EXECUTION COPY
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MANAGEMENT SERVICES AGREEMENT
BETWEEN
BONE, MUSCLE AND JOINT, INC.
AND
LAUDERDALE ORTHOPAEDIC SURGEONS
Effective as of April 1, 1997
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ATTACHMENTS
SCHEDULES
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SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation
SCHEDULE IV -- Draw Date and Draw Percentage
SCHEDULE V -- Management Fee -- Applicable Percentage
SCHEDULE VI -- Professional Practice Cost Savings
SCHEDULE VII -- Computation Example
SCHEDULE VIII -- Non-Competition
SCHEDULE 6.2 -- Equity Investments
SCHEDULE 6.3 -- Consents
SCHEDULE 6.4 -- Financial Information
SCHEDULE 6.5 -- Absence of Undisclosed Liabilities
SCHEDULE 6.6 -- Absence of Changes
SCHEDULE 6.7 -- Tax Matters
SCHEDULE 6.8 -- Litigation, Etc.
SCHEDULE 6.10 -- Accounts Receivable; Accounts Payable
SCHEDULE 6.11 -- Labor Relations; Employees
SCHEDULE 6.12 -- Employee Benefit Plans
SCHEDULE 6.13 -- Insurance
SCHEDULE 6.14 -- Real Property
SCHEDULE 6.15 -- Burdensome Restrictions
SCHEDULE 6.16 -- Disclosure
SCHEDULE 7.2 -- Equity Investments
SCHEDULE 7.3(a) -- Issued and Outstanding Stock
SCHEDULE 7.3(c) -- Options; Conversion Rights
SCHEDULE 7.4 -- Consents
SCHEDULE 7.5 -- Financial Information
SCHEDULE 7.6 -- Absence of Undisclosed Liabilities
SCHEDULE 7.7 -- Absence of Changes
SCHEDULE 7.8 -- Tax Matters
SCHEDULE 7.9 -- Litigation, Etc.
SCHEDULE 7.11 -- Accounts Receivable; Accounts Payable
SCHEDULE 7.12 -- Labor Relations; Employees
SCHEDULE 7.13 -- Employee Benefit Plans
SCHEDULE 7.14 -- Insurance
SCHEDULE 7.15 -- Real Property
SCHEDULE 7.16 -- Burdensome Restrictions
SCHEDULE 7.17 -- Disclosure
EXHIBITS
EXHIBIT A -- Asset Purchase Agreement
EXHIBIT B -- Assignment of Lease
EXHIBIT C -- Restricted Stock Agreement
EXHIBIT D -- Stockholder Non-Competition Agreement
THIS MANAGEMENT SERVICES AGREEMENT
(the "Agreement") is entered into
as of May 6, 1997 (the "Signature
Date"), effective as of April 1,
1997, by and between LAUDERDALE
ORTHOPAEDIC SURGEONS, a Florida
partnership (the "Medical Group"),
and BONE, MUSCLE AND JOINT, INC., a
Delaware corporation (the
"Management Company"), with
reference to the following facts:
A. The Medical Group is engaged in the business (the "Medical Business") of
providing orthopedic medical and surgical services and related medical and
ancillary services to the general public.
B. The Management Company is a corporation engaged in the business (the
"Management Business") of providing management, administrative, financial,
marketing, information technology, and related services to professional medical
organizations.
C. Concurrently herewith, the Management Company and the Medical Group are
entering into an Asset Purchase Agreement (the "Asset Purchase Agreement"), in
the form of Exhibit A attached hereto, pursuant to which the Management Company
is acquiring substantially all of the assets of the Medical Group.
D. The Management Company and the Medical Group desire to enter into this
Management Services Agreement, pursuant to which, among other things, the
Management Company will render certain management and administrative services to
the Medical Group.
NOW, THEREFORE, the Medical Group and the Management Company hereby agree
as follows:
SECTION 1. Retention of the Management Company.
1.1. Retention.
The Medical Group hereby retains the Management Company to provide all of
the management and related services identified or referenced in Section 3 hereof
and as otherwise required by this Agreement (collectively, the "Management
Services"), and the Management Company hereby accepts such retention and agrees
to provide such services, upon the terms and subject to the conditions set forth
herein.
1.2. Exclusivity.
During the term of this Agreement, the Management Company shall be the
exclusive provider of all management and administrative services utilized by the
Medical Group; provided, however, that the Medical Group may contract directly
with or otherwise engage individuals or companies for the provision of
accounting, legal, consulting, or other professional or advisory services
(provided that such services shall be in addition to, and not in replacement of,
the services to be provided by the Management Company hereunder), all in the
sole discretion of the Medical Group and at the sole cost of the Medical Group.
1.3. Relationship of Parties.
Notwithstanding anything contained herein to the contrary, (a) the
Management Company and the Medical Group intend to act and perform as
independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, or employment relationship between the parties,
and (b) the Management Company is hereby engaged solely to provide management
and administrative services to the Medical Group and shall not interfere with,
control, direct, or supervise the Medical Group or any medical professional
employed by the Medical Group in connection with the provision of professional
medical services.
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1.4. No Referral Obligation.
The parties agree that the benefits to the Medical Group hereunder do not
require, are not payment for, and are not in any way contingent upon the
admission, referral, purchase, or any other arrangement for the provision of any
item or service to or for any of the Medical Group's patients in or from any
medical facility or laboratory or from any other entity owned, operated,
controlled, or managed by the Management Company. 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 is located in Dade, Palm Beach or Broward County, Florida or
serves the geographic area served by the Medical Group.
SECTION 2. Term.
Provided that the Closing under the Asset Purchase Agreement shall have
occurred as provided therein, and subject to such start-up procedures as the
parties may agree upon for purposes of facilitating the transition of
responsibilities required by this Agreement, the performance of services under
this Agreement shall commence as of April 1, 1997 (the "Commencement Date") and
shall expire on the fortieth anniversary of the Commencement Date unless
terminated earlier pursuant to the terms hereof (the "Base Term"). The Base Term
of this Agreement shall be automatically extended for successive terms (each, an
"Additional Term," and together with the Base Term, the "Term") of five years
each, unless either party delivers to the other party, not less than six (6)
months nor more than nine (9)
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months prior to the expiration of the then-current Term, written notice of such
party's intention not to so extend the Term of this Agreement.
SECTION 3. Management Services.
3.1 Management Services Generally.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company shall
provide all of the management and administrative services reasonably required by
the Medical Group in connection with the provision of any and all of the Medical
Group Services (as hereinafter defined) and as otherwise provided in this
Agreement, including without limitation the services described in Sections 3.2
through 3.17 hereof.
(b) Without limiting the generality of the provisions of Section 3.1(a),
and subject to the further provisions of this Agreement, the Management Services
shall include such management and administrative services as may be reasonably
required in connection with (i) all of the offices (including New Medical
Offices, as hereinafter defined) of the Medical Group, and (ii) all professional
services and all ancillary services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described in
this Agreement shall be applicable with respect to the items identified as
Medical Group Costs in Section 5.7 hereof, except that such Medical Group Costs
shall be paid by the Medical Group rather than by the Management Company.
Accordingly, the Management Company shall provide accounting, bookkeeping, and
related services with respect to all such costs.
(d) The Management Company may enter into such contracts and agreements
with outside services and suppliers as
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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; provided, however,
that without the prior approval of the Operations Committee (as hereinafter
defined), the Management Company shall not enter into any agreement pursuant to
which an unaffiliated (as hereinafter defined) third party will perform
substantially all of the duties of the Management Company set forth in Section
3.6(a) hereof. The Management Company shall have no authority, directly or
indirectly, to perform, and shall not perform or enter into any agreement to
perform, Medical Group Services or any other medical function required by law to
be performed by a licensed physician or by any other licensed health care
professional. As used herein, "unaffiliated third party" means, with respect to
the Management Company, a person or entity that is not controlled by or under
common control with the Management Company.
(e) The Management Company shall comply in all material respects with all
applicable material Federal, state and local laws, regulation, and ordinances in
connection with the provision of the Management Services hereunder.
3.2 Premises.
(a) The Medical Group, as of the Commencement Date, leases premises
and provides Medical Services at the following locations:
(i) 0000 X. Xxxxxxx Xxxxxxxxx Xxxx Xxxxxxxxxx, Xxxxxxx 00000
(ii) 0000 X. Xxxxxxx Xxxx Xxxxxxxxx Xxxxxxxxxx Xxxxx, Xxxxxxx
00000
Immediately prior to the Commencement Date, all of the above-identified premises
were leased to the Medical Group, in
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the Medical Group's name. Effective from and after the Commencement Date, each
of the leases for such premises are to be assigned from the Medical Group to the
Management Company pursuant to an assignment (each, an "Assignment of Lease")
substantially in the form attached hereto as Exhibit B. During the Term, the
Medical Group shall, subject in all instances to the terms of such leases, have
the right to use such premises solely for the provision of Medical Services in
accordance with the terms of this Agreement. In connection therewith, the
Medical Group agrees in all instances to abide by all of the terms and
provisions of all such leases. Upon the expiration of each of the leases
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; provided, however, that the
approval of the Medical Group, which shall not be unreasonably withheld, shall
be required in the event of any substantial changes in the terms of such lease,
and if the Medical Group does not give such approval, the failure to enter into
such new lease shall not constitute a default of the Management Company. Each
assigned lease and each new lease entered into between the Management Company
and the landlord is referred to herein as an "Office Lease."
(b) A New Medical Office (as hereinafter defined) may be opened only upon
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 by the Management Company, in the
Management Company's name, and the Medical Group shall, subject in each instance
to the terms of any such lease, have the right to use the premises of any such
New Medical Office solely for the provision of Medical Services in accordance
with the terms of this Agreement. In connection therewith, the Medical Group
agrees in all instances to abide by
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all of the terms and provisions of all such leases. Notwithstanding anything to
the contrary contained in this Agreement, the Management Company may, in its
sole discretion, determine to permanently close any New Medical Office if such
office is not, after 12 months of operation, profitable (as hereinafter defined
and as determined in the sole discretion of the Management Company); provided,
however, that if the Medical Group elects to pay 80% of any deficit generated by
the operations of such New Medical Office at all times after the initial 12
months and until such New Medical Office becomes profitable, then the Management
Company shall not close such New Medical Office; provided further, however, that
notwithstanding the foregoing, if such New Medical Office incurred a loss during
the initial 12 months of operation in excess of $100,000, then such New Medical
Office shall be closed in the sole discretion of the Management Company unless
the Medical Group agrees to incur all future costs and expenses (including
Management Company Operating Costs) associated with such office until it becomes
profitable. As used herein, "profitable" means, as to any New Medical Office,
that the aggregate revenues generated by such New Medical Office during any
calendar year exceed the aggregate costs and expenses relating to the operation
of such New Medical Office during such calendar year.
(c) Except as set forth in Sections 3.2(a) or (b) above, the closing or
relocation of any offices of the Medical Group shall be subject to agreement by
the Medical Group and the Management Company.
(d) The services to be provided by the Management Company with respect to
the premises leased in accordance with this Section 3.2 shall include, without
limitation, the negotiation and renegotiation of leases, communication with the
landlords of the respective premises, identification of potential new locations
for Medical Group offices, financial analysis relating to the opening, closing,
and relocation of any offices,
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arrangement of necessary repairs, maintenance and improvements, procurement of
property insurance, arrangement of telephone and other utility services, and
hazardous waste disposal, and all other reasonably necessary or appropriate
services related to all of the offices of the Medical Group.
(e) The Management Company also shall provide all necessary or appropriate
leasehold improvements to each of the premises, subject to prior approval as
provided in Section 8.2 hereof.
(f) The Medical Group acknowledges that the Management Company makes no
warranties or representations, expressed or implied, regarding the condition of
any of the leased premises.
3.3. Equipment.
(a) During the Term, the Management Company shall provide to the Medical
Group the diagnostic and therapeutic medical equipment reasonably required by
the Medical Group in connection with the provision of Medical Group Services
(collectively, the "Medical Equipment"). The Management Company shall acquire
(or lease), at its cost, all Medical Equipment, and the Management Company shall
retain ownership of (or the leasehold interest with respect to) all Medical
Equipment. As used herein, the term Medical Equipment shall not include medical
equipment used in connection with a New Ancillary Service (as hereinafter
defined).
(b) The Management Company also shall provide to the Medical Group all
furniture, furnishings, trade fixtures, and office equipment reasonably required
in connection with the provision of Medical Group Services pursuant to this
Agreement (collectively, "FF&E"). The Management Company shall acquire, at its
cost, all FF&E, and the Management Company shall retain ownership of all FF&E.
As used herein, the term FF&E does not
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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. All of the Equipment acquired by the Management Company
under the Asset Purchase Agreement and maintained after the date hereof in any
facility operated by the Medical Group shall be provided to the Medical Group
for its exclusive use and benefit.
(d) The Medical Group's right to use the Equipment shall be subordinate to
the rights of any unaffiliated third party to which the Management Company
elects, in its sole discretion, to grant any security interest, mortgage, lien
or other encumbrance in or on the Equipment. The Medical Group shall use the
Equipment only in connection with its provision of the Medical Group Services,
and the Medical Group shall not alter, repair, augment, or remove the Equipment
from the premises of the Medical Group without the prior written consent of the
Management Company and any lessor thereof, which approval may be granted or
withheld in the Management Company's or such lessor's sole discretion. To the
extent the Equipment is utilized by the Medical Group in the provision of
Medical Group Services, the Medical Group shall have the right to exercise
reasonable control over the use of such Equipment.
(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
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by the manufacturer to maintaining the continued effectiveness of any warranty
on such Equipment shall be satisfied. The Management Company shall take all
reasonable steps to provide that all necessary service and maintenance is
obtained in a prompt and timely manner, so as to minimize the amount of time
that any of the Equipment is not available for usage by or for patients of the
Medical Group.
(f) THE MEDICAL GROUP ACKNOWLEDGES THAT THE MANAGEMENT COMPANY MAKES NO
WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER
RELATING TO THE EQUIPMENT PROVIDED TO THE MEDICAL GROUP PURSUANT TO THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DESIGN CONDITION OF THE EQUIPMENT,
THE CONFORMANCE THEREOF TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER RELATING THERETO, OR THE FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR
PURPOSE. Nothing in this Agreement shall be construed to affect or limit in any
way the professional discretion of the Medical Group to select and use any
Equipment acquired by the Management Company in accordance with the terms of
this Agreement insofar as such selection or use constitutes or might constitute
the practice of medicine.
