medical Group shall cooperate with the Management
Company in (i) ensuring that its Medical Personnel are insurable or (ii)
instituting proceedings to terminate within two business days any Medical
Personnel who is not insurable or who loses his or her insurance eligibility.
The Medical Group shall notify the Management Company in writing of any change
in the insurance status of any Medical Personnel within two days after the
Medical Group receives notice of any such change. The Medical Group shall
require all Medical Personnel to participate in an on-going risk management
program.
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9.5 Medicare. The Medical Group shall cause all physicians to be
participating providers and accept assignment under Medicare.
9.6 Billing. The Medical Group's Medical Personnel shall be responsible for
providing the appropriate current CPT4 coding with respect to the fee tickets
prepared by such Medical Personnel.
9.7 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.
9.8 Continuing Education. The Medical Group and its Medical Personnel shall
be solely responsible for ongoing membership in professional associations and
continuing professional education. The Medical Group shall ensure that its
Medical Personnel participate in such continuing professional education as is
necessary for such physician or professional to remain current in his or her
field of medical practice.
SECTION 10. Certain Covenants.
10.1 Change of Control. During the Term of this Agreement, the Medical
Group shall not enter into any single transaction (or group of related
transactions undertaken pursuant to a common plan) involving the admission of
new partners, transfer of any partnership interest in the Medical Group, or
reorganization or restructuring of the Medical Group, if in any such case the
effect would be to transfer a majority of the ownership interest in the Medical
Group, without the prior written consent of the Management Company, which
consent shall not be unreasonably withheld or delayed.
10.2 Legend on Securities. During the Term of this Agreement, any
certificate or similar evidence representing an equity interest in the Medical
Group issued by the Medical Group shall bear the following legend:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT SERVICES AGREEMENT
EFFECTIVE AS OF JULY 1, 1997, BETWEEN SUN VALLEY ORTHOPAEDIC SURGEONS, AN
ARIZONA GENERAL PARTNERSHIP, BONE, MUSCLE AND JOINT, INC., A DELAWARE
CORPORATION, AND THE INDEMNIFYING PARTIES (AS DEFINED THEREIN)."
10.3 Non-Disclosure of Confidential Information. Neither the Management
Company nor the Medical Group, nor their respective employees, consultants or
agents, nor any Partner or Principal, shall, at any time after the execution and
delivery hereof, directly or indirectly disclose any Confidential or Proprietary
Information relating to the other party hereto to any person, firm, corporation,
association or other entity, nor shall either party, or any of their respective
employees, consultants or agents, or any Partner or Principal, make use of any
of such Confidential or Proprietary Information for its, his or her own purposes
or for the benefit of any person, firm, corporation or other entity except the
parties hereto or any subsidiary or affiliate thereof. The foregoing obligation
shall not apply to any information which a party hereto can establish to have
(a) become publicly known without breach of this Agreement by it or them, (b) to
have been given to such party by a third party who is not obligated to maintain
the confidentiality of such information, or (c) is disclosed to a third party
with the prior written consent of the other party hereto.
10.4 Confidential or Proprietary Information. The term "Confidential or
Proprietary Information" means all information known to a party hereto, or to
any of its employees, officers, directors, consultants, or agents, or to any
Partner or Principal, 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 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
Medical Group shall, upon its written request, be entitled to copies of any such
records relating to the Management Services performed by the Management Company.
11.3 Access to Records Following Termination.
(a) Following the termination of this Agreement, the Medical Group shall
grant (to the extent permitted by law) to the Management Company, for the
purpose of preparing for any actual or anticipated legal proceeding or for any
other reasonable purpose, reasonable access (which shall include making
photocopies) to the patient medical records described in Section 11.1 hereof and
any other pertinent information regarding the Medical Group during the Term.
Prior to accessing such patient medical records, the Management Company shall
obtain any required patient authorization.
(b) Following the termination of this Agreement, the Management Company
shall provide to the Medical Group, promptly upon the Medical Group's written
request, photocopies of the Management Business records described in Section
11.2 hereof, and shall grant to the Medical Group, for the purpose of preparing
for any actual or anticipated legal proceeding or for any other reasonable
purpose, any other pertinent information regarding the Management Company during
the Term.
SECTION 12. Insurance and Indemnity.