3.4. New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Physical therapy (excluding those services provided in the Medical
Group's offices as of the Signature Date);
(ii) Magnetic resonance imaging and/or other imaging services (except
diagnostic radiology);
(iii) Outpatient surgery;
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(iv) Densitometry; and
(v) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Any services provided on a regular basis by the Medical Group
immediately prior to the Commencement Date, including without
limitation (1) plain film and other diagnostic radiology (if any)
and (2) ultrasound for pediatric patients; and
(B) Any service performed in connection with new Medical Equipment
acquired to replace existing Medical Equipment so long as the new
Medical Equipment performs substantially the same functions as
the replaced Medical Equipment.
New Ancillary Services do not include the sale or provision of (or services
rendered in connection with) prosthetics, prosthetic devices, orthotics, braces,
splints, appliances, crutches, casts, or any other supplies or similar items
which are billable to patients or payors, all of which are to be included in the
scope of Medical Group Services.
(b) New Ancillary Services may be established only upon agreement of the
Medical Group and the Management Company. Such agreement shall be memorialized
in a written agreement executed by the parties (or in a written amendment to
this Agreement) under which the Management Company agrees to provide all of the
Management Services described in this Section 3 in connection with such New
Ancillary Service, and for which the Management Company shall be compensated as
described in Section
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5.8 of this Agreement, except as may otherwise be agreed upon by the parties.
3.5. Administration, Finance and Accounting.
The Management Company shall provide or arrange for the provision of all
administrative, financial, and accounting functions necessary for the operation
of the Medical Group, including, without limitation, the following (if
applicable):
(a) Creation and maintenance of bank accounts.
(b) Deposits of receipts.
(c) Preparing accounts receivable summary reports, including various
analyses of delinquent accounts.
(d) Receiving appropriate approvals as required by the Medical Group's
General Partnership Agreement (the "Partnership Agreement") prior to
distribution of payments to outside parties; provided, however, that
the Management Company shall not be responsible for or liable with
respect to interpretations of the Partnership Agreement.
(e) Disbursement of payables, including payables of the Medical Group;
provided, however, that payables of the Medical Group shall be paid
from an account of the Medical Group and not from any of the
Management Company's bank accounts, and all checks drawn on any
Medical Group account shall be signed by a partner in the Medical
Group or another authorized representative of the Medical Group.
(f) Negotiation of vendor contracts.
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(g) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and preparation of
financial statements.
(h) Analyzing financial data as reasonably requested by physicians.
(i) Analyzing potential New Medical Office locations, and coordinating all
functions associated with opening New Medical Office locations.
(j) Preparing monthly financial and medical practice statistics reports by
satellite office and by physician, and the Management Company shall
use its reasonable efforts to have such reports available, with
respect to any given month, 20 days after the end of such month.
(k) Providing from the Medical Group's bank account(s) monthly draws
to physicians and professional corporations pursuant to service
agreements, monthly profit and loss distributions, and quarterly bonus
calculations; provided, however, that the Management Company shall not
be responsible for or liable with respect to interpretations of the
Partnership Agreement; provided, further, that all checks drawn on any
Medical Group bank account shall be signed by a partner in the Medical
Group or other authorized representative of the Medical Group.
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(l) Calculating physicians' and partnership's annual earnings based on the
Medical Group's profit and loss distribution formulas.
(m) Ongoing day-to-day communication with the managing partner (or other
manager of the Medical Group) and assisting such person in fulfilling
his responsibilities.
(n) Preparing agendas and information packages for Medical Group meetings.
(o) Developing budgets and long-term strategies for the Medical Group,
including an initial long-term plan and capital expenditures budget
and the Management Company shall use its reasonable efforts to have
such plan and budget delivered to the Medical Group within 180 days
and 90 days, respectively, after the Commencement Date.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
(r) Sponsoring employee benefit plans and providing administrative
services relating thereto for the Medical Personnel (as hereinafter
defined).
(s) Coordinating recruitment, interviewing, and hiring of new physicians.
(t) Implementing Medical Group fee schedule increases and/or decreases.
(u) Coordinating depositions and court appearances.
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(v) Assisting in the coordination of call schedules.
(w) Assisting in the coordination of coverage of athletic team events.
(x) Acting as liaison to hospital administration, physical therapy,
surgery center, MRI, and other ancillary services entities.
(y) Cooperating with outside accountants in preparing various schedules
and providing other information.
(z) Interacting with legal counsel as necessary.
(aa) Preparing and filing all state and Federal reports regarding health
care ownership and referrals, including, without limitation, group
practice compliance certification, and HCCCB tax reports, provided
that the Management Company shall not be obligated to perform the
duties under this clause (aa) prior to March 1, 1998.
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 Management Company shall (i)
xxxx patients and third party payors in the Medical Group's name; (ii) collect
accounts receivable resulting from such billing; (iii) receive payments and
prepayments from the Medical Group's patients, Blue Cross and Blue Shield
organizations, insurance companies, health care plans, Medicare, Medicaid, HMOs,
and any and all other third party payors; (iv) take possession of and deposit
into such bank (the "Medical Group Bank") as the Medical
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Group designates, in an account established by the Medical Group in the name of
the Medical Group (the "Medical Group Collections Account"), any and all checks,
insurance payments, cash, cash equivalents and other instruments received for
Medical Group Services; and (v) initiate with the consent of the Medical Group,
which consent may be withheld by the Medical Group in its sole and absolute
discretion, legal proceedings in the name of the Medical Group to collect any
Accounts and monies owed to the Medical Group, to enforce the rights of the
Medical Group as a creditor under any contract or in connection with the
rendering of any service, and to contest adjustments and denials by governmental
agencies (or their fiscal intermediaries) as third-party payors.
(b) From time to time at the Management Company's request, the Medical
Group shall make available to the Management Company one or more authorized
partners or other authorized signatories (the "Authorized Partners") of the
Medical Group to sign any letters, checks, instruments or other documents (the
"Documents") on behalf of the Medical Group that are necessary for the
Management Company to take the actions specified in this Section 3.6 and to
perform its duties under this Agreement. If the Management Company notifies the
Medical Group that an Authorized Partner 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 take the actions specified
herein or to perform the Management Services to the extent caused by the failure
of an Authorized Partner to sign the Documents in a timely manner.
(c) The Management Company represents and warrants to the Medical Group
that it has sufficient knowledge and expertise in the area of billing for
orthopedic and other medical services and ancillary services to be able to
adequately perform the billing services required by the Medical Group hereunder.
The Management Company shall submit all bills and manage the
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billing process on a timely basis in accordance with the terms of this Agreement
and applicable law.
(d) Without limiting the generality of the foregoing, the Management
Company shall xxxx patients, xxxx and submit claims to third party payors,
perform appropriate coding for each xxxx, and collect all fees for professional
and other services rendered and for items supplied to patients by the Medical
Group, all in a timely manner and in accordance with parameters and criteria
established by the Operations Committee (as hereinafter defined). Additionally,
the Management Company shall provide the following services which are currently
being provided by or on behalf of the Medical Group:
(i) Receive and collect from patients at the time of visit all
appropriate payments and pre-payments, including co-pays, deductibles,
payments for non-covered medical services, and deposits for surgeries (if
applicable), and shall obtain all appropriate insurance and other
information required.
(ii) Submit claims utilizing electronic billing submission, whenever
appropriate.
(iii) Perform delinquent account collection calls and other
appropriate follow-up mechanics for delinquent accounts of all insurance
classifications, all in a timely fashion as determined by the Operations
Committee.
(iv) Turn over to outside collection agencies all delinquent accounts
satisfying the criteria established by the Operations Committee. The
Management Company shall also follow-up on the performance of the outside
collection agencies and make changes, if necessary, and shall reconcile
each account turned over to the summary data provided by the collection
agency.
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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 Florida workers' compensation fee schedule.
(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), the Management Company shall determine that payments
received from PPOs and HMOs are in compliance with their respective
contracts with the Medical Group.
(x) With respect to capitation fee contracts with HMOs, the Management
Company shall:
(a) Follow-up to ensure that payments to the Medical Group are made on a
timely basis;
(b) Review and audit enrollment data provided by the HMO to ensure that
the Medical Group is being compensated for the proper number of lives
enrolled; and
(c) Review and audit appropriateness of withholds and reserves with
respect to specialty risk pools.
(xi) With respect to lien accounts, the Management Company shall:
(a) Ensure that appropriate documents are signed and agreed to initially
as between the Medical Group, attorney and patient;
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(b) Follow-up on a regular basis as to the status of the account; and
(c) Apply the policies of the Operations Committee in resolving open
account balances.
(xii) With respect to student athlete accounts, the Management Company
shall coordinate insurance and other information in compliance with the
policy of the Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance with
contracts between the payor and the Medical Group, the Management Company
shall follow-up on a timely basis to ensure that withheld amounts are
returned to the Medical Group, if warranted, and to ensure that amounts not
returned are verified and audited for appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and third
party payors when appropriate.
(xv) Ensure that revenues related to depositions, record review and
court appearances are accounted for, monitored, followed-up, and ultimately
collected.
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;
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(v) Transcription;
(vi) Appointments;
(vii) Switchboard;
(viii) Medical Records;
(ix) Chart Preparation;
(x) Historians;
(xi) Clinic Support; and
(xii) Marketing.
(b) The Management Company shall determine and pay the salaries and fringe
benefits of the Administrative Personnel, and shall provide other personnel
services related to the Administrative Personnel, including, but not limited to,
scheduling, personnel policies, administering continuing education benefits, and
payroll administration.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as reasonably necessary, verify
educational and employment experience, licensure, and insurability.
(d) The Management Company shall attempt, consistent with sound business
practices, to honor Medical Group requests with regard to the retention or
assignment of specific Administrative Personnel to the Medical Group. In the
event that the Management Company receives a complaint from the Medical Group
that any of the Administrative Personnel is interfering with or disrupting the
provision of Medical Services by the Medical Group, the Management Company will
use reasonable efforts to attempt to promptly remedy any such complaint. If any
such complaint is not remedied to the reasonable satisfaction of the Medical
Group, then the Management Company shall remove such Administrative Personnel,
if requested by the Medical Group, from
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the Medical Group's facilities, if and to the extent such action by the
Management Company will not violate any applicable law.
(e) All of the services provided by the Management Company under this
Section 3.7, including the obligations set forth in Section 3.7(d), shall be
performed in compliance with all applicable state and Federal 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 provided
to the Medical Group as leased employees, such Technical Personnel (as
hereinafter defined) 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 shall:
(i) have the right to have any Technical Personnel terminated from
employment;
(ii) furnish the Technical Personnel with the equipment and
supplies needed by the Technical Personnel for their work;
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(iii) provide the Technical Personnel with any necessary training;
(iv) instruct the Technical Personnel regarding their activities
performed for the Medical Group;
(v) establish the hours of work for the Technical Personnel;
(vi) approve vacation time and other time off from work; and
(vii) provide that degree of supervision as is required by
Medicare and by other third party payors to satisfy applicable conditions
for coverage thereunder.
(d) With respect to each of the Technical Personnel, the
Management Company shall verify or arrange for the verification of
educational and employment experience, licensure and insurability, and
shall review and provide the Medical Group with copies of any complaints
contained in public files with applicable state and Federal commissions.
3.9. Medical Personnel.
(a) The Management Company shall, upon request by the Medical Group, assist
the Medical Group in recruiting Medical Personnel. The employment or retention
of any Medical Personnel shall be in the sole discretion of the Medical Group.
The employment or retention of any Medical Personnel shall be in the sole
discretion of the Medical Group. "Medical Personnel" means:
(i) Physicians (including fellows and residents, if any) providing
professional medical services who are employees or independent
contractors of the Medical Group; and
(ii) Physician assistants, nurse practitioners, and other health
care professionals who provide services
-22-
that are billable to patients or third party payors under the name of
such health care professional (as distinguished from services that are
billable under the name of the supervising physician).
(b) With respect to each of the Medical Personnel, the Management Company
shall verify 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 sanctioned
commissions.
3.10. Inventory and Supplies.
The Management Company shall order and purchase inventory and supplies on
behalf of the Medical Group, and such other ordinary or appropriate materials as
the Management Company and the Medical Group may mutually agree is necessary for
the Medical Group to carry out its Medical Group Services. Inventory and
supplies shall include, but not be limited, to:
(a) Medical supplies;
(b) Office supplies;
(c) Postage;
(d) Computer forms and supplies;
(e) Printing and stationary supplies;
(f) Printer supplies;
(h) Uniforms;
(i) Duplication services; and
(j) Linen and laundry supplies.
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3.11. Taxes.
The Management Company shall provide the Medical Group with timely access
to all information necessary for the Medical Group to prepare its tax returns.
The Management Company shall have no responsibility for:
(a) The payment of the Medical Group's taxes; or
(b) The preparation of any partnership income tax returns or related
Schedule K-1 forms for the Medical Group.
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
improvement of the information systems used by the Medical Group in connection
with the provision of the following services:
(i) Accounts receivable - Billing/Insurance/ Collections;
(ii) On-line appointment scheduling;
(iii) Internal e-mail;
(vi) On-line transcription;
(v) Faxing subsystem;
(vi) Electronic claims submission;
(vii) Patient flow monitoring system;
(viii) Authorization module;
(ix) Prescription module;
(x) X-ray tracking system;
(xi) Voice mail;
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(xii) Paperless medical records; and
(xiii) Bar code chart tracking system.
(b) The services provided by the Management Company shall protect the
confidentiality of patient medical records to the extent required by applicable
law or the Medical Group's payor agreements; provided, however, that in no event
shall a breach of such confidentiality be deemed a default under this Agreement
if the Management Company acted reasonably and in good faith to protect such
confidentiality.
3.13. 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 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. Any promotional materials created solely
for the purpose of marketing the services provided by the Medical Group and the
use of any individual physician's
-25-
name in any promotional materials shall require the consent of the Medical Group
or such physician, as the case may be.
3.15. Insurance.
The Management Company shall 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, or patient medical records. The management of
all files and records shall be in compliance with applicable state and Federal
statutes. Patient medical records shall at all times be and remain the property
of the Medical Group and shall be located at a location that is readily
accessible for patient care. The Management Company shall preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purposes necessary to perform the management
services set forth herein; provided, however, that in no event shall a breach of
such confidentiality be deemed a default under this Agreement if the Management
Company acted reasonably and in good faith to protect such confidentiality.
(b) The Management Company shall provide all off-site storage of files and
records as required and in conjunction with policies established by the
Operations Committee. The Management Company shall provide the Medical Group
with all requested off-site files and records on a timely basis, consistent with
the policies of the Medical Group in effect immediately prior to the
Commencement Date. Any change in such policies shall be subject to the approval
of the Operations Committee.
-26-
(c) In the event of termination of this Agreement, the Management Company
shall deliver to the Medical Group at no charge a copy of the books and records
of the Medical Group in the Management Company's possession. In the event any
physician of the Medical Group terminates his affiliation with the Medical Group
during the Term, the Management Company shall, within 30 days of receipt of
written instructions from the Medical Group, deliver to such physician a copy of
the books and records pertaining to the services provided by such physician
during the five years prior to such physician's departure from the Medical
Group; provided that the Management Company shall not be obligated to return any
books and records pertaining to services provided prior to the Commencement
Date.
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 shall prepare cost forecasts and other analyses as reasonably
requested by the Medical Group in order to allow the Medical Group to make an
informed decision with respect to each proposed contract.
3.18. Budgets.
The Management Company shall prepare, for the review and approval of the
Operations Committee, annual operating budgets (the "Budgets") reflecting in
reasonable detail projected Xxxxxxxx, Collections, Medical Group Costs, and
Management Company Operating Costs (all as hereinafter defined); provided,
however, that the Medical Group shall provide the Management Company with a
proposed Budget covering the initial three-month
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period under this Agreement. The initial Budget, which shall be applicable to
the period commencing on the Commencement Date and ending three (3) months
thereafter, is attached hereto as Schedule II. All other budgets shall be on a
calendar year basis. The Management Company shall prepare and submit to the
Operations Committee all subsequent Budgets on or before December 15 of the year
immediately preceding the calendar year for which any Budget is applicable.
3.19. Force Majeure.
The Management Company shall not be liable to the Medical Group for failure
to perform any of the services required herein in the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies, changes in
applicable law or regulations or other events over which the Management Company
has no control for so long as such events continue and for a reasonable time
thereafter.
SECTION 4. Equity Participation.
In consideration of the Medical Group's entering into this Agreement, the
Management Company shall provide to each person identified on Schedule III
attached hereto (the "Eligible Parties") the consideration set forth opposite
such person's name on Schedule III, which consideration consists of cash and
equity.
SECTION 5. Costs, Compensation, and Other Payments.
5.1. Ownership of Accounts; Security.
The Medical Group hereby transfers to the Management Company ownership of
all accounts receivable and other rights to payment arising from the provision
by the Medical Group of orthopedic medical and surgical services and related
medical services to the general public during the Term (the "Accounts");
provided, however, that the right to payment of Medicaid and Medicare
receivables shall remain with the Medical Group in
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accordance with applicable Federal and state law. 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 shall cooperate with the
Lender as reasonably requested in the event the Lender seeks to enforce its
rights and remedies under its agreement with the Management Company, including
granting the Lender access, to the extent permitted by law, to all books and
records associated with the Collateral. Neither the Management Company nor the
Lender shall be required to give the Medical Group any notice in connection with
any loan or related financing arrangements affecting the Accounts or other
Collateral.
5.2. Bank Accounts.
The Medical Group shall instruct the Medical Group Bank to transfer, on a
daily basis, all funds in the Medical Group Collections Account (less the amount
necessary to avoid the payment of bank charges or fees relating to the failure
to maintain a minimum balance in the Medical Group Collections Account) to a
bank (the "Management Company Bank") designated by the Management Company, for
credit to an account in the Management Company's name (the "Operating Account").
5.3. Medical Group Compensation.
(a) Monthly Draw.
(i) On each Draw Date (as hereinafter defined) during the Term hereof,
the Management Company shall distribute to the Medical Group an amount
equal to a percentage (the "Draw Percentage") of the Medical Group's total
Xxxxxxxx (as hereinafter defined) for Medical Group
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Services provided during the previous month (the "Monthly Draw"). The Draw
Date and the initial Draw Percentage are as set forth on Schedule IV, and
the Draw Percentage shall be adjusted as provided in Section 5.3(a)(ii).
(ii) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction, the
numerator of which is the Annual Medical Group Compensation Amount (as
hereinafter defined) for the previous year, and the denominator of which is
the total amount of Xxxxxxxx for the previous year.
(b) Annual Settlement.
(i) On or before April 30 of each year beginning 1998, the Management
Company shall determine the compensation (the "Annual Medical Group
Compensation Amount") earned by the Medical Group with respect to the prior
calendar year in accordance with the following calculation:
(A) The total Collections for all Medical Group Services
rendered during such year, minus
(B) the sum of the following:
(1) the Management Fee earned by the Management Company fo
the previous calendar year; and
(2) the Authorized Management Company Operating Costs (as
hereinafter defined) incurred by the Management Company
during such year.
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(ii) If the Annual Medical Group Compensation Amount thus determined
exceeds (the "Annual Shortfall") the total of the twelve (12) Monthly Draws
paid by the Management Company to the Medical Group during the previous
calendar year (the "Annual Draw Amount"), the Management Company shall pay
to the Medical Group on or before May 15, an amount equal to the Annual
Shortfall. If the Annual Medical Group Compensation is less (the "Annual
Overpayment") than the Annual Draw Amount, the Management Company shall
withhold from the Monthly Draw otherwise payable to the Medical Group,
during each of the following six (6) months, an amount equal to one-sixth
(1/6) of such Annual Overpayment.
(iii) With respect to this Section 5.3(b), for purposes of determining
the total Collections for all Medical Group Services provided during any
calendar year (or portion thereof) during the Term, all Collections during
January, February, and March of each year (or portion thereof) 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
(or portion thereof) during the Term in which such Collections were
received. The foregoing shall also apply with respect to determining the
Management Fee earned by the Management Company for the previous calendar
year, for purposes of this Section 5.3(b).
(iv) Notwithstanding anything to the contrary set forth herein, the
first period for which the annual settlement described in this Section
5.3(b) shall be applicable is the period commencing on the Commencement
Date and ending on December 31, 1997.
(c) For purposes of this Agreement:
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(i) "Xxxxxxxx" means, for any applicable period, the gross charges of
the Medical Group for all Medical Group Services furnished during such
period.
(ii) "Collections" means, for any applicable period, all cash or cash
equivalents received during such period, net of refunds paid during such
period, for Medical Group Services.
(iii) "Medical Group Services" means the following services rendered
by, through, or on behalf of the Medical Group: all professional services
rendered by or under the supervision of any of the Medical Personnel
(including professional services rendered in connection with New Ancillary
Services); all plain film and other diagnostic radiology services rendered
by or under the supervision of any of the Medical Personnel; all other
ancillary services (other than New Ancillary Services); all ultrasound for
pediatric patients; all prosthetics, prosthetic devices, orthotics, braces,
splints, appliances, and other items and supplies that are billable to
patients or to third party payors; depositions, record review services,
court appearances, and independent medical exams; and all other services
provided on a regular basis by the Medical Group immediately prior to the
Commencement Date (except as set forth below).
(iv) It is the intent of the parties that Xxxxxxxx, Collections, and
Medical Group Services not include any of the following:
(A) New Ancillary Services (excluding professional services
rendered by Medical Personnel in connection therewith, which
professional services are included under Section 5.3(c)(iii)
above);
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(B) interest income;
(C) royalties payable to any Medical Group physician for medical
inventions;
(D) fees payable under consulting agreements entered into by
Medical Group physicians;
(E) revenues from presentations, publications, medical
directorships, serving as head of a hospital department,
home health, hospice or nursing facility, and endorsements;
(F) proceeds from the sale of any capital assets of the Medical
Group; and
(G) any income from investments.
Notwithstanding anything to the contrary contained herein, any revenues received
by any Billable Medical Personnel (as hereinafter defined) from any source set
forth in clause (E) above, shall be included in Xxxxxxxx, Collections and
Medical Group Services if the revenues from Medical Group Services generated by
such Billable Medical Personnel during any year are materially reduced by the
Billable Medical Personnel's participation in such activity.
(v) For illustrative purposes only, an example of the computation of
the Annual Settlement is set forth on Schedule VII attached hereto.
5.4. Management Fee.
(a) The compensation payable to the Management Company for the provision of
Management Services under this
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Agreement (the "Management Fee"), which the Management Company may disburse from
time to time at its discretion, shall be equal to (i) the sum of (A) the
Applicable Percentage (as hereinafter defined) of Net Operating Income (as
hereinafter defined), (B) an amount equal to sixty-six and two-thirds percent
(66-2/3%) of the Professional Management Cost Savings (as hereinafter defined)
and (C) any amounts owed to the Management Company pursuant to Section 5.11
hereof, if any, less (ii) an amount equal to the Medical Group's pro rata
portion of the Specialty Care Network Profit (as hereinafter defined) for such
period , if any, based on the number of claims generated by the Medical Group
through the specialty care network owned or operated by the Management Company
during the applicable period; provided, however, that in the event the
Applicable Percentage of Net Operating Income shall equal an amount that is less
than $400,000 for any calendar year ending on or before December 31, 2004, the
Management Fee for such period shall, notwithstanding anything to the contrary
contained herein, equal $400,000 plus the amounts described in clauses (B) and
(C) above (the "Guaranteed Minimum Fee"); provided further, however, that at
such time as the sum of the amounts determined by taking the Applicable
Percentage of Net Operating Income for each calendar year ending on or prior to
the date of determination shall equal or exceed $3,000,000, the preceding
provisions relating to the payment of a Guaranteed Minimum Fee shall be null and
void as to any future periods. Notwithstanding anything contained herein to the
contrary, the portion of the Management Fee calculated for the month of April
1997 by the Medical Group, and payable to the Management Company for such month,
shall equal $45,000. For illustrative purposes only, an example of the
computation of the Management Fee is set forth on Schedule VII attached hereto.
(b) For purposes of this Section 5.4, the following terms have the meanings
set forth below:
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(i) "Addbacks" means, for any applicable period, the aggregate amount
of expense incurred during such period for the benefit of the Medical Group
for each of the following line items in excess of the respective amounts
budgeted therefor in the Budget for such period: (A) entertainment and (B)
automobiles.
(ii) "Adjusted Operating Expenses" means, for any period, an amount
equal to (A) Professional Practice Cost Savings (as hereinafter defined),
plus (B) Authorized Management Company Operating Costs, minus (C) Addbacks;
(iii) "Applicable Percentage" has the meaning set forth on Schedule V;
(iv) "Net Operating Income" means, for any period, an amount equal to
Collections minus Adjusted Operating Expenses;
(v) "Professional Management Cost Savings" means the Professional
Practice Cost Savings described in Section A.1 of Schedule VI;
(vi) "Professional Practice Cost Savings" means the cost savings
determined in the manner described in Schedule VI; and
(vii) "Specialty Care Network Profit" means the excess of the fee(s)
received by the Management Company over the costs incurred by the
Management Company, each in connection with its ownership and/or operation
of a specialty care network.
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
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Company, and not in the name of the Medical Group, except as specifically
approved by the Medical Group. Management Company Costs shall not include any
costs or expenses incurred prior to the Commencement Date.
(b) The Management Company shall provide to the Medical Group, upon
reasonable request by the Medical Group from time to time, supporting
documentation and other backup detail relating to any or all of the Management
Company Costs.
(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, including, without limitation, those costs and expenses set
forth in the Budget, except that any costs and expenses defined as Medical Group
Costs in Section 5.7 hereof, and any Excluded Costs (as hereinafter defined)
shall not be deemed Management Company Operating Costs. To the extent that the
Medical Group and the Management Company mutually determine that an expenditure
not included in the Budget needs to be incurred in connection with the provision
of Management Services hereunder, such expenditure shall be included in
Management Company Operating Costs for purposes of this Agreement. "Excluded
Costs" means all of the following costs and expenses incurred in connection with
the provision of the Management Services hereunder:
(i) New Medical Office Start-Up Costs;
(ii) The cost of any FF&E provided by the Management Company to the
Medical Group, including the capital costs associated with any information
systems technology implemented by the Management Company (subject to the
provisions of Section 8.2(e) hereof); provided that the costs associated
with the maintenance of such technology shall be an expense included in the
Budget and shall be deemed an Authorized Management Company Operating Cost
for purposes of this Agreement;
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(iii) Depreciation, amortization, and interest; and
(iv) 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.
(d) For purposes of this Agreement, "Authorized Management Company
Operating Costs" means all Management Company Operating Costs incurred in any
year reduced by any or all of the following, as applicable:
(i) any costs that exceed the applicable Management Company Operating
Costs Budget which are not approved by the Operations Committee;
(ii) any costs with respect to which the Medical Group has reasonably
requested supporting documentation or other backup detail which has not
been
-37-
furnished by the Management Company or which does not reasonably establish
the appropriateness of such costs; and
(iii) any costs that have been determined pursuant to an audit under
Section 5.9 not to have been reasonably incurred in connection with the
Management Services required to be provided under this Agreement.
5.6. New Medical Office Start-Up Costs.
(a) The Management Company shall pay, to the extent provided herein, all
New Medical Office Start-Up Costs incurred in connection with the establishment
of any New Medical Office. The Management Company shall create a separate
division (the "New Office Division") for purposes of accounting for the income,
costs, profits, and losses of any New Medical Office. The Management Company
shall utilize generally accepted accounting principles in determining and
accounting for the profits and losses related to the operations of each New
Medical Office. Notwithstanding anything to the contrary contained herein,
Corporate Overhead shall not be included in determining the costs and expenses
associated with any New Medical Office. At the end of the New Medical Office
Start-Up Period (as hereinafter defined), (i) the Management Company shall be
entitled to receive the aggregate Management Fee as described in Section 5.4 and
(ii) the Medical Group shall be entitled to receive the Annual Medical Group
Compensation Amount for such New Medical Office, in each case, as if such New
Medical Office had been any other office of the Medical Group during the New
Medical Office Start-Up Period; provided, however, that notwithstanding the
foregoing, if the Net Operating Income of such New Medical Office for the New
Medical Office Start-Up Period is equal to or less than zero, then (A) all of
the New Medical Office Start-Up Costs shall be borne solely by the Management
Company and such costs shall be considered Excluded Costs for purposes of this
Agreement and (B) the Management Company and the Medical Group
-38-
shall not be entitled to receive the Management Fee or the Annual Medical Group
Compensation Amount, as applicable.
(b) Except to the extent provided in Section 5.6(a) above, the xxxxxxxx,
collections, costs and expenses relating to any New Medical Office shall not,
during the New Medical Office Start-Up Period, be included in the computations
of Medical Group Compensation, the Management Fee, Management Company Costs,
Ancillary Services, or Medical Group Costs as described in Sections 5.3, 5.4,
5.5, 5.8, or 5.7, respectively.
(c) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and provided to the Medical Group in
accordance with the terms of Section 3.3 hereof.
(d) For purposes of this Agreement, "New Medical Office" means any office
of the Medical Group other than those offices located in the premises identified
in Section 3.2(a) hereof.