12.1 Professional Liability Insurance. During the Term, the Management
Company shall, to the extent permitted by applicable law, and subject to
approval by the Operations Committee if required by Section 8.2(g) hereof,
procure and maintain comprehensive
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professional liability insurance providing for (a) general liability coverage
and (b) medical malpractice coverage, in each case with limits of not less than
$1,000,000 per claim and not less than $3,000,000 in the aggregate (or such
higher amounts as may be necessary to comply with any applicable regulatory or
contractual requirement), covering the Medical Group and each of the Medical
Personnel of the Medical Group, including coverage for claims made after the
date hereof relating to events or occurrences at any time prior thereto. The
Management Company shall be designated as an additional insured under all such
insurance policies. 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 in accordance with
Section 5 hereof); provided, however, that if any additional premium is charged
for adding the Management Company as an additional insured under any such
policy, the cost thereof shall be considered Management Company corporate
overhead and therefore not subject to recoupment by the Management Company.
12.2 Life Insurance. The Management Company shall obtain a $500,000 life
insurance policy for each duly licensed physician who is a Partner or
Principal.. The Management Company shall be designated as the beneficiary under
such policies. The premiums for such policies shall be paid by the Management
Company and shall not be included as Management Company Operating Costs or
otherwise charged to the Medical Group.
12.3 Indemnification by Medical Group. The Medical Group shall indemnify,
hold harmless and defend the Management Company, its officers, directors,
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 date hereof, (ii) any
other acts or omissions of the
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Medical Group or its Medical Personnel, including without limitation any such
acts or omissions that occurred prior to the date hereof, (iii) the untruth or
inaccuracy of any representation or warranty of the Medical Group contained in
this Agreement (including any Schedule) or in any of the other Transaction
Documents or any certificate delivered by the Medical Group in connection
herewith, or (iv) any breach of or failure to perform any obligation under this
Agreement or the Transaction Documents by the Medical Group and/or the Medical
Personnel and/or their respective agents and/or subcontractors (other than the
Management Company) during the Term.
12.4 Indemnification by Certain Individuals. Each of the Medical Personnel
who currently is or hereinafter becomes a Partner or Principal (each, an
"Indemnifying Party") shall, on a several basis, indemnify, hold harmless and
defend the Management Company, its officers, directors, 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 services by the Indemnifying Party, (ii) any other acts
or omissions by the Indemnifying Party, (iii) any breach or failure to perform
any obligation under any of the Transaction Documents by the Indemnifying Party
and/or his or her agents during the Term. Each new Partner and Principal shall
execute a written statement agreeing to be bound by this Section 12.4.
12.5 Indemnification by Management Company. The Management Company shall
indemnify, hold harmless and defend the Medical Group, the Partners, Principals,
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 or its employees, including without
limitation any such acts or omissions that occurred prior to the date hereof,
(iii) the untruth or inaccuracy of any representation or warranty of the
Management Company contained in this Agreement (including any Schedule) or in
any of the other Transaction Documents or any certificate
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delivered by the Management Company in connection herewith, or (iv) any breach
of or failure to perform any obligation under this Agreement or the Transaction
Documents by the Management Company and/or its employees and/or their respective
agents and/or subcontractors (other than the Medical Group) during the Term.
12.6 Notice and Control of Litigation. If any claim is asserted in writing
against any person entitled to indemnification (each, an "Indemnitee") under
Section 12.3, 12.4, or 12.5, the Indemnitee shall give notice to the entity or
person required to provide such indemnification (each, an "Indemnitor") within
thirty (30) days of receipt of such written assertion of such claim. The
Indemnitor shall have the right to defend the claim and control the defense,
settlement and prosecution of any litigation. If the Indemnitor exercises its
right to undertake its defense of the claim, the Indemnitee shall have the right
to participate fully in such defense at its own expense. All parties shall
cooperate in the defense of such claims. Should the Indemnitee fail to notify
the Indemnitor within the time period specified above, the right to
indemnification shall terminate and be of no further force and effect with
respect to the subject matter of the required notice.
SECTION 13. Termination.