(e) For purposes of this Agreement, "New Medical Office Start-Up Costs"
means the following costs incurred in connection with the establishment of a New
Medical Office during the New Medical Office Start-Up Period: all Management
Company Costs and all costs associated with the development of such New Medical
Office other than Medical Group Costs, provided that, the costs incurred in
connection with any New Physician (as hereinafter defined) shall be borne in
accordance with the provisions of Section 5.11 hereof.
(f) For purposes of this Agreement, "New Medical Office Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of a New Medical Office and ending on the last
day of the calendar month in which a period of twelve (12) months has elapsed
from and after the date on which the New Medical Office
-39-
first opened for the treatment of patients. In the event that the New Medical
Office is profitable (as defined in Section 3.2(b) and as determined by the
Management Company) as of the end of the New Medical Office Start-Up Period, at
all times thereafter such New Medical Office shall, for all purposes of this
Agreement, be treated as any other office of the Medical Group.
5.7 Medical Group Costs.
Except as otherwise provided in this Agreement, the Medical Group shall pay
all of the costs specified in this Section 5.7 (the "Medical Group Costs"). All
Medical Group Costs shall be incurred in the name of the Medical Group, and not
in the name of the Management Company, and shall be paid from an account of the
Medical Group and not from any bank account of the Management Company. The
Medical Group Costs are as follows:
(a) Compensation of all Medical Personnel that (i) are authorized to
directly xxxx patients, Medicare, Medicaid and third party payors
and (ii) are employed directly by the Medical Group (such persons
being referred to herein as the "Billable Medical Personnel");
(b) Any applicable fringe benefits for all Medical Personnel,
including, but not limited to, payroll taxes, workers'
compensation, disability insurance, life insurance, 401(k)
retirement plan, business buy-out disability insurance and
continuing education; and
(c) The cost of any items (excluding automobile and entertainment
expenses which shall be included in Authorized Management Company
Operating Costs) which are not required to be provided by the
Management Company under this
-40-
Agreement and/or which were ordered, purchased, or incurred by the
Medical Group directly, including but not limited to the cost of
accounting, legal, consulting, or other professional or advisory
services, business meetings, and business taxes.
5.8. New Ancillary Services Costs.
(a) Any agreement by the parties to establish a New Ancillary Service as
described in Section 3.4 of this Agreement shall (unless otherwise agreed by the
parties) incorporate the following:
(i) The Management Company shall create a separate division
("Ancillary Division") for purposes of accounting for the income, costs,
profits, and losses of any New Ancillary Service. The Management Company
shall utilize generally accepted accounting principles in determining and
accounting for the profits and losses related to the operations of each New
Ancillary Service. Notwithstanding anything to the contrary contained
herein, Corporate Overhead shall not be included in determining the costs
and expenses associated with any New Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division shall be divided
equally between the Medical Group and the Management Company, and all
distributions to the Medical Group and to the Management Company shall be
made in equal amounts to each from available cash (after payment of all
currently due obligations incurred in connection with such New Ancillary
Division, including, without limitation, any principal and interest amounts
then due and payable under Section 5.8(a)(iv) below, and after retention of
reasonable reserves) derived from the operation of such Ancillary Division.
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(iii) All diagnostic and therapeutic equipment utilized in connection
with any New Ancillary Service ("New Ancillary Service Medical Equipment")
shall be acquired by the Management Company and shall be provided to the
Medical Group on terms substantially similar to those set forth in Section
3.3 hereof.
(iv) The Management Company shall pay all of the Ancillary Service
Start-Up Costs (as hereinafter defined). Beginning with the month following
the expiration of the Ancillary Service Start-Up Period (as hereinafter
defined), the Management Company shall be entitled to recoup all of the
Ancillary Service Start-Up Costs (as hereinafter defined) previously paid
by the Management Company in sixty (60) equal monthly installments of
principal, plus interest on the unrecouped portion of such costs at the
prevailing prime rate as set forth in the Wall Street Journal or at the
actual rate paid by the Management Company with respect to any part of such
costs that have been financed by the Management Company, if applicable.
(v) The Management Company shall provide, in connection with any New
Ancillary Service, the full range of management services described in this
Agreement.
(vi) The xxxxxxxx, collections, costs and expenses relating to any New
Ancillary Service shall not be included in the computations of Medical
Group Compensation, the Management Fee, Management Company Costs, New
Medical Office Start-Up Costs, or Medical Group Costs as described in
Sections 5.3, 5.4, 5.5, 5.6, or 5.7, respectively.
(b) For purposes of this Section 5.8, "Ancillary Service Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of the New Ancillary Service, which date shall
not be prior to the date of the agreement establishing such New Ancillary
Service, and ending on the earlier to occur of (i) the last day
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of the first period of two (2) consecutive calendar months for which the New
Ancillary Service shows a profit or (ii) the last day of the twelfth month after
the establishment of such New Ancillary Service.
(c) For purposes of this Section 5.8, "Ancillary Service Start-Up Costs"
means the total of all of the following costs incurred in connection with the
establishment of a New Ancillary Service during the Ancillary Service Start-Up
Period (whether such costs would otherwise be considered Management Company
Costs or Medical Group Costs):
(i) Any lease payments for New Ancillary Service Medical Equipment;
(ii) All costs of acquiring furniture, fixtures, and office equipment;
(iii) All initial occupancy costs, if any, including but not limited
to prepaid rent, and tenant improvements;
(iv) All costs related to the acquisition of materials and supplies
related to the provision of such New Ancillary Service; and
(v) All ongoing costs of the New Ancillary Service, including but not
limited to personnel (other than the Billable Medical Personnel) and
related benefits, the cost of operating any equipment utilized in providing
the service, supplies, insurance, rent, repairs and maintenance, outside
services, telephone, taxes, utilities, storage and other ordinary ongoing
expenses of providing the New Ancillary Service.
5.9 Review and Audit of Books and Records.
Each of the parties shall have the right, during ordinary business hours
and upon reasonable notice, to review and
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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 four percent (4%) of the total
amount of Medical Group Compensation otherwise payable to the Medical Group for
the period covered by the audit, the cost of the audit shall be borne by the
Management Company. All documents and other information obtained in the course
of such review or audit shall be held in strict confidence.
5.10. Start-Up Period.
Consistent with the provisions of Section 2 of this Agreement, the parties
acknowledge and agree that, in order to facilitate the transition of
responsibilities hereunder, certain requirements and procedures agreed to under
this Agreement may be implemented, in whole or in part and at any time during
the period commencing on the Commencement Date and ending on July 1, 1997
(subject to extension by agreement of the Medical Group and the Management
Company), rather than being fully implemented immediately on the Commencement
Date. Accordingly, the parties further agree that the Management Fee and Monthly
Draw payable in respect of the Management Services and the Medical Group
Services applicable to such period of time shall be computed, and any
appropriate adjustments shall be made, such that no material financial advantage
or disadvantage shall accrue to either party as a result of implementing such
requirements and procedures over the course of such start-up period rather than
immediately on the Commencement Date.
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5.11. New Physician Compensation Costs.
(a) Notwithstanding anything contained herein to the contrary, during the
period beginning on the New Physician Start Date (as hereinafter defined) and
ending on the Physician Breakeven Date (as hereinafter defined), the Management
Company shall be responsible for the payment of all New Physician Compensation
(as hereinafter defined) and, notwithstanding anything to the contrary contained
in this Agreement, shall receive, in consideration therefor, sixty six and
two-thirds percent (66 2/3%) of all Collections generated by such New Physician
for those Medical Group Services performed by such New Physician, and such
amounts shall not be included in determining Net Operating Income for purposes
of this Agreement. The remaining thirty three and one-third percent (33 1/3%) of
such Collections shall belong to the Medical Group and shall not be included in
determining Net Operating Income for purposes of this Agreement. As of the
Physician Breakeven Date, the New Physician Compensation shall be payable by,
and become the responsibility of, the Medical Group in accordance with Section
5.7 hereof, and all of the Xxxxxxxx and Collections generated by such New
Physician thereafter shall be considered Xxxxxxxx and Collections for purposes
of this Agreement.
(b) "New Physician" means, any physician who, at any time after the
Commencement Date, becomes affiliated with or employed by the Medical Group;
provided that if such physician becomes affiliated with or employed by the
Medical Group pursuant to a transaction between the Management Company and such
physician or a medical group with which such physician is affiliated in which
the Management Company acquires any assets or accounts receivable from such
physician or such medical group or pays any other consideration to such
physician or such medical group in connection with such physician's affiliation
or employment with the Medical Group and/or the Management Company,
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then such physician shall not be deemed to be a New Physician for purposes of
this Agreement.
(c) "Physician Breakeven Date" means, with respect to any New Physician,
the date on which the Collections generated by such New Physician during the
period beginning on the New Physician Start Date and ending on the date of
determination first equal or exceed (i) the aggregate amount of New Physician
Compensation paid to such New Physician for the foregoing period plus (ii) that
portion of the Medical Group Costs and Management Company Costs associated with
such New Physician and/or the Medical Group Services provided by such New
Physician.
(d) "New Physician Compensation" means, with respect to any New Physician
and for any period in question, the amount of compensation (wages and otherwise)
payable to such New Physician by the Medical Group.
(e) "Physician Start Date" means, with respect to any New Physician, the
date such New Physician becomes affiliated with or employed by the Medical
Group.
SECTION 6. Representations and Warranties of the Medical Group
The Medical Group hereby represents and warrants to the Management Company,
as of the Signature Date hereof, as follows:
6.1 Organization; Good Standing; Qualification and Power.
The Medical Group is a partnership duly organized, validly existing, and in
good standing under the laws of the State of Florida and has all requisite power
and authority to own, lease, and operate its properties, to carry on its
business as now being conducted and as proposed to be conducted, to enter into
this Agreement, the Asset Purchase Agreement, each Assignment of Lease, and each
Stockholder Non-Competition
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Agreement (collectively, the "Medical Group Transaction Documents"), to perform
its obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The Medical Group has delivered to the
Management Company a true and correct copy of its partnership agreement, in
effect on the date hereof.
6.2. Equity Investments.
Except as set forth on Schedule 6.2, the Medical Group currently has no
subsidiaries, nor does the Medical Group currently own any capital stock or
other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
6.3. Authority.
The execution, delivery and performance of this Agreement and the other
Medical Group Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Medical Group. This Agreement and the other
Medical Group Transaction Documents have been duly and validly executed and
delivered by the Medical Group and constitute the legal, valid and binding
obligations of the Medical Group enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance of this
Agreement or any other Medical Group Transaction Document by the Medical Group
nor the consummation by the Medical Group of the transactions contemplated
hereby or thereby, nor compliance by the Medical Group with any provision hereof
or thereof will conflict with or result in a breach of any provision of the
formation documents of the Medical Group, cause a default (with due notice,
lapse of
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time or both), or give rise to any right of termination, cancellation or
acceleration, under any of the terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license or other instrument, obligation or
agreement to which the Medical Group is a party or by which the Medical Group or
any of its properties or assets may be bound (with respect to which defaults or
other rights all requisite waivers or consents shall have been obtained at or
prior to the date hereof) or violate any law, statute, rule or regulation or
order, writ, judgment, injunction or decree of any court, administrative agency
or governmental body applicable to the Medical Group or any of its properties or
assets or the Medical Business. Except as provided on Schedule 6.3, to the best
of the Medical Group's knowledge, no permit, authorization, consent or approval
of or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery or performance
by the Medical Group of this Agreement or any other Medical Group Transaction
Document or the consummation of the transactions contemplated hereby and
thereby.
6.4. Financial Information.
Schedule 6.4 contains the Medical Group's internal statements of assets,
liabilities and partners' equity of the Medical Business at January 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 one-month period then ended (including the notes thereto and other financial
information included therein) (collectively, the "Internal Financial
Statements"), and (b) the compiled financial statements of the Medical Business
for the periods ended December 31, 1996, December 31, 1995 and December 31, 1994
(the "Review Financial Statements"). The Internal Financial Statements and the
Review Financial Statements (i) are in accordance with the books and records of
the Medical Business, (ii) fairly present the financial position of the Medical
Business as of the dates
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thereof, (iii) have been prepared in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants consistently applied throughout the periods covered thereby,
and (iv) 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, the
Medical Business did not have any material liability of any nature (matured or
unmatured, fixed or contingent, known or unknown) which was not provided for or
disclosed on the Balance Sheet, all liability reserves established by the
Medical Business on the Balance Sheet were adequate and there were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which were not adequately provided for or disclosed on the Balance Sheet.
6.6. Absence of Changes.
Except as set forth on Schedule 6.6, since the Balance Sheet Date, the
Medical Business has been operated in the ordinary course and consistent with
past practice and there has not been:
(a) any material adverse change in the condition (financial or otherwise),
assets (including, without limitation, 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;
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(c) any obligation or liability (whether absolute, accrued, contingent or
otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Medical Business other
than such items created or incurred in the ordinary course of the Medical
Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien, encumbrance,
liability or obligation by the Medical Business outside the ordinary course of
the Medical Business (whether absolute, accrued, contingent or otherwise and
whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other disposition of
any tangible or intangible asset of the Medical Business except in the ordinary
course of the Medical Business and consistent with past practice;
(f) any write-off as uncollectible of any accounts receivable in connection
with the Medical Business or any portion thereof in excess of $5,000 in the
aggregate exclusive of all normal contractual adjustments from third party
payors;
(g) except for all normal contractual adjustments from third party payors,
any account receivable in connection with the Medical Business in an amount
greater than $10,000 which (i) has become delinquent in its payment by more than
90 days, (ii) has had asserted against it any claim, refusal to pay or right of
set-off, (iii) an account debtor has refused to pay for 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;
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(i) any general uniform increase in the compensation of employees of the
Medical Group or the Medical Business (including, without limitation, any
increase pursuant to any bonus, pension, profit-sharing, deferred compensation
arrangement or other plan or commitment) or any increase in compensation payable
to any officer, employee, consultant or agent thereof, or the entering into of
any employment contract with any officer or employee, or the making of any loan
to, or the engagement in any transaction with, any officer of the Medical Group
or the Medical Business;
(j) any change in the accounting methods or practices followed in
connection with the Medical Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(k) 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
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any income, properties or operations of the Medical Group prior to the date
hereof (collectively, "Returns") have been duly filed; (ii) as of the time of
filing, the Returns correctly reflected in all material respects (and, as to any
Returns not filed as of the date hereof, will correctly reflect in all material
respects) the facts regarding the income, business, assets, operations,
activities and status of the Medical Business and any other information required
to be shown therein; (iii) all Taxes relating to the operations of the Medical
Business that have been shown as due and payable by the Medical Group on the
Returns have been timely paid and filed or adequate provisions made to the books
and records of the Medical Business; (iv) in connection with the Medical
Business (x) the Medical Group has made provision on the Balance Sheet for all
Taxes payable by the Medical Group for any periods that end on or before the
Balance Sheet Date for which no Returns have yet been filed and for any periods
that begin on or before the Balance Sheet Date and end after the Balance Sheet
Date to the extent such Taxes are attributable to the portion of any such period
ending on the Balance Sheet Date and (y) provision has been made for all Taxes
payable by the Medical Group for any periods that end on or before the date
hereof for which no Returns have then been filed and for any periods that begin
on or before the date hereof and end after such date to the extent such 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).
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(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 Code.
(c) The Medical Group has provided the Management Company with true and
complete copies of all Federal, state and foreign Returns of the Medical Group
for the calendar years ending December 31, 1994 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or entity, (i) all Federal, state,
local and foreign income taxes (including any tax on or based upon net income,
or gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all Federal, state, local and
foreign gross receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property or windfall profits taxes, alternative or add-on minimum taxes, customs
duties or other Federal, state, local and foreign taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign) on such person or entity and (ii) any liability for the payment of
any amount of the type described in the immediately preceding clause (i) as a
result of being a `transferee' (within the meaning of Section 6901 of the Code
or any other applicable law) of another person or entity or a member of an
affiliated or combined group.
6.8. Litigation, Etc.
Except as set forth on Schedule 6.8, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Medical Group, threatened against the
Medical Group or in connection with the Medical Business, whether at law or in
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equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality or (b)
judgments, decrees, injunctions or orders of any court, governmental department,
commission, agency, instrumentality or arbitrator against the Medical Group, its
assets or affecting the Medical Business. The Medical Group has delivered to the
Management Company all documents and correspondence relating to matters referred
to in said Schedule 6.8.
6.9 Compliance; Governmental Authorizations.
The Medical Group and the Medical Business have complied in all material
respects with all applicable material Federal, state, local or foreign laws,
ordinances, regulations and orders. The Medical Group has all Federal, state,
local and foreign governmental licenses and permits necessary in the conduct of
the Medical Business, the lack of which would have a material adverse effect on
the Medical Group's ability to operate the Medical Business after the date
hereof on substantially the same basis as presently operated, such licenses and
permits are in full force and effect, the Medical Group has not received any
notice indicating that any violations are or have been recorded in respect of
any thereof, and no proceeding is pending or, to the best knowledge of the
Medical Group, threatened to revoke or limit any thereof. To the best knowledge
of the Medical Group, none of such licenses and permits shall be affected in any
material respect by the transactions contemplated hereby. To the best knowledge
of the Medical Group, neither the Medical Group nor any of the Medical Personnel
employed by the Medical Group is now or in the last four years has been the
subject of or involved in any investigation by any Federal, state or local
regulatory agency related to its or his Medicare, Medicaid or other third party
payor billing practices.
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6.10. Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 6.10, all of the accounts receivable
owing to the Medical Group in connection with the Medical Business as of the
date hereof constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of the Medical Business, the amounts of
which are actually due and owing, and as of the date hereof, to the best
knowledge of the Medical Group, there are no claims, refusals to pay or other
rights of set-off against any thereof. Except as set forth on Schedule 6.10, as
of the date hereof, there is no account receivable or note receivable of the
Medical Business pledged to any third party. The Medical Group has, within 15
days prior to the Commencement Date, provided the Management Company with an
accounts receivable aging report that is true and complete as of the date given
to the Management Company.
(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
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for any excise taxes pursuant to Section 4980B of the Code or to any of the
Employees for severance pay or any other payments; (c) there is no unfair labor
practice complaint against the Medical Group or in connection with the Medical
Business pending before the National Labor Relations Board or any comparable
state, local or foreign agency; (d) there is no labor strike, dispute, slowdown
or stoppage actually pending or, to the best knowledge of the Medical Group,
threatened against or involving the Medical Group or Medical Business; (e) there
is no collective bargaining agreement covering any of the Employees; and (f) to
the best knowledge of the Medical Group, no Employee or consultant is in
violation of any (i) employment agreement, arrangement or policy between such
person and any previous employer (private or governmental) or (ii) agreement
restricting or prohibiting the use of any information or materials used or being
used by such person in connection with such person's employment by or
association with the Medical Group or the Medical Business.
6.12 Employee Benefit Plans.
(a) Schedule 6.12 identifies each 'employee benefit plan', as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other written or oral plans, programs, policies or agreements
involving direct or indirect compensation (including any employment agreements
entered into between the Medical Group or the Medical Business and any Employee
or former employee of the Medical Group or in connection with the Medical
Business, but excluding workers' compensation, unemployment compensation and
other government-mandated programs) currently or previously maintained or
entered into by the Medical Group or in connection with the Medical Business for
the benefit of any Employee or former employee of the Medical Group or in
connection with the Medical Business under which the Medical Group, any
affiliate thereof or the Medical Business has any present or future obligation
or liability (the "Employee Plans"). The Medical
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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.
(c) Except as set forth on the Schedule 6.12; (i) each Employee Plan has
been operated and administered in compliance with ERISA, the Code and in
accordance with the provisions of all other applicable Federal and state laws;
(ii) all reporting and disclosure obligations imposed under ERISA and the Code
have been satisfied with respect to each Employee Plan; (iii) no breaches of
fiduciary duty or prohibited transactions have occurred with respect to any
Employee Plan; and (iv) all reporting, disclosure and bonding obligations have
been satisfied with respect to each Employee Plan.
(d) The Medical Group has made available to the Management Company a true
and complete copy of each Employee Plan and a true and complete copy of each of
the following documents, prepared in connection with such Employee Plan; (i)
each trust or other funding arrangement, (ii) the two most recently filed Annual
Reports (Form 5500), including attachments, for each Employee Plan, and (iii)
the most recently received IRS determination letter.
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6.13. Insurance.
Schedule 6.13 contains a list of all policies of professional liability
(medical malpractice), general liability, theft, fidelity, fire, product
liability, errors and omissions, health and other property and casualty forms of
insurance held by the Medical Group covering the assets, properties or
operations of the Medical Group and the Medical Business (specifying the
insurer, amount of coverage, type of insurance, policy number and any pending
claims thereunder). All such policies of insurance are valid and enforceable
policies and are outstanding and duly in force and all premiums with respect
thereto are currently paid. Neither the Medical Group nor its predecessor in
interest has, during the last five fiscal years, been denied or had revoked or
rescinded any policy of insurance relating to the assets, properties or
operations of the Medical Group or the Medical Business.
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.
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6.15. Burdensome Restrictions.
Except as set forth on Schedule 6.15, neither the Medical Group nor the
Medical Business is bound by any oral or written agreement or contract which by
its terms prohibits or restricts it from conducting the Medical Group or the
Medical Business (or any material part thereof).
6.16. Disclosure.
Neither the Medical Group Transaction Documents (including the Exhibits and
Schedules attached thereto) nor any other document, certificate or written
statement furnished to the Management Company by or on behalf of the Medical
Group in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
Except as set forth on Schedule 6.16, there have been no events or transactions,
or information which has come to the attention of the Medical Group, which, as
they relate directly to the Medical Group or the Medical Business, could
reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Medical Group and the Medical
Business.
SECTION 7. Representations and Warranties of the Management Company
The Management Company represents and warrants to the Medical Group, as of
the Signature Date hereof, as follows:
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
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be conducted, to execute and deliver this Agreement and each of the Asset
Purchase Agreement, the Restricted Stock Agreements (as hereinafter defined),
the Assignments of Lease, and the Stockholder Non-Competition Agreements (as
hereinafter defined) (collectively, the "Management Company Transaction
Documents"), to perform its obligations hereunder and thereunder, and to
consummate the transactions contemplated hereby and thereby. The Management
Company has delivered to the Medical Group a true and correct copy of its
formation documents, consisting of (i) the Amended and Restated Certificate of
Incorporation filed January 22, 1997, as amended by that certain Certificate of
Amendment dated as of March 12, 1997, and (ii) the By-Laws (the "BMJ Formation
Documents"). The BMJ Formation Documents have not been amended, and the BMJ
Formation Documents are in effect as of the date hereof.
7.2. Equity Investments.
Except as identified in Schedule 7.2, the Management Company currently has
no subsidiaries, nor does the Management Company currently own any capital stock
or other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
7.3. Capitalization.
(a) The total authorized capital of the Management Company consists of
15,000,000 shares of common stock and 6,685,000 shares of preferred stock. Set
forth in Schedule 7.3(a) is an accurate and complete listing of all of the
stockholders of the Management Company and the number and class of shares held
by each. Except as set forth in Schedule 7.3(a), the Management Company has no
other outstanding stock or securities of any kind or nature, and no shares of
capital stock are held by the Management Company in its treasury. Each of the
outstanding shares of capital stock has been duly and validly
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authorized and issued, is fully paid and non-assessable, and was issued in
compliance with all applicable Federal and state securities laws. Except as set
forth in the Second Amended and Restated Stockholders Agreement dated as of
November 22, 1996, no person is entitled to any preemptive or similar right with
respect to the issuance of any shares of capital stock of the Management
Company.
(b) No sale of common stock has been effected or any other action taken the
effect of which sale or other action would require or permit an adjustment of
the conversion price of any issued and outstanding convertible preferred stock.
The exercise of the right of any holder of convertible preferred stock to
convert such stock to common stock on or as of the Commencement Date hereunder
would entitle such holder of preferred stock to receive one share of common
stock for each share of preferred stock.
(c) There are no outstanding warrants, options, calls, conversion rights or
commitments or other rights to subscribe for or purchase from the Management
Company any shares of capital stock of the Management Company or securities
convertible into or exchangeable for capital stock, except as set forth in
Schedule 7.3(c).
(d) The Management Company has taken all action necessary or appropriate to
duly authorize the creation, issuance and sale of the common stock to be issued
hereunder. Such shares of common stock, when issued, sold and delivered, as
provided for herein and in the Restricted Stock Agreements, will be validly
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership of the shares. The issuance of such shares of common stock will
not violate any preemptive or similar right of any person.
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7.4. Authority.
The execution, delivery and performance of this Agreement and the other
Management Company Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Management
Company. This Agreement and each Management Company Transaction Document to
which it is a party has been duly and validly executed and delivered by the
Management Company, and this Agreement and each such Management Company
Transaction Document is the valid and binding obligation of the Management
Company, enforceable in accordance with its respective terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally. Neither
the execution, delivery or performance of this Agreement or any other Management
Company Transaction Document, nor the consummation by the Management Company of
the transactions contemplated hereby or thereby, nor compliance by the
Management Company with any provision hereof or thereof, will (a) conflict with
or result in a breach of any provisions of the BMJ Formation 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 material note, bond, lease, mortgage, indenture,
license or other instrument, obligation or agreement to which the Management
Company is a party or by which it or any of its properties or assets is or may
be bound or (c) violate any law, statute, rule or regulation or order, writ,
judgment, injunction or decree of any court, administrative agency or
governmental body applicable to the Management Company or any of its properties
or assets. Except as provided in Schedule 7.4, 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
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performance by the Management Company of this Agreement or the consummation by
the Management Company of the transactions contemplated hereby.
7.5. Financial Information.
Schedule 7.5 contains (a) the unaudited statements of assets, liabilities
and stockholders' equity of the Management Business at March 31, 1997 (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.
7.6 Absence of Undisclosed Liabilities.
Except as set forth on Schedule 7.6, 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.
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7.7. Absence of Changes.
Except as set forth on Schedule 7.7, 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);
(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
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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;
(k) any agreement or commitment relating to the sale of any material fixed
assets of the Management Business;
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(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.
7.8. Tax Matters.
(a) Except as set forth on Schedule 7.8, (i) all Taxes relating to the
Management Business required to be paid through the date hereof have been paid
and all returns, declarations of estimated Tax, Tax reports, information returns
and statements required to be filed in connection with the Management Business
prior to the date hereof (other than those for which extensions shall have been
granted prior to the date hereof) relating to any Taxes with respect to any
income, properties or operations of the Management Company prior to the date
hereof (collectively, "Management Company Returns") have been duly filed; (ii)
as of the time of filing, the Management Company Returns correctly reflected in
all material respects (and, as to any Management Company Returns not filed as of
the date hereof, will correctly reflect in all material respects) the facts
regarding the income, business, assets, operations, activities and status of the
Management Business and any other information required to be shown therein;
(iii) all Taxes relating to the operations of the Management Business that have
been shown as due and payable on the Management Company Returns have been timely
paid and filed or adequate provisions made to the books and records of the
Management Business; (iv) in connection with the Management Business (x) the
Management Company has made provision on the Management Company Balance Sheet
for all Taxes payable for any periods that end on or before the Management
Company Balance Sheet Date for which no Management Company Returns have yet been
filed and for any periods that begin on or before the Management Company Balance
Sheet Date and end after the Management Company Balance Sheet Date to the extent
such Taxes are attributable to the portion of any such period ending on the
Management Company Balance Sheet Date and (y) provision has been made for all
Taxes payable for any periods that end on or before the date hereof for which no
Management Company Returns have then been filed and for any periods that
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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.
7.9 Litigation, Etc.
Except as set forth on Schedule 7.9, 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
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assets or affecting the Management Business. The Management Company has
delivered to the Medical Group all documents and correspondence relating to
matters referred to in said Schedule 7.9.
7.10. Compliance; Governmental Authorizations.
The Management Company and the Management Business shall have complied in
all material respects with all applicable material Federal, state, local or
foreign laws, ordinances, regulations and orders. The Management Company has all
Federal, state, local and foreign governmental licenses and permits necessary in
the conduct of the Management Business, the lack of which would have a material
adverse effect on the Management Company's ability to operate the Management
Business after the date hereof on substantially the same basis as presently
operated, such licenses and permits are in full force and effect, the Management
Company has not received any notice indicating that any violations are or have
been recorded in respect of any thereof, and no proceeding is pending or, to the
best knowledge of the Management Company, threatened to revoke or limit any
thereof. To the best knowledge of the Management Company, none of such licenses
and permits shall be affected in any material respect by the transactions
contemplated hereby.
7.11. Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 7.11, all of the accounts receivable
owing to the Management Company in connection with the Management Business as of
the date hereof constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of the Management Business, the amounts of
which are actually due and owing, and as of the date hereof, to the best
knowledge of the Management Company, there are no claims, refusals to pay or
other rights of set-off against any thereof. Except as set forth on Schedule
7.11, as of
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the date hereof, there is no account receivable or note receivable of the
Management Business pledged to any third party.
(b) All accounts payable and notes payable by the Management Business to
third parties arose in the ordinary course of business and, except as set forth
in Schedule 7.11, there is no account payable or note payable past due or
delinquent in its payment.