13.1 Termination by Medical Group. The Medical Group may terminate this
Agreement effective immediately by giving written notice of termination to the
Management Company (a) in the event of the filing of a petition in voluntary
bankruptcy or an assignment for the benefit of creditors by the Management
Company or upon other action taken or suffered, voluntarily or involuntarily,
under any federal or state law for the benefit of debtors by the Management
Company, except for the filing of a petition in involuntary bankruptcy against
the Management Company which is dismissed within ninety (90) days thereafter (a
"Bankruptcy Event"), (b) in the event the Management Company shall default in
any material respect in the performance of any duty or obligation imposed upon
it by this Agreement, including without limitation the reporting requirements
specified in the last sentence of Section 3.5 of this Agreement, and the
Management Company shall not have taken reasonable action commencing curing of
such default within thirty (30) days after written notice thereof has been given
to the Management Company by the Medical Group or the Management Company does
not thereafter
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diligently prosecute such action to completion, or (c) in the event that any of
the representations and warranties made by the Management Company in Section 7
is untrue or misleading in any material respect, provided that the Medical Group
shall have previously given written notice to the Management Company describing
in reasonable detail the nature of the item in question and the Management
Company shall not have cured such matter within thirty (30) days of such notice.
13.2 Termination by Management Company. The Management Company may
terminate this Agreement effective immediately by giving written notice of
termination to the Medical Group (a) in the event of a Bankruptcy Event relating
to the Medical Group, (b) in the event the Medical Group shall default in any
material respect in the performance of any duty or obligation imposed upon it by
this Agreement and the Medical Group shall not have taken reasonable action
commencing curing of such default within thirty (30) days after written notice
thereof has been given to the Medical Group by the Management Company or the
Medical Group does not thereafter diligently prosecute such action to
completion, (c) in the event that any of the representations and warranties made
by the Medical Group in Section 6 is untrue or misleading in any material
respect, provided that the Management Company shall have previously given
written notice to the Medical Group describing in reasonable detail the nature
of the item in question and the Medical Group shall not have cured such matter
within thirty (30) days of such notice, or (d) in the event the Medical Group is
excluded from the Medicaid or Medicare program by action taken by the agency (or
its representative) that operates such program (including any voluntary
termination from such program under threat of action by any such agency or
representative) based on a breach or violation (or alleged breach or violation)
of the rules, regulations, or other requirements governing such program.
13.3 Termination by Medical Group or Management Company. The Medical Group
and the Management Company shall each have the right to terminate this Agreement
effective immediately by giving written notice of termination to the other party
pursuant to Section 27 of this Agreement.
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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 Section 5.3(b), Section 13.5,
and Section 26 hereof, and except to pay in full and satisfy any and all
outstanding obligations of the parties accruing through the effective date of
termination. In order to accomplish the foregoing, the Annual Medical Group
Compensation Amount described in Section 5.3(b) shall be calculated on or before
the end of the fourth month following the termination date, rather than on or
before April 30 as specified in Section 5.3(b), and the computation made under
such section shall be made with respect to the portion of the year ending on the
termination date (if the termination date is other than December 31). In making
such computation, all Collections during January, February, and March of such
year shall be excluded, and all Collections during the three-month period
following termination shall be included. Additionally, any payment required
under the terms of Section 5.3(b)(ii) shall be made within fifteen (15) days
after the date by which the foregoing calculation is to be made, rather than on
May 15.
(b) 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 in which the principal place of business of the Medical
Group is located, excluding from the collateral thereunder any accounts
receivable generated after the date of termination of this Agreement.
13.5 Repurchase of Assets. Promptly following termination of this Agreement
for any reason, the Medical Group shall have the option, exercisable at any time
prior to such termination or within thirty (30) days after such termination, to
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
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(a), (b), (c) and (d), are physically located in any of the offices of the
Medical Group, subject to any required consent from any third party having an
interest therein:
(a) the Medical Equipment owned by the Management Company;
(b) the furniture, furnishings, trade fixtures, and office equipment owned
by the Management Company;
(c) the Management Company's rights and interests in any equipment leased
by the Management Company, subject to the Medical Group's assumption
of the obligations accruing thereunder after the date of termination
of this Agreement;
(d) the supplies owned by the Management Company;
(e) the Management Company's rights and interests under all of the Office
Leases, subject to the Medical Group's assumption of the obligations
accruing thereunder after the date of termination of this Agreement;
and
(f) the deposits of the Management Company relating to the Medical Group.
Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected shall
select a third appraiser. All of the appraisers shall appraise the assets, and
for purposes of determining the purchase price, the highest and lowest
appraisals shall be disregarded, and the remaining appraisal shall be used.