7.12. Labor Relations; Employees.
Except as set forth on Schedule 7.12, (a) the Management Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them to
the date hereof or amounts required to be reimbursed to the Management Company
Employees; (b) upon termination of the employment of any of the Management
Company's employees, neither the Management Company nor the Medical Group will,
by reason of anything done prior to the date hereof, or by reason of the
consummation of the transactions contemplated hereby, be liable for any excise
taxes pursuant to Section 4980B of the Code or to any of the employees of the
Management Company for severance pay or any other payments; (c) there is no
unfair labor practice complaint against the Management Company or in connection
with the Management Business pending before the National Labor Relations Board
or any comparable state, local or foreign agency; (d) there is no labor strike,
dispute, slowdown or stoppage actually pending or, to the best knowledge of the
Management Company, threatened against or involving the Management Company or
Management Business; (e) there is no collective bargaining agreement covering
any of the Management Company Employees; and (f) to the best knowledge of the
Management Company, none of its employees or consultants 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
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use of any information or materials used or being used by such person in
connection with such person's employment by or association with the Management
Company or the Management Business.
7.13. Employee Benefit Plans.
(a) Schedule 7.13 identifies each `employee benefit plan', as defined in
Section 3(3) of ERISA, and all other written or oral plans, programs, policies
or agreements involving direct or indirect compensation (including any
employment agreements entered into between the Management Company and any
employee or former employee of the Management Company or in connection with the
Management Business, but excluding workers' compensation, unemployment
compensation and other government-mandated programs) currently or previously
maintained or entered into by the Management Company or in connection with the
Management Business for the benefit of any employee or former employee of the
Management Company or in connection with the Management Business under which the
Management Company, any affiliate thereof or the Management Business has any
present or future obligation or liability.
(b) Schedule 7.13 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits currently
maintained by the Management Company or in connection with the Management
Business.
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7.14 Insurance.
Schedule 7.14 contains a list of all policies of liability, theft,
fidelity, fire, product liability, errors and omissions, health and other
property and casualty forms of insurance held by the Management Company covering
the assets, properties or operations of the Management Company and the
Management Business (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims thereunder). All such policies
of insurance are valid and enforceable policies and are outstanding and duly in
force and all premiums with respect thereto are currently paid. The Management
Company has not since its incorporation, 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.
7.15. Real Property.
Schedule 7.15 sets forth an accurate and complete legal description of the
entire right, title and interest of the Management Company in and to all real
property, together with all buildings, facilities, fixtures and improvements
located on such real property, owned or leased by the Management Company (the
"Management Company Real Property"), together with an accurate description of
the title insurance policy or other evidence of title issued with respect
thereto, the most current survey of such real property and a description of the
use thereof. Other than the Management Company Real Property, the Management
Company has no other interest (leasehold or otherwise) in real property used,
held for use or intended to be used in the Management Business. The Management
Company has a valid leasehold interest in all Management Company Real Property
leased by the Management Company.
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7.16 Burdensome Restrictions.
Except as set forth on Schedule 7.16, neither the Management Company nor
the Management Business is bound by any oral or written agreement or contract
which by its terms prohibits it from conducting the Management Company or the
Management Business (or any material part thereof).
7.17. Disclosure.
Neither the Management Company Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document, certificate or
written statement furnished to the Medical Group by or on behalf of the
Management Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein not
misleading. Except as set forth on Schedule 7.17, there have been no events or
transactions, or information which has come to the attention of the Management
Company, which, as they relate directly to the Management Company or the
Management Business, could reasonably be expected to have a material adverse
effect on the business, operations, affairs, prospects or condition of the
Management Company and the Management Business.
SECTION 8. Operations Committee.
8.1. Formation and Operation of the Operations Committee.
The Management Company and the Medical Group shall establish a committee
(the "Operations Committee") responsible for directing the Management Company in
connection with the development of certain specific management and
administrative policies for the overall operation of the Medical Group. The
Operations Committee shall consist of six (6) members. The Medical Group shall
designate three (3) members of the Operations
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Committee, each of whom shall be a physician in the Medical Group, and the
Management Company shall designate three (3) members of the Operations
Committee. The business of the Operations Committee shall be conducted in
accordance with the policies and procedures described in Section 8.4 hereof.
8.2. Authoritative Functions of the Operations Committee.
The Operations Committee shall perform the following functions, and the
decisions of the Operations Committee with respect to such functions shall be
binding on the Management Company and the Medical Group:
(a) Approve the annual budgets for:
(i) Xxxxxxxx and Collections;
(ii) Medical Group Costs;
(iii) Capital expenditures to be made by the Management Company in
fulfillment of its obligations hereunder;
(iv) 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).
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(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 3.11 hereof, and approve the renovation and
expansion of any offices of the Medical Group ("Tenant Improvements");
provided, however, that the approval of the Management Company also
shall be required prior to (i) the acquisition of any Medical
Equipment or FF&E (including any Medical Equipment or FF&E relating to
the integration of new technologies into the professional practice of
the Medical Group) if and to the extent that the aggregate cost of
such items in any calendar year exceeds five percent (5%)
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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.
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.
(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
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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 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,
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the Vice Chairman shall preside. The only powers of the Chairman and the Vice
Chairman that differ from those of the other members of the Operations Committee
shall be to call and preside over meetings in accordance with this Section 8.4.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to time
determine. A meeting of the Operations Committee also may be called by at least
two (2) members of the Operations Committee or by the Chairman or Vice Chairman
thereof upon at least three (3) days' written notice to the other members of the
Operations Committee. Such notice requirement shall be deemed waived with
respect to any member of the Operations Committee who attends such meeting.
Meetings may be held in person or by telephone. The Operations Committee also
may act by written consent as provided in Section 8.4(c). Minutes shall be kept
of all formal actions taken by the Operations Committee.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of four (4) or more members of the Operations Committee
present or represented by proxy at the applicable meeting. A quorum of the
Operations Committee shall be four (4) members, in person, by telephone, or by
proxy, and a quorum must remain for the duration of the meeting. The Operations
Committee may establish such procedures to act by written consent, without a
meeting, as the Operations Committee determines are advisable, provided that all
six (6) members (in person or by proxy) must sign any written consent.
SECTION 9. Obligations of the Medical Group.
The Medical Group shall have 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 those ethical standards, laws and regulations to
which they are subject. The Medical Group shall verify, with the assistance of
the Management Company, that each physician and other Medical Personnel
associated with the Medical Group for the purpose of providing medical care to
patients of the Medical Group is licensed by the State of Florida. The Medical
Group shall monitor the quality of medical care practiced by physicians and
other health care personnel associated with the Medical Group. In the event that
any disciplinary actions or medical malpractice actions are initiated against
any such physician by any payor, patient, state or Federal regulatory agency or
any other person or entity, the Medical Group shall immediately inform the
Management Company of such action and its underlying facts and circumstances.
9.2. Use of Facility.
The Medical Group shall use and occupy any Facility (as defined below)
exclusively for the practice of medicine, and shall comply with all applicable
Federal, state and local rules, ordinances and standards of medical care. The
medical practice or practices conducted at any Facility described in clause (i)
of the definition of the term "Facility" shall be conducted solely by Medical
Personnel associated with the Medical Group, and no other physician or medical
practitioner shall be permitted to use or occupy any Facility described in
clause (i) below without the prior written consent of the Management Company,
which consent shall not be unreasonably withheld or delayed. The term "Facility"
shall mean (i) any medical facility or laboratory controlled, managed or
operated by the Management Company or (ii) any hospital at which any Medical
Personnel practices medicine or maintains admitting privileges.
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9.3. Choice of Braces, Splints, Appliances, Medical Supplies, and
Allografts.
The Medical Group shall have the exclusive control over the choice of
vendors and products utilized with respect to all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, medical supplies and
allografts.
9.4. Choice of Radiologists, Anesthesiologists, Hospitals, Physical
Therapy, MRI, and Other Medical Professionals and Facilities.
The Medical Group shall have exclusive control over the choice of specific
physicians and facilities to be utilized by the Medical Group with respect to
radiology, anesthesiology, hospitals, physical therapy, MRI, and other medical
professionals and facilities; provided, however, that the foregoing shall not be
considered New Ancillary Services or New Medical Offices, as the case may be,
unless the parties have agreed thereto in accordance with Section 3.4(b) or
3.2(b), as the case may be.
9.5. Insurability.
The Medical Group shall cooperate with the Management Company in (i)
ensuring that its Medical Personnel are insurable under commercially available
malpractice insurance policies or (ii) instituting proceedings to terminate
within thirty business days any Medical Personnel who is not so insurable or who
loses his or her malpractice insurance eligibility unless the Medical Group
makes (within such 30-day period) other arrangements reasonably appropriate
under the circumstances and reasonably acceptable to the Management Company. The
Medical Group shall notify the Management Company in writing of any change in
the insurance status of any Medical Personnel within two days after 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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9.6. Medicare.
The Medical Group shall cause all physicians to be participating providers
and accept assignment under Medicare.
9.7. Accounts Receivable; Billing.
From the Commencement Date, the Medical Group acknowledges and agrees that
all accounts receivable of the Medical Group or its Medical Personnel shall be
the property of the Management Company hereunder and the Medical Group and the
Medical Personnel hereby transfer and assign all of their right, title and
interest to such accounts receivable to the Management Company; provided,
however, that the right to payment of Medicaid and Medicare receivables shall
remain with the Medical Group in accordance with applicable Federal law. The
Medical Group's Medical Personnel shall be responsible for providing the
appropriate current CPT4 coding with respect to the fee tickets prepared by such
Medical Personnel.
9.8. Medical Personnel Hiring.
The Medical Group shall have the ultimate control over and responsibility
for the hiring, compensation, supervision, evaluation and termination of its
Medical Personnel; provided, however, that at the request of the Medical Group,
the Management Company shall consult with the Medical Group regarding such
matters.
9.9. Continuing Education.
The Medical Group and its Medical Personnel shall be solely responsible for
ongoing membership in professional 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
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physician or professional to remain current in his or her field of medical
practice.
9.10. Clinical Research.
The Medical Group shall have the ultimate control over and responsibility
for any clinical research program pertaining to patients of the Medical Group.
This shall include but not be limited to research personnel interviewing,
hiring, termination, compensation, day-to-day supervision, and assignment of
responsibilities and projects. However, the Medical Group will cooperate with
and take direction from the Management Company in its nationwide efforts to
provide an effective disease management information system and outcome studies
programs.
9.11. Sales of Stock.
The Eligible Parties shall give to Xxxxxx Xxxxxx, M.D. and each venture
capital firm providing funds to the Management Company and executing this
Agreement the right to participate on a pro rata basis (based on the number of
shares, whether preferred or common, calculated on an as-converted basis, held
by Xxxxxx Xxxxxx, M.D. and any such venture capital firm and by any other
stockholders who hold the same rights that are conferred by this Section 9.11,
including members of other physician groups) in any proposed sale of more than
fifty percent (50%) of the stock in the Management Company held by the Eligible
Parties to any unaffiliated third party or parties, and the Medical Group shall
require the Eligible Parties to comply with the obligations set forth in this
Section 9.11; provided, however, that the obligations under this Section 9.11
shall become null and void upon the consummation of an initial public offering
of the Management Company's common stock.
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SECTION 10. Certain Covenants.
10.1. Change of Control.
During the Term of this Agreement, the Medical Group shall not enter into
any single transaction (or group of related transactions undertaken pursuant to
a common plan) involving the admission of new partners, transfer of partnership
interests, or reorganization or restructuring of the Medical Group, if in any
such case the effect would be to transfer a majority of the ownership interest
in the Medical Group, without the prior written consent of the Management
Company, which consent shall not be unreasonably withheld or delayed.
10.2. Legend on Securities.
During the Term of this Agreement, any certificate or similar evidence
representing an equity interest in the Medical Group issued by the Medical Group
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY" LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
ADDITIONALLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT SERVICES AGREEMENT
EFFECTIVE AS OF APRIL 1, 1997, BETWEEN LAUDERDALE ORTHOPAEDIC SURGEONS, A
FLORIDA PARTNERSHIP, AND BONE, MUSCLE AND JOINT, INC., A DELAWARE
CORPORATION."
The Management Company acknowledges that there is no certificate or other
similar evidence representing equity interests in the Medical Group as of the
Signature Date hereof. Nothing herein shall be construed as requiring the
Medical Group to issue any
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certificate or other evidence representing an equity interest in the Medical
Group.
SECTION 11. Records.
11.1. Medical Records.
Upon termination of this Agreement, the Medical Group shall retain all
patient medical records maintained by the Medical Group or the Management
Company in the name of the Medical Group.
11.2 Management Business Records.
All books and records relating in any way to the operation of the
Management Business which are not patient medical records shall at all times be
the property of the Management Company. The Management Company shall maintain
custody of such records, and the Medical Group shall, upon its written request,
be entitled to copies of any such records relating to the Management Services
performed by the Management Company.
11.3. Access to Records Following Termination.
Following the termination of this Agreement, the Medical Group shall grant
(to the extent permitted by law) to the Management Company, for the purpose of
preparing for any actual or anticipated legal proceeding or for any other
reasonable purpose, reasonable access (which shall include making photocopies)
to the patient medical records described in Section 11.1 hereof and any other
pertinent information regarding the Medical Group during the Term. Prior to
accessing such patient medical records, the Management Company shall obtain any
required patient authorization.
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Following the termination of this Agreement, the Management Company shall
provide to the Medical Group, promptly upon the Medical Group's written request,
photocopies of the Management Business records described in Section 11.2 hereof,
and shall grant to the Medical Group, for the purpose of preparing for any
actual or anticipated legal proceeding or for any other reasonable purpose, any
other pertinent information regarding the Management Company during the Term.
SECTION 12. Insurance and Indemnity.
12.1 Professional Liability Insurance.
During the Term, the Management Company shall, to the extent permitted by
applicable law, procure and maintain for the benefit of itself and the Medical
Group comprehensive professional liability insurance providing for (a) general
liability coverage and (b) medical malpractice coverage with limits of not less
than $250,000 per claim and with aggregate policy limits of not less than
$750,000 covering the Medical Group and each of the Medical Personnel of the
Medical Group (or such higher amounts as may be necessary to comply with any
regulatory requirement and/or contractual requirement to which such Medical
Personnel or the Medical Group may be subject), including coverage for claims
made after the Commencement Date relating to events or occurrences at any time
prior thereto. The parties hereto acknowledge that the Management Company is
procuring the malpractice insurance referenced herein to ensure that the
Management Company has protection in the event it is sued as a result of an act
or omission of an employee of the Medical Group. The Management Company shall
pay the premiums for such general and medical malpractice liability coverage,
and the Management Company shall be designated as a co-beneficiary under such
insurance policies.