13.6 Phase II. For purposes of this Agreement, the commencement date of
"Phase II" means the earlier of the following:
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(a) the date on which the Management Company files a Preliminary
Prospectus for the initial public offering of its stock with the
Securities and Exchange Commission; or
(b) the first day of the month next following the first period of twelve
(12) consecutive calendar months for which Aggregate Group Collections
("AGC") equals or exceeds Sixty-Five Million Dollars ($65,000,000),
where AGC means the sum of the following:
(i) the Collections of the Medical Group; provided, however, that
with respect to any physician who joins the Medical Group after
the date hereof and before the end of the third month of the
above- described twelve-month period, the collections
attributable to such physician for purposes of this computation
shall be computed by determining the amount of such collections
commencing on the first day of the fourth month after the
physician begins performing professional services for or with the
Medical Group and ending on the last day of the above-described
twelve (12) month period, and then annualizing the amount thus
determined; plus
(ii) the aggregate amount of the total actual collections of all other
medical groups which have entered into management services
agreements ("MSAs") with the Management Company (including any
such agreement that is to become operational upon the
consummation of the Management Company's IPO); provided, however,
that with respect to any physician who joins any such medical
group during the first three months of the above-described
twelve-month period, the collections attributable to such
physician for purposes of this computation shall be computed by
determining the amount of such collections commencing on the
first day of the fourth month after the physician begins
performing professional
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services for or with such medical group and ending on the last
day of the above-described twelve-month period, and then
annualizing the amount thus determined; provided, further, that
in the event any MSA between the Management Company and a medical
group provides for a management fee that is other than ten
percent (10.0%) of gross collections, then the amount of
collections attributable to such medical group for purposes of
this computation shall be adjusted by multiplying the actual
amount of collections by a fraction, the numerator of which is
equal to such management fee percentage figure and the
denominator of which is ten (10). For example, if the MSA for
another medical group provides for a management fee of five
percent (5.0%) of the medical group's collections, then the
actual amount of such collections shall be adjusted by
multiplying such actual amount by 5/10, or 1/2. For purposes of
this computation, any portion of the management fee payable in
respect of Professional Practice Cost Savings (as described in
Schedule VI) or similar formulations applicable to any other
medical group shall be ignored.
SECTION 14. Rescission/Disengagement.
14.1 Seventh Anniversary of Agreement. Effective as of the seventh
anniversary (the "Effective Date") of the date hereof, the Medical Group, at its
option, may rescind this Agreement and disengage itself from further
participation in, and from all of its obligations under, this Agreement,
pursuant to the terms and conditions set forth in Section 14.2 hereof.
14.2 Rescission/Disengagement by Medical Group.
(a) Notice and Effective Date. The option conferred under Section 14.1
hereof may be exercised by the Medical Group by giving written notice of
rescission/disengagement to the Management Company not less than thirty (30)
days prior to the Effective Date, subject to the Medical Group's compliance with
the provisions of Sections 14.2(c) and 14.2(d) below.
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(b) Effect of Rescission/Disengagement. The effect of the rescission/
disengagement by the Medical Group pursuant to the provisions of this Section
14.2 shall be identical to the effect of termination as described in Section
13.4 of this Agreement.
(c) Repurchase of Assets. Within thirty (30) days following the Effective
Date of the rescission/disengagement by the Medical Group, the Management
Company shall, subject to the prior receipt of any required landlord and third
party consents, sell, 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 of this Agreement, in accordance with the
terms set forth in Section 13.5.
(d) Repayment of Consideration. On or before the Effective Date of the
rescission/disengagement, the Medical Group shall deliver to the Management
Company the following:
(i) Cash Consideration: The Medical Group shall not be obligated to
return any of the cash consideration received by the Medical Group or by
the Eligible Parties from the Management Company upon execution of this
Agreement.
(ii) Stock of the Management Company: All shares of stock of the
Management Company received by the Eligible Parties shall be returned and
redelivered to the Management Company. In the event any portion of the
shares to be returned and redelivered shall have been previously disposed
of by any of the Eligible Parties, the Fair Market Value (as defined in the
Restricted Stock Agreement) of such portion, determined as of the Effective
Date, shall be payable to the Management Company by cashier's check or by
wire transfer of good funds delivered to a depository institution
designated by the Management Company.
(e) Management Fee. The Management Company shall have no obligation to
return to the Medical Group any portion of the Management Fees paid by the
Medical Group under the terms of this Agreement.