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12.2 Life Insurance; Business Interruption.
The Management Company shall obtain a $500,000 life insurance policy for
each duly licensed physician partner in the Medical Group. The Management
Company shall also obtain business interruption insurance for each Medical
Office in amounts to be mutually agreed upon by the parties. The Management
Company and the Medical Group shall be designated as the beneficiaries under
each of the aforementioned policies and shall each receive fifty percent of any
proceeds resulting from an insurable event thereunder; provided that until such
time as the Management Company is no longer entitled to receive the Guaranteed
Minimum Fee, the Management Company shall forward to the Medical Group the total
amount of any such proceeds received by the Management Company. The premiums for
such policies shall be paid equally by the Management Company and the Medical
Group, provided that the Medical Group's share of the aggregate amount of such
premiums shall not exceed $5,000 in the first year of the Term and in any year
thereafter shall not be in excess of the amount determined by taking the sum of
(a) the then current amount of the Medical Group's share, plus (b) the product
determined by multiplying the then current amount of the Medical Group's share
by the percentage by which the CPI in effect in the last month of such year
exceeds the CPI in the same month for the immediately prior year. As used
herein, "CPI" means the Consumer Price Index for Urban Wage Earners and Clerical
Workers, All Items, for Miami-Fort Lauderdale, Florida, published by the Bureau
of Labor Statistics of the U.S. Department of Labor with a 1982-84 = 100 base;
provided, however, that if such index (or an index substituted therefor as
hereinafter provided) shall cease to be published, then for purposes of this
Agreement there shall be substituted for such index another index of a similar
kind published by a governmental or other nonpartisan organization, as may be
mutually agreed upon by the Management Company and the Medical Group.
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12.3 Indemnification by Medical Group.
The Medical Group shall indemnify, hold harmless and defend the Management
Company, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of (i) the
performance of Medical Group Services, including without limitation the
performance of such services prior to the Commencement Date, (ii) any other acts
or omissions of the Medical Group and its Medical Personnel, including without
limitation any such acts or omissions that occurred prior to the Commencement
Date, or (iii) any breach of or failure to perform any obligation under this
Agreement or the Transaction Documents by the Medical Group and/or the Medical
Personnel and/or their respective agents and/or subcontractors (other than the
Management Company) during the Term.
12.4 Indemnification by Management Company.
The Management Company shall indemnify, hold harmless and defend the
Medical Group, its partners, members, employees, agents and independent
contractors from and against any and all liabilities, losses, damages, claims,
causes of action and expenses (including reasonable attorneys' fees and
expenses), whether or not covered by insurance, caused or asserted to have been
caused, directly or indirectly, by or as a result of (i) the performance of
Management Services, (ii) any other acts or omissions of the Management Company
and its employees or (iii) any breach of or failure to perform any obligation
under this Agreement or the Transaction Documents by the Management Company
and/or its agents, employees and/or subcontractors (other than the Medical
Group) during the Term.
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SECTION 13. Termination.
13.1. Termination by Medical Group.
The Medical Group may terminate this Agreement effective immediately by
giving written notice of termination to the Management Company (a) in the event
of the filing of a petition in voluntary bankruptcy or an assignment for the
benefit of creditors by the Management Company or upon other action taken or
suffered, voluntarily or involuntarily, under any Federal or state law for the
benefit of debtors by the Management Company, except for the filing of a
petition in involuntary bankruptcy against the Management Company which is
dismissed within ninety (90) days thereafter (a "Bankruptcy Event"), (b) in the
event the Management Company shall default in any material respect in the
performance of any duty or obligation imposed upon it by this Agreement and the
Management Company shall not have taken reasonable action commencing curing of
such default within thirty (30) days after written notice thereof has been given
to the Management Company by the Medical Group or the Management Company does
not thereafter diligently prosecute such action to completion; provided,
however, that the Management Company shall have only 10 days after written
notice to cure a default arising as a result of its failure to pay the Monthly
Draw pursuant to Section 5.3(a) or any other monetary obligation owed to the
Medical Group hereunder, (c) in the event that any of the representations and
warranties made by the Management Company in Section 7 is untrue or misleading
in any material respect, provided that the Medical Group shall have previously
given written notice to the Management Company describing in reasonable detail
the nature of the item in question and the Management Company shall not have
cured such matter within thirty (30) days of such notice, (d) the Management
Company shall have been sanctioned in writing by the Health Care Finance
Administration for any violation of the Social Security Act, the Health Care
Quality Improvement Act or any similar Federal law in a final,
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nonappealable proceeding and such sanction prevents the Management Company from
fulfilling its obligations hereunder in accordance with all applicable law, or
(e) in the event Xxxxxx Xxxxxx, M.D., ceases to be and act on a full-time basis
as the Chief Executive Officer of the Management Company at all times prior to
the initial public offering of the common stock of the Management Company,
provided that the Medical Group shall give the Management Company at least
ninety (90) days prior written notice of its intention to terminate this
Agreement pursuant to this Section 13.1(e).
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; provided, however, that the Medical Group
shall have only 10 days after written notice to cure a default arising as a
result of its failure to pay any monetary obligation owed to the Management
Company hereunder, (c) in the event that any of the representations and
warranties made by the Medical Group in Section 6 is untrue or misleading in any
material respect, provided that the Management Company shall have previously
given written notice to the Medical Group describing in reasonable detail the
nature of the item in question and the Medical Group shall not have cured such
matter within thirty (30) days of such notice, or (d) in the event the Medical
Group is excluded from the Medicaid or Medicare program for any reason.
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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 29 of this Agreement.
13.4 Effect of Termination.
(a) Upon the termination of this Agreement in accordance with the terms
hereof, neither party hereto shall have any further obligation or liability to
the other party hereunder, except as provided in Sections 3.15(c), 5.3(b) (as
modified by Section 13.4(b) below), 13.5 and 28 hereof, and except to pay in
full and satisfy any and all outstanding obligations of the parties accruing
through the effective date of termination.
(b) Upon the termination of this Agreement, the Annual Medical Group
Compensation Amount described in Section 5.3(b) shall be calculated on or before
the end of the fourth month following the termination date, rather than on or
before 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. All Collections during the three-month
period following termination shall be credited to the Management Company in
accordance with Section 3.19 and all Collections thereafter shall belong to the
Medical Group. Any payment required under the terms of Section 5.3(b)(ii) shall
be made within fifteen (15) days after the date by which the foregoing
calculation is to be made, rather than on May 15.
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13.5. Repurchase of Assets.
Promptly following termination of this Agreement for any reason, the
Management Company shall sell, transfer, convey, and assign to the Medical
Group, and the Medical Group shall purchase, assume, and accept from the
Management Company, at such price and upon such terms as may be agreed upon by
the parties -- or, if the parties are unable to agree, at fair market value,
determined in the manner set forth below -- all of the following items which are
used in connection with the professional practice and related activities of the
Medical Group and which, in the case of items (a), (b), (c) and (d) below, are
physically located in any of the offices of the Medical Group, subject to any
required consent from any third party having an interest therein, but otherwise
free and clear of any liens, claims or encumbrances; provided that any leased
equipment or property shall be assigned to the Medical Group subject to the
applicable lease agreement and any liens granted thereunder:
(a) the Medical Equipment owned by the Management Company;
(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
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accruing thereunder after the date of termination of this Agreement;
and
(f) the deposits of the Management Company relating to the Medical Group.
Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected shall
select a third appraiser. All of the appraisers shall appraise the assets, and
for purposes of determining the purchase price, the highest and lowest
appraisals shall be disregarded, and the remaining appraisal shall be used.
Notwithstanding anything contained herein to the contrary, the consideration
payable by the Medical Group to the Management Company under this Section 13.5
shall be reduced by the aggregate amount, if any, payable by the Management
Company to the Stockholders (as such term is defined in the Restricted Stock
Agreements).
SECTION 14. Rescission.
14.1 Rescission By Medical Group.
(a) In the event that the Management Company has not consummated an initial
public offering of its Common Stock under the Securities Act of 1933, as
amended, by December 29, 1997, the Medical Group may, in its sole discretion at
any time during the period beginning December 31, 1997 and ending February 28,
1998 (such period being referred to herein as the "Rescission Period"), rescind
(the "Rescission Option") this Agreement and disengage itself from its
obligations under this Agreement. The Medical Group may exercise its Rescission
Option during the Rescission Period by giving 30 days' prior written notice (the
"Rescission Notice") to the Management Company and by complying with the other
provisions contained in this Section 14.1. The
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effective date (the "Rescission Effective Date") of the rescission shall be the
date of such Rescission Notice.
(b) Effect of Rescission. In the event that the Medical Group exercises its
Rescission Option pursuant to this Section 14.1, the procedures set forth in
Section 13.4 of this Agreement shall apply.
(c) Repurchase of Assets. Within 30 days following the Rescission Effective
Date the Management Company shall, subject to the prior receipt of any required
landlord and third party consents, transfer, convey and assign to the Medical
Group, and the Medical Group shall assume and accept from the Management Company
the property described in Section 13.5 hereof.
(d) Repayment of Consideration. On or before the Rescission Effective Date,
the Medical Group shall deliver to the Management Company the cash consideration
received by the Medical Group from the Management Company pursuant to this
Agreement and the Asset Purchase Agreement less the aggregate amount of the
Management Fees paid to the Management Company hereunder; provided, however,
that the portion of such consideration attributed to the A/R Amount (as defined
in the Asset Purchase Agreement), as adjusted pursuant to Section 2.3 thereof,
shall not be returned to the Management Company.
(e) Stock of Management Company. The Medical Group shall cause each
physician receiving capital stock of the Management Company as of the date
hereof to, and each such physician shall, return and deliver to the Management
Company the stock certificates representing shares of common stock of the
Management Company issued to each such physician pursuant to a restricted stock
agreement (each, a "Restricted Stock Agreement"), substantially in the form
attached hereto as Exhibit C. In the event any portion of such shares shall have
been previously transferred by any such physician, any transferee of such
physician shall, and the physician shall cause such
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transferee to, deliver the certificate(s) representing such shares to the
Management Company. Certificates delivered pursuant to this Section 14.1(e)
shall be duly endorsed for transfer to the Management Company.
14.2 Waiver of Rescission Option.
Notwithstanding anything contained herein to the contrary, the parties
hereto expressly agree and acknowledge that if the Medical Group shall fail to
deliver the notice of rescission referenced in Section 14.1(a) hereof prior to
the end of the Rescission Period, then the Medical Group shall be deemed to have
expressly and irrevocably waived its right to rescind this Agreement and to
disengage itself from its obligations hereunder.
14.3. Discontinuation of Management Fees
The parties hereto acknowledge that in the event this Agreement is
rescinded pursuant to the provisions of Article 14 hereof, the Management
Company shall not be entitled to any Management Fees otherwise payable hereunder
for Medical Services provided by the Medical Group from the date on which the
Rescission Notice is delivered through and including the Rescission Effective
Date.
14.4 Disengagement of Individual Member.
(a) In the event that, during the Rescission Period, any Eligible Party
terminates his affiliation with the Medical Group (such person being referred to
herein as a "Disengaging Member"), such Disengaging Member shall return to the
Management Group the stock certificate(s) issued to such Disengaging Member
pursuant to a Restricted Stock Agreement, and the Management Company shall, upon
notice from such Disengaging Member, return to the Disengaging Member the
consideration paid by such Disengaging Member for the shares of common stock
underlying such stock certificate(s). In the event that any
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portion of such shares shall have been previously transferred by such
Disengaging Member, any transferee of such Disengaging Member shall, and the
Disengaging Member shall cause such transferee to, deliver the certificate(s)
representing such shares to the Management Company. Certificates delivered
pursuant to this Section 14.4(a) shall be duly endorsed for transfer to the
Management Company.
(b) Upon the rescission of this Agreement by a Disengaging Member pursuant
to the provisions of this Section 14.4 such Disengaging Member and the
Management Company shall have no further obligations or liabilities to the other
except as set forth in Section 14.4(a) above. However, the disengagement by the
Disengaging Member shall have no effect upon the continuing rights and
obligations of the Medical Group vis-a-vis the Management Company under the
terms of this Agreement.
SECTION 15. Non-Disclosure of Confidential Information.
15.1. Non-Disclosure.
(a) Neither the Management Company nor the Medical Group, nor their
respective employees, stockholders, consultants or agents shall, at any time
after the execution and delivery hereof, directly or indirectly disclose any
Confidential or Proprietary Information relating to the other party hereto to
any person, firm, corporation, association or other entity, nor shall either
party, or their respective employees, stockholders, consultants or agents make
use of any of such Confidential or Proprietary Information for its or their own
purposes or for the benefit of any person, firm, corporation or other entity
except the parties hereto or any subsidiary or affiliate thereof. The foregoing
obligation shall not apply to any information which a party hereto can establish
to have (a) become publicly known without breach of this Agreement by it or
them, (b) to have been given to such party by a third party who is not obligated
to maintain the confidentiality of such information, or (c) is
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disclosed to a third party with the prior written consent of the other party
hereto. Nothing contained herein shall be construed to prevent any party hereto
from disclosing any Confidential or Proprietary Information of any other party
to its professional advisers for purposes of evaluating, negotiating or
otherwise assisting such party in connection with the transactions contemplated
by this Agreement; provided that such party shall be liable to such other party
for the disclosure by any of its professional advisers of such other party's
Confidential or Proprietary Information, unless such information falls within
one of the categories set forth in clauses (a), (b) or (c) of the preceding
sentence.
(b) For purposes of this Section 15, the term "Confidential or Proprietary
Information" means all information known to a party hereto, or to any of its
employees, stockholders, officers, directors or consultants, which relates to
the Transaction Documents, patient medical and billing records, trade secrets,
books and records, supplies, pricing and cost information, marketing plans,
strategies and forecasts. Nothing contained herein shall prevent a party hereto
from furnishing Confidential or Proprietary Information pursuant to a direct
order of a court of competent jurisdiction.
(c) In the event any physician, representative, agent, employee or employed
professional of the Medical Group discloses to any person or entity the
structure or terms of this transaction, such disclosure shall be deemed a
default under this Agreement and the Management Company shall have the right, to
be exercised in its sole discretion, to terminate this transaction immediately
upon notice thereof to the Medical Group. In the event the Management Company
terminates this Agreement pursuant to the preceding sentence, the terms and
provisions of Sections 14.1(b) through (e) shall apply.
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SECTION 16. Non-Competition.