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14.3 Waiver of Rescission/Disengagement Right. Notwithstanding anything
contained herein to the contrary, the parties hereto expressly agree and
acknowledge that if the Medical Group shall fail to deliver the notice of
rescission/disengagement referenced in Section 14.2 hereof within the time
period specified in Section 14.2, then the Medical Group shall be deemed to have
expressly and irrevocably waived its right to rescind and/or disengage from the
Management Services Agreement pursuant to the applicable provisions of Sections
14.1 and 14.2 hereof.
14.4 Continuation of Management Fees. The parties hereto acknowledge that
in the event this Agreement is terminated or rescinded (or the parties
disengage) pursuant to the provisions of Section 13 or Section 14 hereof, the
Management Company shall be entitled to all Management Fees otherwise payable
hereunder for all services provided to the Medical Group through and including
the date of such termination, rescission, or disengagement. This provision shall
survive any such termination, rescission, or disengagement, and for purposes
thereof, the parties agree that the transfer of funds provided for in Section
5.1 hereof shall continue until such time as the Management Company has
collected all Management Fees to which it is entitled.
SECTION 15. Non-Competition. In consideration of the premises contained
herein and the consideration to be received hereunder, and in consideration of
and as an inducement to the Management Company to consummate the transactions
contemplated hereby, the Medical Group hereby (a) agrees to the Non-Competition
provisions attached hereto as Schedule VIII, (b) agrees to require each of the
Eligible Parties to execute the Stockholder Non-Competition Agreement executed
by the Medical Group and the Management Company concurrently herewith (the
"Stockholder Non-Competition Agreement"), and (c) agrees to require each person
who after the date hereof becomes entitled to receive shares (or options to
receive shares) in the Management Company in connection with his or her
performance of services for the Medical Group, to execute an agreement
substantially identical to the Stockholder Non-Competition Agreement.
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SECTION 16. Obligations of the Management Company.
16.1 No Practice of Medicine. The Medical Group and the Management Company
acknowledge that certain federal and state statutes severely restrict or
prohibit the Management Company from providing medical services. Accordingly,
during the Term, the Management Company shall not provide or otherwise engage in
services or activities which constitute the practice of medicine, as defined in
applicable state or federal law, except in compliance therewith.
16.2 No Interference with Professional Judgment. Without in any way
limiting Section 16.1 hereof, during the Term, the Management Company shall not
interfere with the exercise of professional judgment by any physician or other
licensed health care professional who is a Partner or Principal, or who is an
employee or contractor of the Medical Group, nor shall the Management Company
interfere with, control, direct, or supervise any physician or other licensed
health care professional in connection with the provision of professional
medical services. The foregoing shall not preclude the Management Company from
assisting in the development of professional protocols and monitoring compliance
with policies and procedures that have been instituted in accordance with this
Agreement.
16.3 Compensation Committee. The Management Company shall establish a
compensation committee (the "Compensation Committee") which is comprised of
members of the Board of Directors of the Management Company who are not
employees of the Management Company, and the compensation payable to the five
(5) most highly compensated management employees of the Management Company shall
be subject to the approval of the Compensation Committee; provided, however,
that the obligations under this Section 16.3 shall become null and void upon the
consummation of an initial public offering of the Management Company's common
stock.
16.4 Budgets. The Board of Directors of the Management Company shall
establish budgets for the expenses of the Management Company, and the approval
of the Board of Directors shall be required in connection with any expenses in
excess of any such approved budget; provided, however, that the obligations
under this Section 16.4 shall become null and
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void upon the consummation of an initial public offering of the Management
Company's common stock.
16.5 Contracts with Venture Capital Firms. The Management Company shall not
enter into any consulting agreement or other contract or arrangement with any
venture capital firm (or affiliate thereof) providing financing to the
Management Company under which compensation will be payable to any such venture
capital firm (or affiliate thereof); provided, however, that the obligations
under this Section 16.5 shall become null and void upon the consummation of an
initial public offering of the Management Company's common stock.
16.6 Convertible Preferred Stock. The Management Company shall not sell any
common stock or take any other action the effect of which sale or other action
would be to give a holder of convertible preferred stock the right to convert
any number of shares of convertible preferred stock into a greater number of
shares of common stock; provided, however, that the obligations under this
Section 16.6 shall become null and void upon the consummation of an initial
public offering of the Management Company's common stock.
16.7 Initial Public Offering. The Management Company shall not authorize an
initial public offering of its common stock for less than Four Dollars ($4.00)
per share (appropriately adjusted to reflect any stock dividends, stock splits,
or similar transaction). Without waiving or limiting any other right or remedy
available to the Medical Group for breach of this covenant by the Management
Company, in the event of an initial public offering of the Management Company's
common stock at less than Four Dollars ($4.00) per share, if the Medical Group
so elects by written notice to the Management Company, such initial public
offering shall not be considered as the initial public offering of the
Management Company's common stock for any purpose under this Agreement or any of
the other Transaction Documents. The Management Company shall disclose this
provision to any potential underwriter in connection with the initial public
offering of the Management Company's common stock.
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SECTION 17. Assignment.
17.1 Generally. The Management Company shall have the right to assign its
rights and delegate its obligations hereunder to any affiliate and to assign its
rights hereunder to any lending institution from which the Management Company or
any affiliate obtains financing for security purposes or as collateral. Except
as set forth in this Section 17, neither the Management Company nor the Medical
Group shall have the right to assign its respective rights or delegate its
respective obligations hereunder without the prior written consent of the other;
provided, however, that after the consummation of an initial public offering of
the Management Company's common stock, the Medical Group's consent shall not be
required in connection with a sale of all or substantially all of the stock or
assets of the Management Company or the merger, consolidation, or reorganization
of the Management Company.
17.2 Assignment to Partners. Notwithstanding the provisions of Section 17.1
hereof, the Medical Group shall have the right to assign all of its rights and
delegate all of its obligations, to the extent that such rights and obligations
relate to any particular Partner, to such Partner (or to a professional medical
corporation of which such Partner is the sole shareholder), provided that such
Partner (or professional corporation) enters into a new Management Services
Agreement with the Management Company substantially in the form of this
Agreement, together with such related agreements, documents, and instruments as
may be necessary or appropriate, pursuant to which such Partner (or professional
corporation) assumes all of the obligations to which such Partner was bound as a
Partner under this Agreement and the other Transaction Documents.
SECTION 18. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed sufficient if
personally delivered, sent by nationally-recognized overnight courier, or by
registered or certified mail, return receipt requested and postage prepaid,
addressed as follows:
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If to the Management Company:
Bone, Muscle and Joint, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxx, M.D., President
with a copy to:
Bone, Muscle and Joint, Inc.
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxx, Vice President, Western Region
and to:
Xxxxxxx and Xxxxxx Law Corporation
1900 Avenue of the Stars, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
If to the Medical Group:
Sun Valley Orthopaedic Surgeons
00000 Xxxx Xxxxxxx Xxxxxx Xxxxx, #000
Xxx Xxxx Xxxx, Xxxxxxx 00000
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (a) in the case of
personal delivery, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent, and (c) in the case of mailing, on the third business day following
the day on which the piece of mail containing such communication is posted.
SECTION 19. Benefits of Agreement. This Agreement shall bind and inure to
the benefit of any successors to or permitted assigns of the Management Company
and of the Medical Group.
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SECTION 20. Governing Law; Jurisdiction. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
California without giving effect to the laws and principles thereof, or of any
other jurisdiction, which would direct the application of the laws of another
jurisdiction. The parties to this Agreement agree that jurisdiction and venue in
any action brought by any party hereto pursuant to this Agreement shall lie in
any Federal or state court located in the State of California. By execution and
delivery of this Agreement, the parties hereto irrevocably submit to the
nonexclusive jurisdiction of such courts for themselves and in respect of their
property with respect to such action. The parties hereto irrevocably agree that
venue would be proper in such court, and hereby waive any objection that such
court is an improper or inconvenient forum for the resolution of such action.
Nothing in this Agreement shall affect any right that any party may otherwise
have to bring any action or proceeding relating to this Agreement in the courts
of any other jurisdiction. The parties hereto shall act in good faith and shall
refrain from taking any actions to circumvent or frustrate the provisions of
this Agreement.
SECTION 21. Headings. Section headings are used for convenience only and
shall in no way affect the construction of this Agreement.
SECTION 22. Entire Agreement; Amendments. This Agreement and the various
exhibits hereto and thereto, contain the entire understanding of the parties
with respect to its subject matter, and neither this Agreement nor any part of
it may in any way be altered, amended, extended, waived, discharged or
terminated except by a written agreement signed by the Medical Group and the
Management Company; provided, however, that in the case of any amendment
affecting Section 12.4, the signatures of all of those persons who have agreed
to such provision as indicated on the signature page hereof, and all of those
persons who hereafter sign a written agreement agreeing to be bound by the terms
of Section 12.4 hereof, shall also be required in order for such amendment to be
effective.
SECTION 23. Severability. The provisions of this Agreement shall be deemed
severable, and if any portion shall be held invalid, illegal or unenforceable
for any reason, the remainder of this Agreement shall be effective and binding
upon the parties.
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SECTION 24. Counterparts. This Agreement may be executed in counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
SECTION 25. Waivers. Any party to this Agreement may, by written notice to
the other party, waive any provision of this Agreement. The waiver by any party
of a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach.
SECTION 26. Survival of Termination. Notwithstanding anything contained
herein to the contrary, Sections 3.3(f), 3.6 (to the extent provided in the last
sentence thereof), 11, 12, 13.4, 13.5, 14, 15(a), 18, 19, 20, 23, 25, 27 and
this Section 26 shall survive any expiration or termination of this Agreement.
SECTION 27. Contract Modification for Prospective Legal Events. In the
event any state or Federal laws or regulations, now existing or enacted or
promulgated after the date hereof, are interpreted by judicial decision, a
regulatory agency or legal counsel of both parties in such a manner as to
indicate that the structure of this Agreement may be in violation of such laws
or regulations, the Medical Group and the Management Company shall amend this
Agreement as necessary to avoid such violation. To the maximum extent possible,
any such amendment shall preserve the underlying economic and financial
arrangements between the Medical Group and the Management Company. If an
amendment is not possible, either party shall have the right to terminate this
Agreement. Any dispute between the parties hereto arising under this Section 27
with respect to whether this Agreement violates any state or Federal laws or
regulations shall be jointly submitted by the parties and finally settled by
binding arbitration in Los Angeles, California, pursuant to the arbitration
rules of the National Health Lawyers Association Alternative Dispute Resolution
Service. Arbitration shall take place before one arbitrator appointed in
accordance with such rules. The governing law of the arbitration shall be the
law set forth in Section 21. Any decision rendered by the arbitrator shall
clearly set forth the factual and legal basis for such decision. The decision
rendered by the arbitrator shall be non-appealable and enforceable in any court
having jurisdiction thereof. The administrative costs
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of the arbitration and the arbitrator fees shall be equally borne by the
parties. Each party shall pay its own legal costs and fees in connection with
such arbitration.
* * *
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IN WITNESS WHEREOF, the parties have duly executed this Management Services
Agreement as of the date first above written.
SUN VALLEY ORTHOPAEDIC SURGEONS
By: XXXXXX X. XXXXXX, M.D., P.C.,General Partner
By: /s/Xxxxxx X. Xxxxxx, M.D.
--------------------------------------
Xxxxxx X. Xxxxxx, M.D., President
By: /s/XXX XXXXX XXXXXX, M.D.
------------------------------------------
XXX XXXXX XXXXXX, M.D., General Partner
By: /s/XXXXXX X. XXXXXXXX, M.D.
------------------------------------------
XXXXXX X. XXXXXXXX, M.D., General Partner
By: /s/XXXXXX XXXXXXX, M.D.
------------------------------------------
XXXXXX XXXXXXX, M.D., General Partner
BONE, MUSCLE AND JOINT, INC.
By: /s/Xxxxxx Xxxxxx, M.D.
------------------------------------------
Xxxxxx Xxxxxx, M.D., President
ACCEPTED AND AGREED
AS TO AND SECTION 12.4
INDEMNIFYING PARTIES
/s/Xxxxxx X. Xxxxxx, M.D.
---------------------------------
Xxxxxx X. Xxxxxx, M.D.
/s/Xxx Xxxxx Xxxxxx, M.D.
---------------------------------
Xxx Xxxxx Xxxxxx, M.D.
/s/Xxxxxx X. Xxxxxxxx, M.D.
---------------------------------
Xxxxxx X. Xxxxxxxx, M.D.
/s/Xxxxxx Xxxxxxx, M.D.
---------------------------------
Xxxxxx Xxxxxxx, M.D.
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APPROVAL BY PRINCIPAL
The undersigned individual (who is the sole shareholder of a professional
corporation which is a Partner in the Medical Group) hereby agrees,
individually, to those provisions contained in this Agreement which by their
terms are expressly applicable to "Principals."
/s/Xxxxxx X. Xxxxxx, M.D.
---------------------------------
Xxxxxx X. Xxxxxx, M.D.
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