In consideration of the premises contained herein and the consideration to
be received hereunder, and in consideration of and as an inducement to the
Management Company to consummate the transactions contemplated hereby, the
Medical Group hereby (a) agrees to the Non-Competition covenants attached hereto
as Schedule VIII and (b) agrees to require each of the physicians receiving
capital stock of the Management Company as of the date hereof, and each person
who after the date hereof becomes entitled to receive stock (or options to
receive stock) in the Management Company in connection with his or her
performance of services for the Medical Group, to execute a Stockholder
Non-Competition Agreement substantially in the form attached hereto as Exhibit
D.
SECTION 17. Obligations of the Management Company.
17.1. No Practice of Medicine.
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.
17.2. No Interference with Professional Judgment.
Without in any way limiting Section 17.1 hereof, during the Term, the
Management Company shall not interfere with the exercise of professional
judgment by any physician or other licensed health care professional who is a
partner, employee, or contractor of the Medical Group, nor shall the Management
Company interfere with, control, direct, or supervise any physician or other
licensed health care professional in connection with the provision of Medical
Services. The foregoing shall not preclude the Management Company from assisting
in the development of professional protocols and monitoring compliance with
policies
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and procedures that have been instituted in accordance with this Agreement.
17.3 Physician Advisory Board.
The Management Company is developing an advisory group (the "Physician
Advisory Board") to be comprised of physicians practicing in the State of
Florida. Upon the establishment of the Physician Advisory Board, which is
anticipated to occur on or about October 1, 1997, and in accordance with the
governing documents thereof, the Management Company shall, or shall cause the
Physician Advisory Board to, appoint Xxxxxx Xxxxxxxxxxx, M.D. to serve on the
Physician Advisory Board. The terms of Xx. Xxxxxxxxxxx'x service on such board
shall be set forth in an agreement between Xx. Xxxxxxxxxxx and the Management
Company, which shall provide, among other things, that Xx. Xxxxxxxxxxx'x
appointment shall not be terminated other than by mutual agreement of the
parties or upon termination of this Agreement.
17.4 Budgets.
The Board of Directors of the Management Company shall establish budgets
for the expenses of the Management Company, and the approval of the Board of
Directors shall be required in connection with any expenses in excess of any
such approved budget; provided, however, that following consummation of an
initial public offering of the Company's Common Stock, the responsibility of the
Board of Directors with respect to such budgets shall be exercised in accordance
with the standards applicable to the conduct of business of public companies.
17.5 Stock Held by Certain Individuals or Entities.
Xxxxxx Xxxxxx, M.D. and each venture capital firm providing funds to the
Management Company and executing this Agreement ("Selling Shareholders") shall
give to the Eligible Parties the right to participate on a pro rata basis (based
on
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the number of shares, whether preferred or common, calculated on an as-converted
basis, held by the Eligible Parties and by any other shareholders who hold the
same rights that are conferred by this Section 17.5, including members of other
physician groups) in any proposed sale of stock (whether preferred or common) in
the Management Company from any of the Selling Shareholders to any unaffiliated
third party or parties, and the Management Company shall require the Selling
Shareholders to comply with the obligations set forth in this Section 17.5;
provided, however, that the obligations under this Section 17.5 shall become
null and void upon the consummation of an initial public offering of the
Management Company's Common Stock.
17.6. 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 17.6 shall become
null and void upon the consummation of an initial public offering of the
Management Company's common stock.
SECTION 18. Bahamas Option.
The Medical Group and the Management Company hereby agree that the medical
practice (the "Bahamas Practice") being operated by the Medical Group as of the
date hereof in the Bahamas is not subject to the terms and conditions set forth
in this Agreement. Without limiting the generality of the foregoing, the Medical
Group hereby grants the Management Company an option (the "Bahamas Option") to
manage the Bahamas Practice, which Bahamas Option the Management Company may
exercise by giving notice of its intention to so exercise to the Medical Group
at any time during the period beginning on the first anniversary of the
Commencement Date and ending on May 31, 1998.
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In the event the Management Company exercises the Bahamas Option, it shall be
deemed a part of the Medical Group for all purposes of this Agreement, and the
Medical Group and the Management Company shall use their best efforts to agree,
in a timely manner, on the additional consideration payable to the Medical Group
and the additional fee payable to the Management Company in connection
therewith. The Medical Group and the Management Company shall within 30 days
following the giving of the notice required hereunder, execute and deliver an
amendment to this Agreement, which amendment shall set forth the terms and
conditions agreed upon pursuant to this Section 18. Failure of the parties to
reach agreement as to the terms described above shall not constitute a default
hereunder by either party. The Medical Group may, in its sole discretion at
anytime prior to the Management Company's exercise of the Bahamas Option, cease
the operation of its Bahamas Practice; provided that if the Medical Group or any
of the physician owners of the Medical Group reinitiate the operations of an
orthopedic practice in the Bahamas within 180 days after the Bahamas Practice is
closed, the Medical Group or such physician owners shall grant the Management
Company an option to enter into a management services agreement substantially
similar to this agreement for the provision of management services to such
practice.
SECTION 19 Assignment.
The Management Company shall have the right to assign its rights and
delegate its obligations hereunder to any affiliate and to assign its rights
hereunder to any lending institution from which the Management Company or any
affiliate obtains financing for security purposes or as collateral. Except as
set forth in the preceding sentence, neither the Management Company nor the
Medical Group shall have the right to assign their respective rights and
delegate their respective obligations hereunder without the prior written
consent of the other party; provided, however, that after the consummation of an
initial
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public offering of the Management Company's common stock, the Medical Group's
consent shall not be required in connection with any assignment by the
Management Company arising out of or in connection with a sale of all or
substantially all of the stock or assets of the Management Company or the
merger, consolidation, or reorganization of the Management Company.
SECTION 20. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed sufficient if personally delivered, telecopied
(with original sent by mail), sent by nationally-recognized overnight courier,
or by registered or certified mail, return receipt requested and postage
prepaid, addressed as follows:
If to the Management Company:
Bone, Muscle and Joint, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxx, M.D., President
Telecopier: (000) 000-0000;
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Held, Esq.
Telecopier: (000) 000-0000; and
If to the Medical Group:
Lauderdale Orthopaedic Surgeons
0000 Xxxx Xxxxxxx Xxxxxxxxx
Xxxx Xxxxxxxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxxxxxxx, M.D.
Telecopier: (000) 000-0000;
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with a copy to:
Xxxxxx & Xxxxxx
0000 Xxxx Xxxxxxxx Xxxx Xxxx
Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
Telecopier: (000) 000-0000;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (a) in the case of
personal delivery and telecopier, on the date of such delivery, (b) in the case
of nationally-recognized overnight courier, on the next business day 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 21. Benefits of Agreement.
This Agreement shall bind and inure to the benefit of any successors to or
permitted assigns of the Management Company and the Medical Group.
SECTION Governing Law; Jurisdiction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to the
laws and principles thereof, or of any other jurisdiction, which would direct
the application of the laws of another jurisdiction. The parties to this
Agreement agree that jurisdiction and venue in any action brought by any party
hereto pursuant to this Agreement may lie in any Federal or state court located
in Broward County, Florida or the Southern District of Florida. By execution and
delivery of this Agreement, the parties hereto irrevocably submit to the
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
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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 23. Headings.
Section headings are used for convenience only and shall in no way affect
the construction of this Agreement.
SECTION 24. Entire Agreement; Amendments.
This Agreement and the exhibits and schedules hereto contain the entire
understanding of the parties with respect to its subject matter, and neither
this Agreement nor any part of it may in any way be altered, amended, extended,
waived, discharged or terminated except by a written agreement signed by all of
the parties against whom enforcement is sought.
SECTION 25. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating to
this Agreement, the prevailing party shall be entitled to recover from the other
party all reasonable costs and expenses, including attorneys' fees and
accountants' fees, incurred in connection with such dispute or controversy.
SECTION 26. 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.
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SECTION 27. 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 28. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections 3.3(f),
3.6, 3.19, 11, 12, 13.4, 13.5, 14, 15, 16, 20, 21, 22, 24, 25 and this Section
28 shall survive any expiration or termination of this Agreement.
SECTION 29. 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 29 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 Florida, 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
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Section 22. Any decision rendered by the arbitrator shall clearly set forth the
factual and legal basis for such decision. The decision rendered by the
arbitrator shall be non-appealable and enforceable in any court having
jurisdiction thereof. The administrative costs of the arbitration and the
arbitrator fees shall be 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.
LAUDERDALE ORTHOPAEDIC SURGEONS
By:
------------------------------
Name:
Title:
BONE, MUSCLE AND JOINT, INC.
By:
------------------------------
Xxxxxx Xxxxxx, M.D.
President and Chief Executive
Officer
Acknowledged and Agreed to
(as to Sections 4, 9.7, 9.11,
14.1, 14.2, 14.3, 14.4, 15 and 16):
------------------------------
Xxxxxx Xxxxxxxxxxx, M.D.
------------------------------
Xxxx Xxxxxxxx, M.D.
------------------------------
Xxxxxxx Xxxxx, M.D.
------------------------------
Xxxxxxx Xxxxx, D.O.
Acknowledged and Agreed to
(as to Sections 14.1(e), 15 and 16):
------------------------------
Verano X. Xxxxxxx
------------------------------
Xxxx X. Xxxxxxxx
Acknowledged and Agreed to
(as to Sections 9.7, 14.1, 14.2,
and 14.3)
------------------------------
Xxxxxx X. Xxxxxxx, M.D.
------------------------------
Xxxx X. Xxxxxxxx, D.P.M.
Acknowledged and Agreed to
(as to Section 17.5):
------------------------------
Xxxxxx Xxxxxx, M.D.
OAK INVESTMENT PARTNERS VI, L.P.
By: Oak Associates VI, L.P.
its General Partner
By:
---------------------------
Xxx X. Xxxxxx
General Partner
OAK VI AFFILIATES FUND, L.P.
By: Oak VI Affiliates, LLC
its General Partner
By:
---------------------------
Xxx X. Xxxxxx
Managing Member
DELPHI VENTURES III, L.P.
By: Delphi Management Partners, LLC
its General Partner
By:
---------------------------
Xxxxxx X. Xxxxxxx
Managing Member
DELPHI BIOINVESTMENTS III, L.P.
By: Delphi Management Partners, LLC
its General Partner
By:
---------------------------
Xxxxxx X. Xxxxxxx
Managing Member
EXECUTION COPY
AMENDMENT NO. 1 TO THE MANAGEMENT
SERVICES AGREEMENT dated as of
September 4, 1997, between
LAUDERDALE ORTHOPAEDIC SURGEONS, a
Florida partnership (the "Medical
Group"), and BONE, MUSCLE AND
JOINT, INC., a Delaware corporation
(the "Management Company").
Reference is made to the Management Services Agreement effective as of
April 1, 1997 (the "Management Services Agreement"), between the Medical Group
and the Management Company, pursuant to which the Management Company has agreed
to provide the Medical Group with certain management, administrative and other
related services in connection with the Medical Business (as defined in the
Management Services Agreement). The parties hereto desire to amend the
Management Services Agreement in accordance with the terms hereinafter set
forth.
NOW, THEREFORE, in consideration for the mutual agreements contained in
this Amendment and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Medical Group and the
Management Company hereby agree as follows:
SECTION 1. All capitalized terms used but not defined herein have the
meanings ascribed thereto in the Management Services Agreement.
SECTION 2. Section 13.1 of the Management Services Agreement is hereby
amended by (i) inserting at the end of clause (b) thereof "; provided further,
however, that if the Medical Group intends to terminate this Agreement due to
the Management Company's default under Section 17.7, the Medical Group must so
notify the Management Company by February 28, 1998 in order for such termination
to be effective", (ii) inserting "or" immediately before clause (d) thereof,
(iii) deleting ", or" at the end of clause (d) and (iv) deleting clause (e)
therefrom.
SECTION 3. Section 13.4(a) of the Management Services Agreement is hereby
amended by adding at the end thereof "; provided that in the event this
Agreement is terminated by the Medical Group as a result of the Management
Company's breach of its covenant in Section 17.7 hereof, those provisions set
forth in Section 13.6 shall also apply."
SECTION 4. Section 13 of the Management Services Agreement is hereby
amended by adding at the end thereof a new Section 13.6 to read in its entirety
as follows:
"13.6. Effect of Termination Resulting from Failure to Publicly Report.
In the event that the Medical Group terminates this Agreement due to
the Management Company's breach of its covenant set forth in Section 17.7
hereof, the Medical Group shall deliver to the Management Company an amount
equal to $394,500. The Medical Group shall also cause each physician
affiliated with the Medical Group who received shares of capital stock of
the Management Company in connection with the execution and delivery of
this Agreement to, and each such physician shall, return and deliver to the
Management Company the certificates representing all of such shares of
capital stock. Certificates delivered pursuant to this Section 13.6 shall
be duly endorsed for transfer to the Management Company."
SECTION 5. Section 14 of the Management Services Agreement is hereby
amended and restated in its entirety to read as follows:
"Section 14. [Intentionally Omitted]"
SECTION 6. Section 17 of the Management Services Agreement is hereby
amended by adding a new Section 17.7 thereto, to read in its entirety as
follows:
"17.7 Covenant to Develop a Public Company.
The Management Company shall use its best efforts to cause the
Management Company to become a public reporting company under the
Securities Exchange Act of 1934, as amended, by December 29, 1997. To the
best knowledge of the Management Company, there are no facts or
circumstances which (a) would prevent the Management Company from becoming
a public reporting company within such time period or (b) are inconsistent
with the Management Company's fulfillment of the foregoing covenant."
SECTION 7. Section 28 is hereby amended by inserting ", 30" on the third
line thereof after "25".
SECTION 8. The Management Services Agreement is hereby amended by adding a
new Section 30, to read in its entirety as follows:
"Section 30. Severability.
It is the desire and intent of the parties hereto that the provisions
of this Agreement be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which
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enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated by a court of competent jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as to
such jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of
this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction. Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited
or unenforceable in such jurisdiction, it shall, as to such jurisdiction,
be so narrowly drawn, without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction."
SECTION 9. Except as expressly provided in this Amendment No. 1, the
Management Services Agreement remains in full force and effect in accordance
with its terms.
SECTION 10. This Amendment No. 1 may be executed in more than one
counterparts, and by the parties hereto in separate counterparts, and each such
counterpart shall constitute an original instrument, but all such counterparts
taken together shall constitute one and the same Amendment.
SECTION 11. This Amendment No. 1 shall by governed by, construed and
interpreted in accordance with the laws of the State of Florida.
* * * *
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment
No. 1 to the Management Services Agreement as of the date first above written.
LAUDERDALE ORTHOPAEDIC SURGEONS
By:
------------------------------
Name:
Title:
BONE, MUSCLE AND JOINT, INC.
By:
------------------------------
Name:
Title:
