EXHIBIT 10.9
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
BY AND BETWEEN
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company
AND
AMERICAN EYE INSTITUTE, P.C.,
an Indiana professional corporation
AMENDED AND RESTATED
EFFECTIVE as of SEPTEMBER 24, 1998
AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT is made and entered
into effective as of September 24, 1998 (the "Effective Date"), by and between
NovaMed Eyecare Management, LLC, a Delaware limited liability company ("Business
Manager"), and American Eye Institute, P.C., an Indiana professional corporation
("Practice"), and amends, restates and replaces in its entirety that certain
Management Services agreement previously made and entered into effective as of
May 1, 1997 (the "Original Date"), by and between Business Manager and Practice.
RECITALS
This Management Services Agreement is made with reference to the following
facts:
A. Practice is a validly existing Indiana professional corporation, formed
for and engaged in the conduct of a medical practice and the provision of
medical services to the general public in and around the Louisville metropolitan
area through individual physicians who are licensed to practice medicine in the
State of Indiana and who are employed or otherwise retained by Practice.
B. Business Manager is a validly existing Delaware limited liability
company which is in the business of providing physician practice management
services to medical practices.
C. Business Manager and Practice have entered into a Management Services
Agreement dated as of May 1, 1997, as amended by an Amendment to Management
Services Agreement dated August 6, 1997 ("Original Management Services
Agreement").
D. Practice desires to expand its scope of services by providing certain
optometric services and engaging in the business of selling prescription and
non-prescription eyewear, contact lenses and other related optical products
(hereinafter collectively defined as the "Non-Ophthalmic Business").
E. Each of Practice and Business Manager have acquired certain assets
relating to the Non-Ophthalmic Business, with Business Manager acquiring such
assets for purposes of providing to Practice the management services set forth
herein.
F. Practice desires to focus its energies, expertise and time on the
practice of medicine and on the delivery of medical services to patients, and
desires to delegate the business functions of its medical practice and Non-
Ophthalmic Business to persons with business expertise.
G. Practice desires to engage Business Manager to provide all management,
administrative and business services as are necessary or appropriate for the
day-to-day administration of the nonmedical aspects of Practice's medical
practice and Non-Ophthalmic
Business, including the provision of all non-medical assets necessary or
appropriate for the operator of Practice's medical practice and Non-Ophthalmic
Business, and Business Manager desires to provide such services upon the terms
and conditions hereinafter set forth.
H. Practice and Business Manager have determined a fair market value for
the services to be rendered by Business Manager and, based on this fair market
value, have developed a formula for compensating Business Manager that will
allow the parties to establish a relationship permitting each party to devote
its skills and expertise to the appropriate responsibilities and functions.
I. Business Manager is willing to commit significant resources to Practice
based upon the representation and warranty of Practice that the current
shareholders of Practice will continue to practice medicine for Practice in the
Practice Territory (as hereinafter defined) during the term of this Management
Services Agreement pursuant to employment agreements between Practice and each
Physician-Shareholder (the "Employment Agreements").
NOW, THEREFORE, in consideration of the mutual terms, covenants and
conditions contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
When used in this Management Services Agreement, the following terms shall
have the meanings set forth below.
1.1 Adjustments. The term "Adjustments" shall mean any adjustments on
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an accrual basis in accordance with GAAP for uncollectible accounts, Medicare,
Medicaid and other payor contractual adjustments, discounts, worker's
compensation adjustments, professional courtesies and other reductions in
collectible revenue.
1.2 Affiliate. The term "Affiliate" shall mean any person, firm or
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entity which directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, any other person
(including members of such person's family), firm or entity.
1.3 Ancillary Revenue. The term "Ancillary Revenue" shall mean all
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other revenue of Practice, Physicians and Optometrists actually recorded each
month (net of Adjustments) which is not Professional Services Revenue or Non-
Ophthalmic Business Revenue and shall include, without limitation, any revenues
of Practice or its Physicians and Optometrists which are derived from
professionally related activities such as expert witness fees, and any
royalties, honoraria or the like from authored documents or speeches.
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1.4 Budget. The term "Budget" shall mean an operating budget and
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capital expenditure budget for each fiscal year for each of the Non-Ophthalmic
Business and the Principal Services, as prepared by Business Manager and adopted
by Practice in accordance with Section 4.10 hereof. Each such Budget shall be
attached hereto and incorporated herein as Exhibit 1.4. Each succeeding Budget
subsequently adopted pursuant to Section 4.10 hereof shall also be incorporated
herein.
1.5 Business Manager. The term "Business Manager" shall mean NovaMed
----------------
Eyecare Management, LLC, a Delaware limited liability company, or any successor
in interest.
1.6 Business Manager Consent. The term "Business Manager Consent" shall
------------------------
mean the consent granted by any of Business Manager's representatives to the
Policy Board. When any provision of this Management Services Agreement requires
Business Manager Consent, such consent shall not be unreasonably withheld or
delayed and shall be binding on Business Manager.
1.7 Business Manager Expense. The term "Business Manager Expense" shall
------------------------
mean any expense or cost incurred by Business Manager which does not relate
directly to the provision of services to Practice. Such expenses or costs shall
include, without limitation:
(a) all salaries, benefits and other direct costs (including payroll
and other withholding taxes) of executive officers and management personnel
of Business Manager or employees of Business Manager who devote
substantially all of their time and effort to the operations of Business
Manager in the aggregate rather than the operations of any particular
practice affiliated with Business Manager;
(b) the expense of using, leasing, maintaining or repairing the
offices of Business Manager;
(c) the cost of capital to finance the general business obligations of
Business Manager, and any costs associated with raising such capital; and
(d) the costs of any consultants or advisors who provide services for
Business Manager in connection with its business operations, such as
accounting, financial and legal services, other than those services which
constitute Office Expense pursuant to Section 1.34 hereof.
1.8 Capitation/Case Rate Revenues. The term "Capitation/Case Rate
-----------------------------
Revenues" shall mean all revenues from managed care organizations, third party
payors or employers in which payments are based on a per member, case rate or
other similar basis (i.e., all payments which are not based on a fee-for-service
payment methodology or discounted fee-for-service reimbursement methodology) for
the medical needs of a subscribing patient. Capitation/Case Rate revenues shall
include any associated plan payments received such as patient co-payments,
incentive bonuses or incentive fund penalties. All Capitation/Case Rate
Revenues shall be allocated in good faith on an actuarial basis as follows:
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(a) Non-Ophthalmic Business Capitation. The portion, if any, of
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payments designated for Non-Ophthalmic Business goods or services sold by
Practice; Non-Ophthalmic Business Capitation shall be Non-Ophthalmic
Business Revenue;
(b) Professional Services Capitation . The portion of payments
--------------------------------
designated for physician services currently performed by Practice;
Professional Services Capitation shall be Professional Services Revenues;
and
(c) Subcontractor Capitation Revenues. The portion of payments
---------------------------------
designated for physicians, optometrists or other medical or optometric
services that will be Subcontractor Costs (e.g., reinsurance,
hospitalization, surgical facility fees, etc.), including incentive bonuses
or penalties, and an estimate for incurred but not reported claims;
Subcontractor Capitation Revenues shall not be Professional Services
Revenues.
Subject to the approval of the Policy Board, Business Manager shall develop and
implement an appropriate allocation methodology for each Capitation/Case Rate
Revenues and subject to reasonable and consistent allocations standards.
1.9 Confidential Information. The term "Confidential Information" shall
------------------------
mean any and all financial, technical, commercial or other information of
Business Manager or Practice, as appropriate (whether written or oral),
including, without limitation, all information, notes, studies, patient lists
and records, reports, analyses, financial statements, compilations, studies,
forms, business or management methods, marketing data, fee schedules, peer
review information, credentialing information, quality assurance and utilization
review information, interpretations, information technology systems and
programs, projections, forecasts or trade secrets of Business Manager or of
Practice, as applicable, whether or not such Confidential Information is
disclosed or otherwise made available to one party by the other party pursuant
to this Management Services Agreement. Confidential Information shall also
include the terms and provisions of this Management Services Agreement and any
transactions consummated or documents executed by the parties pursuant to this
Management Services Agreement. Confidential Information does not include any
information that (i) is or becomes generally available to and known by the
public (other than as a result of an unpermitted disclosure directly or
indirectly by the receiving party or its affiliates, advisors or
Representatives); (ii) is or becomes available to the receiving party on a
nonconfidential basis from a source other than the furnishing party or its
affiliates, advisors or Representatives, provided that such source is not and
was not bound by a confidentiality agreement with or other obligation of secrecy
to the furnishing party of which the receiving party has knowledge at the time
of such disclosure; or (iii) has already been developed, or is hereafter
independently acquired or developed, by the receiving party without violating
any confidentiality agreement with or other obligation of secrecy to the
furnishing party.
1.10 Contribution and Exchange Agreement. The term "Contribution and
-----------------------------------
Exchange Agreement" shall mean that certain Asset Contribution and Exchange
Agreement of even date herewith by and among Business Manager, Practice and
Physician-Shareholder.
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1.11 Depository Account. The term "Depository Account" shall mean the
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bank account referred to in Section 4.8 hereof.
1.12 Designated Allied Health Professionals. The term "Designated
--------------------------------------
Allied Health Professionals" shall mean those medical professionals other than
Physicians and Optometrists whose services must be rendered "incident to" a
Physician's services in order to be billable under the Medicare program.
1.13 Dispensary Business. The term "Dispensary Business" shall mean the
-------------------
business of selling prescription and non-prescription eyewear, contact lenses
and other related optical products.
1.14 GAAP. The term "GAAP" shall mean generally accepted accounting
----
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants,
statements and pronouncements of the Financial Accounting Standards Board, or
other statements, practices and procedures as may be approved by a significant
segment of the accounting profession, which are applicable to the circumstances
as of the date of the determination.
1.15 Managed Care Contract. The term "Managed Care Contract" shall
---------------------
include any Capitation/Case Rate Revenues contract, or any contracts based on a
fee-for-service payment methodology or discounted fee-for-service reimbursement
methodology and other agreements with third party payors, alternative delivery
systems or other purchasers of group health care services.
1.16 Management Fee. The term "Management Fee" shall mean the amount
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determined pursuant to Section 6.1 hereof.
1.17 Management Services. The term "Management Services" shall mean the
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business, administrative and management services to be provided for Practice
including, without limitation, the provision of equipment, supplies, support
services, nonphysician personnel, office space, management, administration,
financial recordkeeping and reporting, information systems and all other
business office services necessary for the nonmedical operations of Practice.
1.18 Management Services Agreement. The term "Management Services
-----------------------------
Agreement" shall mean this Amended and Restated Management Services Agreement by
and between Practice and Business Manager and any amendments hereto, which
amends, restates and replaces in its entirety the Original Management Services
Agreement.
1.19 Medical Advisory Board. The term "Medical Advisory Board" shall
----------------------
have the meaning set forth in Section 5.9 hereof.
1.20 Medical Services. The term "Medical Services" shall mean ophthalmic
----------------
and optometric services as provided by Practice through Physicians or
Optometrists, as the case may be, but any such services by Optometrists shall be
limited to those services performed at the
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locations listed on Schedule 1.20 (all optometric services performed by
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Optometrists at any other location of Practice shall be deemed part of the
Optometric Business (as hereinafter defined).
1.21 Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
have the meaning set forth in Section 6.1 hereof.
1.22 Monthly Practice Expense. The term "Monthly Practice Expense" shall
------------------------
have the meaning set forth in Section 6.1 hereof.
1.23 Non-Ophthalmic Business. The term "Non-Ophthalmic Business" shall
-----------------------
mean the Optometric Business and Dispensary Business, collectively.
1.24 Non-Ophthalmic Business Budgeted Office Expense. The term
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"Non-Ophthalmic Business Budgeted Office Expense" shall have the meaning set
forth in Section 6.1 hereof.
1.25 Non-Ophthalmic Business Budgeted Practice Expense. The term
-------------------------------------------------
"Non-Ophthalmic Business Budgeted Practice Expense" shall have the meaning set
forth in Section 6.1 hereof.
1.26 Non-Ophthalmic Business Budgeted Revenue. The term "Non-Ophthalmic
----------------------------------------
Business Budgeted Revenue" shall have the meaning set forth in Section 6.1
hereof.
1.27 Non-Ophthalmic Business Management Fee. The term "Non-Ophthalmic
--------------------------------------
Business Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.28 Non-Ophthalmic Business Monthly Fee. The term "Non-Ophthalmic
------------------------------------
Business Monthly Fee" shall have the meaning set forth in Section 6.1 hereof.
1.29 Non-Ophthalmic Business Monthly Office Expense. The term
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"Non-Ophthalmic Business Monthly Office Expense" shall have the meaning set
forth in Section 6.1 hereof.
1.30 Non-Ophthalmic Business Monthly Practice Expense. The term
------------------------------------------------
"Non-Ophthalmic Business Monthly Practice Expense" shall have the meaning set
forth in Section 6.1 hereof.
1.31 Non-Ophthalmic Business Office Expense. The term "Non-Ophthalmic
--------------------------------------
Business Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.32 Non-Ophthalmic Business Revenue. The term "Non-Ophthalmic
-------------------------------
Business Revenue" shall mean all revenues of the Non-Ophthalmic Business of the
Practice recorded on an accrual basis under GAAP (net of Adjustments).
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1.33 Office. The term "Office" shall mean any office space, clinic,
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facility or satellite facilities that Business Manager owns, leases or otherwise
procures for the exclusive use of Practice.
1.34 Office Expense. The term "Office Expense" shall mean all expenses
--------------
incurred by Business Manager or Practice in the provision of services to
Practice. Except as specifically enumerated below, Office Expense shall not
include any state or federal income tax liability of Practice or Physician-
Shareholders, or any other expense that is a Practice Expense or a Business
Manager Expense. Without limitation, Office Expense shall include:
(a) the salaries, benefits and other direct costs (including payroll
taxes) of all employees of Business Manager who are either located at,
devote substantially all of their time and effort to, or upon Practice
Consent or as set forth in the Budget, for which time is allocated
specifically for a function to support, Practice;
(b) the salaries, benefits and other direct costs (including payroll
and other withholding taxes) of all Physician-Employees and Optometrists,
but excluding the salaries, benefits and other direct costs (including
payroll and other withholding taxes) of all Physician-Shareholders;
provided, however, that in the event any Physician-Shareholder shall fail,
for any reason, to work full time in the performance of his or her duties
as described in such Physician-Shareholder's Employment Agreement for a
period exceeding two (2) consecutive months, whether or not such failure
(i) gives rise to termination rights pursuant to such Employment Agreement
or (ii) occurs prior to or after the termination of the Initial Term (as
such term is defined in Section 4.1 of such Employment Agreement), then the
expenses described in this Section 1.34(b) shall thereafter be categorized
as a Practice Expense;
(c) the direct or reasonably allocated costs of providing locum tenens
coverage with respect to any Optometrists and Physician-Employees as may be
necessary pursuant to Section 5.4 hereof, which costs shall include,
without limitation, the salaries, benefits and other direct costs of any
Optometrists and Physician-Employees retained by Practice for such
purposes;
(d) upon Practice Consent or as set forth in the Budget, the direct or
reasonably allocated costs of any employee or consultant that provides
services at the direction of Business Manager for improved performance of
Practice, such as management, xxxxxxxx and collections, business office
consultation, training, and accounting and legal services;
(e) reasonable recruitment costs and out-of-pocket expenses of
Business Manager or Practice associated with the recruitment of additional
Physician-Employees and Optometrists of Practice;
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(f) all reasonable and customary business insurance expenses of
Practice, Physicians, Optometrists, Designated Allied Health Professionals
and the Office, including, without limitation, professional and general
liability insurance;
(g) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.34, the expense of using, leasing,
maintaining, repairing, purchasing or otherwise procuring the Office and
related equipment (including any leasehold improvements), including,
without limitation, any depreciation expense and any and all expenses
relating to the equipment listed on Exhibit 1.34(g) attached hereto and
---------------
incorporated herein, but excluding (i) any Preexisting Obligation Payments
and (ii) any amortization of goodwill and any other intangibles arising out
of the consummation of the transaction contemplated by the Contribution and
Exchange Agreement;
(h) without duplication of expenses included pursuant to any other
subparagraph of this Section 1.34, the cost of capital, whether as actual
interest on indebtedness incurred on behalf of Practice or as reasonable
imputed interest on capital advanced by Business Manager to finance or
refinance obligations of Practice, purchase medical or nonmedical
equipment, renovate the Office, or finance new ventures of Practice, but
excluding any Preexisting Obligation Payments and any cost of capital on
any debt to finance or refinance the purchase of Practice (including the
assets and LLC interests) pursuant to the terms of the Contribution and
Exchange Agreement;
(i) the Management Fee;
(j) upon Practice Consent or as set forth in the Budget, the direct or
reasonably allocated costs relating to sales or marketing activities or
materials, including, without limitation, brochures, pamphlets, displays,
direct mail, promotional materials, patient screening, network directories,
signs, video and audio tapes, equipment, media, development costs and
consulting services;
(k) upon Practice Consent or as set forth in the Budget, the direct or
reasonably allocated costs of obtaining, maintaining and supporting Managed
Care Contracts;
(l) the direct or reasonably allocated costs relating to any third
party service agreements for the general day-to-day operations of Office
and Practice, which services shall include, without limitation,
maintenance, patient transportation, janitorial, answering services,
landscaping, snow removal and uniform rental;
(m) the direct or reasonably allocated travel expenses of Business
Manager employees associated with attending meetings, conferences or
seminars primarily benefiting Practice or any travel to or from Practice;
provided, however, that if such travel expenses relate to individuals other
than Business Manager employees whose salaries are Office Expenses pursuant
to Section 1.34(a) hereof, then such expenses shall be an Office Expense
only upon Practice Consent;
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(n) the cost of medical supplies (including, without limitation,
drugs, pharmaceuticals, products, substances or medical devices), office
supplies, inventory (including, without limitation, inventory for the Non-
Ophthalmic Business) and utilities;
(o) direct costs, not to exceed budgeted allowances as set forth in
the Budget, for professional dues, subscriptions, continuing medical
education expenses and travel costs for continuing medical education or
other business travel of Practice employees; and
(p) all direct or reasonably allocated costs relating to the operation
of the Offices, including without limitation, expenses relating to
utilities; and
(q) a licensing and access fee for each Windows terminal to cover
expenses relating to capital equipment and maintenance, system installation
and training, telecommunications and wide area networking, installation and
support of software provided by Business Manager, and support and system
administration; provided, however, that capital equipment and support fees
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will be adjusted accordingly to the extent PCs and/or notebooks are
utilized in lieu of Windows terminals; provided further that Business
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Manager shall have the discretion to adjust this fee annually provided that
such adjustments are consistently applied by Business Manager on a company-
wide basis.
1.35 Operating Board. The term "Operating Board" shall mean the operating
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board, or board of directors of the managing member, as the case may be, of
Business Manager.
1.36 Optometric Business. The term "Optometric Business" shall be
-------------------
comprised of all professional services performed by, on behalf of, or under the
direction and/or supervision of, all Optometrists employed by Practice,
including, without limitation, any professional fitting fees relating to contact
lenses, and any visual field tests performed by a certified technician employed
by Practice at the location of such Optometrists; provided, however, that
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Optometric Business shall not include any services performed by Optometrists at
locations listed on Schedule 1.20 (which services shall be a component of
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Principal Services).
1.37 Optometrist. The term "Optometrist" shall mean each individually
-----------
licensed doctor of optometry who is employed or otherwise retained by or
associated with Practice, each of whom shall meet at all times the
qualifications described in Sections 5.2 and 5.3 hereof.
1.38 Physician. The term "Physician" shall mean each individual
---------
licensed to practice medicine in the State of Indiana who is employed or
otherwise retained by or associated with Practice, each of whom shall meet at
all times the qualifications described in Sections 5.2 and 5.3 hereof.
1.39 Physician Discretionary Expenses. The term "Physician
--------------------------------
Discretionary Expenses" shall mean any expenses or debt obligations of Practice
or Physicians which are not included in the Budget or approved by Business
Manager and shall include, without limitation, the following: accounting,
consulting or legal expenses incurred by Practice without coordinating such
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engagement through Business Manager; professional dues, subscriptions,
continuing medical education expenses and travel costs for continuing medical
education in excess of budgeted allowances for such items and any equipment
obtained by Practice without the approval of the Policy Board as set forth in
Section 4.1(d) hereof; and other discretionary business expenses incurred
directly by Physicians or Practice.
1.40 Physician-Employee. The term "Physician-Employee" shall mean any
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Physician employed by Practice, but shall not include Physician-Shareholders.
1.41 Physician-Shareholder. The term "Physician-Shareholder" shall mean
---------------------
any Physician who is employed by, and a shareholder of, Practice.
1.42 Policy Board. The term "Policy Board" shall refer to the body
------------
responsible for developing and implementing management and administrative
policies for the overall operation of the Regional Practices.
1.43 Practice. The term "Practice" is defined in the introductory
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paragraph of this Management Services Agreement.
1.44 Practice Consent. The term "Practice Consent" shall mean the
----------------
consent granted by any of Practice's authorized Representatives who is not an
officer or employee of Business Manager. When any provision of this Management
Services Agreement requires Practice Consent, such consent shall not be
unreasonably withheld or delayed and shall be binding on Practice.
1.45 Practice Expense. The term "Practice Expense" shall mean an
----------------
expense incurred by Business Manager or Practice and for which Practice, and not
Business Manager, is financially liable. Practice Expense shall include,
without limitation, such items as Preexisting Obligation Payments, Physician
Discretionary Expenses, salaries, benefits and other direct costs of all
Physician-Shareholders, any costs of providing locum tenens coverage for
Physician-Shareholders pursuant to Section 5.4 hereof, and any other expenses
incurred by Practice or Physicians which are not in the Budget or are in excess
of budgeted allowances if expended by Practice personnel without Business
Manager Consent.
1.46 Practice Territory. The term "Practice Territory" shall mean the
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geographic area within a twelve and one-half (12-1/2) mile radius of any present
and future locations of an Office of Practice.
1.47 Preexisting Obligation Payments. The term "Preexisting Obligation
-------------------------------
Payments" shall mean (i) the expense for principal and interest amortization of
debt obligations of Practice or any Physician-Shareholder relating to the
operation of Practice which existed prior to the execution of this Management
Services Agreement and (ii) lease payments and other costs relating to any
outstanding debt, obligations or liabilities of Practice or any Physician-
Shareholder relating to the operation of Practice which existed prior to the
execution of this Management Services
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Agreement, and which include, without limitation, the items set forth on Exhibit
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1.45 attached hereto and incorporated herein; excluding, however, the leases
----
set forth on Schedule 1.33(g).
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1.48 Principal Services. The term "Principal Services" shall mean all
------------------
services performed by or on behalf of Practice which generate Professional
Services Revenues or Ancillary Revenues.
1.49 Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall have the meaning set forth in Section
6.1 hereof.
1.50 Principal Services Budgeted Practice Expense. The term "Principal
---------------------------------------------
Services Budgeted Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.51 Principal Services Budgeted Revenue. The term "Principal Services
-----------------------------------
Budgeted Revenue" shall have the meaning set forth in Section 6.1 hereof.
1.52 Principal Services Management Fee. The term "Principal Services
----------------------------------
Management Fee" shall have the meaning set forth in Section 6.1 hereof.
1.53 Principal Services Monthly Fee. The term "Principal Services
------------------------------
Monthly Fee" shall have the meaning set forth in Section 6.1 hereof.
1.54 Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall have the meaning set forth in Section 6.1
hereof.
1.55 Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall have the meaning set forth in Section
6.1 hereof.
1.56 Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" shall have the meaning set forth in Section 6.1 hereof.
1.57 Principal Services Revenue. The term "Principal Services Revenue"
--------------------------
shall mean the sum of Professional Services Revenue and Ancillary Revenue.
1.58 Professional Services Revenues. The term "Professional Services
------------------------------
Revenues" shall mean the sum of (i) all professional fees actually recorded each
month on an accrual basis under GAAP (net of Adjustments) as a result of Medical
Services and related health care services rendered by Physicians, the
Optometrists to the extent such services are performed at the locations listed
in Schedule 1.20, and Designated Allied Health Professionals, whether rendered
in an outpatient or inpatient setting, as well as customary professional fees
for the fitting of contact lenses by the Physicians or the Optometrists to the
extent such fittings are performed at the locations listed on Schedule 1.20, and
(ii) Professional Services Capitation allocated to Professional Service
Revenues.
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1.59 Regional Practices. The term "Regional Practices" is defined in
------------------
Section 3.1(a) hereof.
1.60 Representatives. The term "Representatives" shall mean a party's
----------------
officers, directors, employees, or other agents or representatives.
1.61 Xxxxx Act. The term "Xxxxx Act" shall refer to Section 1877 of the
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Social Security Act.
1.62 Subcontractor Costs. The term "Subcontractor Costs" shall mean the
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amounts payable to third parties for providing goods or medical services for
Capitation/Case Rate Revenues contracts.
1.63 Term. The term "Term" shall mean the initial term and any renewal
----
terms of this Management Services Agreement as described in Section 7.1 hereof.
ARTICLE II
APPOINTMENT AND AUTHORITY OF BUSINESS MANAGER
2.1 Appointment. Practice hereby appoints Business Manager as its sole
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and exclusive agent for the management and administration of the business
functions and business affairs of Practice, including, without limitation, the
Non-Ophthalmic Business of Practice, and Business Manager hereby accepts such
appointment, subject at all times to the terms and conditions of this Management
Services Agreement.
2.2 Authority. Consistent with the provisions of this Management
---------
Services Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services to Practice. Subject to
the terms and conditions of this Management Services Agreement, Practice
expressly authorizes Business Manager to provide the Management Services in any
manner Business Manager reasonably deems appropriate to meet the day-to-day
requirements of the business functions of Practice. In connection with Business
Manager's provision of Management Services, Practice also expressly authorizes
Business Manager to negotiate and execute on behalf of Practice any and all
contracts related to the provision of such Management Services; provided,
however that, subject to Section 4.7 hereof, Business Manager shall have no
authority to negotiate and execute on behalf of Practice contracts that relate
specifically to the provision of Medical Services. The parties acknowledge and
agree that Practice, through its Physicians, shall be responsible for and shall
have complete authority, responsibility, supervision and control over the
provision of all Medical Services and other professional health care services
performed for patients, and that all diagnoses, treatments, procedures and other
professional health care services shall be provided and performed exclusively by
or under the supervision of Physicians in such manner as such Physicians, in
their sole discretion, deem appropriate. Practice, through its Physicians,
shall also be responsible for
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establishing the professional fees for the provision of Medical Services.
Business Manager shall have and exercise absolutely no control or supervision
over the provision of Medical Services. Except as provided in Section 4.7
hereof, with respect to any agreement relating specifically to Medical Services,
and subject to the approval of the Policy Board pursuant to Section 3.2(d),
Practice shall give Business Manager and the Policy Board thirty (30) days'
prior notice of Practice's intent to execute any such agreement obligating
Practice to perform Medical Services or otherwise creating a binding legal
obligation on Practice to perform Medical Services.
2.3 Patient Referrals. Business Manager and Practice agree that the
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benefits afforded either party hereunder are not payment for, and are not in any
way contingent upon the referral, admission or any other arrangement for, the
provision of any item or service offered by Business Manager or Practice.
2.4 Internal Practice Matters. Except as otherwise provided herein and
-------------------------
subject to Section 1.34(b), matters involving the internal governance, control
or finances of Practice, including specifically the allocation of professional
income among Physician-Shareholders, Physician-Employees and Optometrists of
Practice, and tax and investment planning, shall remain the sole responsibility
of Practice, Physician-Shareholders, Physician-Employees and Optometrists.
2.5 Practice of Medicine. The parties acknowledge that Business
--------------------
Manager is not authorized or qualified to engage in any activity that may be
construed or deemed to constitute the practice of medicine. To the extent that
any act or service required to be performed by Business Manager hereunder should
be construed by a court of competent jurisdiction or by the Board of Medical
Examiners of the State of Indiana to constitute the practice of medicine,
Business Manager's requirement to perform that act or service shall be deemed
waived and unenforceable.
ARTICLE III
RESPONSIBILITIES OF THE POLICY BOARD
3.1 Formation and Operation of the Policy Board.
-------------------------------------------
(a) Structure of Policy Board. Practice hereby acknowledges that
-------------------------
it is one of a group of ophthalmology practices located in the Louisville
metropolitan area which is affiliated with Business Manager (Practice and
such other practices shall be collectively referred to herein as "Regional
Practices"). The Regional Practices and Business Manager shall establish a
Policy Board which shall be responsible for overseeing the overall
operations of the nonmedical aspects of each Regional Practice's facilities
and, subject to Section 3.3 hereof, certain medical issues. The Policy
Board shall consist of four (4) members, each of whom shall serve a one-
year term. Business Manager shall designate, in its sole discretion, two
(2) members of the Policy Board, and the Regional Practices shall
collectively designate two (2) members of the Policy Board; provided,
however, that
13
Practice shall have the sole and exclusive right to appoint one of the two
Regional Practice members during the Term. The Policy Board members
designated by the Regional Practices shall be Physician-Shareholders of a
Regional Practice and one such member shall always be a designee of
Practice. Except as otherwise expressly provided herein, the act of a
majority of the members of the Policy Board shall be the act of the Policy
Board.
(b) Appointment of Members. The initial Policy Board shall consist
----------------------
of the members set forth on Exhibit 3.1 attached hereto and incorporated
-----------
herein. Thereafter, annually and at least thirty (30) days prior to the
commencement of each fiscal year of Business Manager, each of Business
Manager and the Regional Practices shall deliver to the Operating Board of
Business Manager a list of two (2) designees to the Policy Board to serve
as members of the Policy Board for the upcoming fiscal year. In the event
that either Business Manager or the Regional Practices fail to deliver the
list of designees by the required date, then such party's representatives
on the Policy Board shall remain the same for the upcoming fiscal year.
Any vacancies created, whether by death, incapacity or resignation of a
designee, shall be filled by the party which appointed such designee by no
later than fifteen (15) business days after the date of receipt by all of
the Regional Practices of notice from Business Manager that such vacancy
exists and must be filled. If the applicable party shall fail to designate
a replacement member to the Policy Board within the required time period,
then the other party shall have the right to designate the replacement
member and such replacement member shall serve on the Policy Board until
his or her successor is duly appointed pursuant to this Section 3.1(b). In
any case in which the Regional Practices shall be required to designate a
member or members to the Policy Board, a previously appointed designee of
the Regional Practices shall convene a meeting or collect the written votes
of the Representatives of the Regional Practices to select such designee or
designees. Each Regional Practice shall be entitled to one vote per
designee to be appointed and those designees receiving a plurality of the
votes shall serve as the representatives of the Regional Practices on the
Policy Board.
(c) Actions of the Policy Board. The Policy Board meetings shall
---------------------------
be held as mutually agreed, but at least semiannually, in New Albany,
Indiana. Meetings may be called by any two (2) members of the Policy Board
upon notice to Business Manager. Notice of each such meeting, stating the
place, date and hour of the meeting, shall then be delivered by Business
Manager to each member of the Policy Board not less than seventy-two (72)
hours prior to such meeting. Meetings shall be open to any Physician-
Shareholder and any officer, director or employee (as designated by
Business Manager) of Business Manager. Members of the Policy Board may
participate in a meeting by means of conference telephone. Attendance at
any meeting in person or by proxy, or participation in a meeting by means
of conference telephone, shall constitute a waiver of notice thereof. Any
action required to be taken at a meeting of the Policy Board may be taken
without a meeting and without a vote if a consent in writing, setting forth
the action to be taken, is signed by all of the members of the Policy
Board, unless such action is medical in nature, in which case such consent
need be signed only by all of the Physician members of the Policy Board.
14
(d) Interim Membership. Notwithstanding the foregoing, until
------------------
Business Manager affiliates with another Regional Practice in the
Louisville metropolitan area, the Policy Board shall be comprised of two
members, one of whom shall be designated by Business Manager and the other
of whom shall be designated by Practice.
3.2 Duties and Responsibilities of the Policy Board. The Policy Board
-----------------------------------------------
shall have the following duties, obligations and authority:
(a) Capital Improvements and Expansion. Subject to the items
----------------------------------
specifically enumerated in the Budget as determined in accordance with
Section 4.10(a) hereof, any renovation and expansion plans, and capital
expenditures in excess of $5,000 with respect to the Office, or the
priority of such capital expenditures, shall be reviewed and approved by
the Policy Board and shall be based upon economic feasibility, physician
support, productivity and then-current market conditions.
(b) Marketing and Advertising. The Policy Board shall explore
-------------------------
potential joint marketing and other advertising of the services performed
at the Regional Practices' facilities.
(c) Collection Policies. As a part of the annual operating budget,
-------------------
in consultation with Practice and Business Manager, the Policy Board shall
review and approve the collection policies for the Non-Ophthalmic Business
of, and for all Medical Services and ancillary services provided by,
Practice.
(d) Provider and Payor Relationships. Subject to Sections 4.7 and
--------------------------------
4.8 hereof, decisions regarding the establishment or maintenance of
relationships with institutional health care providers and third party
payors shall be approved by the Policy Board in consultation with Practice
and Business Manager. The Policy Board shall review and approve such
discounted fee schedules, including capitated fee arrangements, and shall
approve allocations of Capitation/Case Rate Revenues, and shall develop
managed care strategy for the Louisville metropolitan area.
(e) Strategic Planning. In consultation with Business Manager and
------------------
Practice, the Policy Board shall recommend long-term strategic planning
objectives for Practice; provided, however, that the Policy Board shall not
engage in recommending any horizontal market allocations between practices.
(f) Physician and Optometrist Hiring. Subject to the items
--------------------------------
specifically enumerated in the Budget as determined in accordance with
Section 4.10(a) hereof, the Policy Board shall recommend to Practice the
number and type of Physicians and Optometrists required for the efficient
operation of Practice's facilities. Practice shall have the right to
accept or reject any recommendation of the Policy Board on this matter and
Practice shall retain the number and type of Physicians and Optometrists as
it shall deem
15
necessary in its sole discretion. The Policy Board shall review and approve
any variations to the restrictive covenants in any Employment Agreement.
(g) Fee Dispute Resolution. Upon written submission by Practice of
----------------------
a dispute concerning Management Fees, the Policy Board shall consider,
develop and attempt to implement a resolution of such dispute, and members
of the Policy Board shall use commercially reasonable efforts to resolve
such dispute within thirty (30) days following its receipt of such written
submission.
(h) Employee Relations. Upon submission by Practice or any
------------------
Physician or Optometrist of a written complaint or concern regarding any
employee of Business Manager performing services for Practice hereunder,
the Policy Board shall consider, develop and attempt to implement a
resolution of such complaint or concern.
(i) Grievance Referrals. The Policy Board shall consider and make
-------------------
recommendations to Practice regarding any disputes pertaining to matters
not specifically addressed in this Management Services Agreement as
referred to it by Practice.
3.3 Medical Decisions. Notwithstanding anything to the contrary
-----------------
contained in Section 3.2 above, all medical decisions addressed by the Policy
Board will be made solely by Physician members of the Policy Board.
ARTICLE IV
COVENANTS AND RESPONSIBILITIES OF BUSINESS MANAGER
During the Term, Business Manager shall provide all Management Services
which are necessary or appropriate for the day-to-day administration of the
nonmedical aspects of Practice's operations (including the Non-Ophthalmic
Business), including, without limitation, those services set forth in this
Article IV in accordance with all laws, rules, regulations and guidelines
applicable to the provision of Management Services.
4.1 Office and Equipment.
--------------------
(a) Subject to Section 4.1(b) hereof, as necessary or appropriate, the
terms and conditions of the applicable Lease, and after taking into
consideration the professional concerns of Practice, Business Manager shall
lease, acquire or otherwise procure an Office in the following locations:
(i) 000 Xxxxx Xxxxxx, Xxx Xxxxxx, Xxxxxxx 00000; 0000 X. Xxxxx Xxxxx Xxxx,
Xxxxxxxxxx, Xxxxxxx 00000; 000 Xxxx Xxxxxx, Xxxxxxxxx, Xxxxxxx 00000; 000
Xxxxxxx Xxxxx Xxxx., Xxxxxxxx, Xxxxxxxx 00000 or (ii) any future location
or locations reasonably acceptable to Practice and shall permit Practice to
use the Office. Any Office procured by Business Manager for use by
Practice shall be procured at commercially reasonable rates.
16
(b) In the event Practice is the lessee of the Office under a lease
with an unrelated and nonaffiliated lessor, Practice shall assign such
lease to Business Manager, and, in such event, Business Manager shall
assume Practice's obligations thereunder from and after the date of such
assignment. Practice shall use its best efforts to assist in obtaining the
lessor's consent to the assignment. Upon request, Practice shall execute
any instruments and shall take any acts that Business Manager deems
necessary to accomplish the assignment of the lease. Any expenses incurred
in effectuating the assignment shall be an Office Expense. Moreover,
except as set forth on Schedule 1.45, all lease payments arising under such
-------------
leases relating to an Office shall be Office Expenses irrespective of
whether Business Manager assumes Practice's obligations thereunder or
consent to such assumption is not obtained.
(c) In a reasonably timely manner, Business Manager shall provide all
nonmedical equipment, fixtures, office supplies, furniture and furnishings
reasonably deemed necessary by Business Manager for the operation of the
Office, for the provision of Medical Services and for the operation of the
Non-Ophthalmic Business including all replacements and upgrades thereof at
the discretion of Business Manager. Without limiting the foregoing, with
respect to information systems, Practice acknowledges and agrees that
Business Manager will have the discretion to determine the timing and
extent of the upgrade and/or replacement of Practice's information systems
from time to time during the Term.
(d) Business Manager shall provide or cause to be provided (including
financing arrangements with respect thereto) in a reasonably timely manner
all medical equipment reasonably required by Practice.
(e) Business Manager shall be responsible for all necessary repair and
maintenance of the Office as an Office Expense, consistent with Business
Manager's responsibilities under the terms of any lease or other use
arrangement. Business Manager shall also be responsible for all necessary
repair, maintenance and replacement of all equipment relating to the
Office, except for any such repairs, maintenance and replacement
necessitated by the negligence or willful misconduct of Practice, its
Physicians or other personnel employed by Practice, in which event any such
repair or replacement shall be a Practice Expense and not an Office
Expense.
4.2 Medical Supplies. Business Manager shall order, procure, purchase
----------------
and provide on behalf of, and as agent for, Practice all necessary and
reasonably desirable medical supplies and optical dispensary supplies and
inventory unless otherwise prohibited by federal and/or state law, and shall
appropriately respond to any reasonable inquiries or requests by Practice's
Medical Director and Physicians for the need to order or repair such supplies.
Business Manager shall ensure that the Office is adequately stocked at all times
with medical supplies that are reasonably necessary or appropriate for the
operation of Practice and required for the provision of Medical Services and
optical dispensary supplies and inventory that are reasonably necessary or
appropriate for the operation of the Non-Ophthalmic Business. The ultimate
oversight, supervision and
17
ownership of all medical supplies is and shall remain the sole responsibility of
Practice. As used in this Section 4.2, the term "medical supplies" shall mean
all drugs, pharmaceuticals, products, substances, items or devices whose
purchase, possession, maintenance, administration, prescription or security
requires the authorization or order of a licensed health care provider or
requires a permit, registration, certification or other governmental
authorization held by a licensed health care provider as specified under any
federal and/or state law.
4.3 Support Services. Business Manager shall provide or arrange for
----------------
all printing, stationery, telephone, facsimile, office supplies, forms, postage,
duplication or photocopying services, and other support services as are
reasonably necessary or appropriate for the operation of the Office and the
provision of Medical Services and the operation of the Non-Ophthalmic Business
therein.
4.4 Quality Assurance, Risk Management, and Utilization Review.
----------------------------------------------------------
Business Manager shall assist Practice in Practice's establishment and
implementation of procedures to ensure the consistency, quality, appropriateness
and medical necessity of Medical Services provided by Practice, and shall
provide administrative support for Practice's overall quality assurance, risk
management and utilization review programs. Business Manager shall use its
commercially reasonable efforts to perform these tasks in a manner to ensure the
confidentiality of, and the privileged status afforded to, these programs and
procedures to the fullest extent allowable under state and federal law.
4.5 Licenses and Permits. Business Manager shall, on behalf of and in
--------------------
the name of Practice, coordinate all development and planning processes, and
assist in the application for, and use reasonable efforts to assist Practice in
obtaining and maintaining, all federal, state and local licenses, certifications
and regulatory permits required for, or in connection with, the operation of
Practice, the equipment located at the Office, and any ambulatory surgical
treatment center, laboratory and optical dispensary of Business Manager, other
than those relating to the provision of Medical Services or the administration
of drugs by Physicians.
4.6 Personnel. Except as specifically provided in Section 5.2(b)
---------
hereof, Business Manager shall, consistent with the Budget, employ or otherwise
retain and shall be responsible for selecting, hiring, training, supervising and
terminating, all nonphysician personnel as Business Manager reasonably deems
necessary and appropriate for Business Manager's performance of its duties and
obligations under this Management Services Agreement. Business Manager shall,
to the extent practicable, consult with, and solicit the input of, Practice and
Physician-Shareholder in connection with any such employment decisions.
Moreover, Physician-Shareholder shall have the right to accept or reject any
candidate proposed by Business Manager for the role of center administrator of
Practice. Business Manager shall have sole responsibility for determining the
salaries, providing employee benefits, and for withholding any sums for income
tax, unemployment insurance, worker's compensation coverage, social security or
any other withholding required by applicable law or governmental requirement.
18
4.7 Contract Negotiations. Business Manager shall advise Practice with
---------------------
respect to seek out and negotiate, either directly or on Practice's behalf, as
appropriate, all contractual arrangements with third parties as are reasonably
necessary and appropriate for Practice's provision of Medical Services and for
Practice's operation of the Non-Ophthalmic Business, including, without
limitation, Managed Care Contracts. Subject to the second to last sentence of
this Section 4.7, Practice hereby constitutes and appoints Business Manager as
Practice's agent for the purpose of negotiating and executing on behalf of
Practice and its Physicians any Managed Care Contract approved by the Policy
Board, as well as any modifications, extensions and renewals of such Managed
Care Contracts. Practice also designates Business Manager as Practice's agent
for the further purpose of giving and receiving notices required or permitted to
be given and received under such Managed Care Contracts. Any notice received by
Business Manager on behalf of Practice shall be transmitted to Practice as soon
as practicable. Business Manager may engage such consultants as Business
Manager deems necessary and appropriate to pursue and negotiate Managed Care
Contracts for Practice, and Practice authorizes Business Manager to negotiate,
for approval by the Policy Board, agreements for Subcontractor Costs.
Notwithstanding the foregoing, upon approval of the Policy Board of any Managed
Care Contract, Business Manager shall deliver a copy of such contract to
Practice for its review and approval. Practice may accept or reject any Managed
Care Contract by delivering written notice to Business Manager within ten (10)
days of its receipt of such contract. Practice's failure to respond within such
ten-day period shall be deemed an acceptance of the Managed Care Contract for
all purposes.
4.8 Billing and Collection. On behalf of and for the account of
----------------------
Practice, Business Manager shall (i) establish and maintain credit, billing and
collection policies and procedures, (ii) timely xxxx and collect all
professional and other fees for all billable Medical Services provided by
Practice, Physicians or Optometrists and for all goods and services sold or
performed by Practice in connection with the Non-Ophthalmic Business, all for
application solely in accordance with the Budget, and (iii) perform all cash
management services on behalf of Practice which Business Manager shall deem
commercially reasonable. Business Manager shall advise and consult with
Practice regarding the fees for Medical Services and ancillary services provided
by Practice; it being understood, however, that (x) Practice shall establish the
fees to be charged for Medical Services and that Business Manager shall have no
authority whatsoever with respect to the establishment of such fees and (y) no
new ancillary services shall be provided in the Office without Practice Consent.
In connection with the billing, collection and cash management services to be
provided hereunder, and throughout the Term (and thereafter as provided in
Section 7.3 hereof), Practice hereby grants to Business Manager an exclusive
special power of attorney and appoints Business Manager as Practice's exclusive
true and lawful agent and attorney-in-fact, and Business Manager hereby accepts
such special power of attorney and appointment, for the following purposes:
(a) To xxxx Practice's patients, in Practice's name and on Practice's
behalf, for all billable Medical Services provided or arranged by Practice
to patients and for all goods and services sold by Practice in connection
with the Non-Ophthalmic Business, unless such billing would cause Practice
to be in violation of the Xxxxx Act, any state referral ban or any other
applicable federal, state or local law or regulation;
19
(b) To xxxx, in Practice's name and on Practice's behalf, all claims
for payment, reimbursement or indemnification from Blue Cross/Blue Shield,
insurance companies, Medicare, Medicaid and all other third-party payors or
fiscal intermediaries for all covered billable Medical Services provided or
arranged by Practice to patients and for all goods and services sold by
Practice in connection with the Non-Ophthalmic Business, unless such
billing would cause Practice to be in violation of the Xxxxx Act, any state
referral ban or any other applicable federal, state or local law or
regulation;
(c) Subject to applicable law, and excluding accounts receivable for
Medicare and Medicaid services, to collect and receive, as the agent of
Practice in Business Manager's name and for Business Manager's account, all
accounts receivable of Practice purchased by Business Manager, including,
without limitation, the Purchased Receivables (as defined in Section 6.5
hereof), and to deposit such collections in an account selected by Business
Manager and maintained in Business Manager's name;
(d) Subject to subparagraph (e) below, to collect and receive, in
Practice's name and on Practice's behalf, all accounts receivable generated
by such xxxxxxxx and claims for reimbursement that have not been purchased
by Business Manager, and to administer such accounts at its reasonable
discretion on Practice's behalf, which administration shall include,
without limitation, (i) extending the time of payment of any such accounts
for cash, credit or otherwise; (ii) with Practice Consent, discharging or
releasing the obligors of any such accounts; (iii) with Practice Consent,
suing, assigning or selling at a discount such accounts to collection
agencies; or (iv) with Practice Consent, taking other measures to require
the payment of any such accounts.
(e) To collect all government program accounts receivable after such
amounts have been received and deposited into an account maintained in
Practice's name and over which Practice has sole control (the "Depository
Account"). Once deposited in such accounts, Practice hereby authorizes the
government program accounts receivable to be automatically swept into the
Depository Account.
(f) To deposit all amounts collected into the Depository Account which
shall be in the name of Business Manager, but in which Business Manager
shall account for such funds on a separate and distinct basis from any
other funds deposited into such account by other Regional Practices;
moreover, Practice shall retain all rights in and to such deposited funds
irrespective of their deposit into the Depository Account. The parties
hereto acknowledge and agree that Business Manager is performing cash
management services on behalf of Practice by collecting all such amounts in
the Depository Account and making any distributions, withdrawals and
payments therefrom as required in this Management Services Agreement. The
parties further acknowledge and agree that in performing such services for
Practice, Business Manager is acting as Practice's agent pursuant to the
power of attorney set forth in this Section 4.8, and, except as expressly
provided herein, all rights to such funds shall remain with Practice.
Practice covenants to transfer and deliver to Business Manager for deposit
into Depository Account, or covenants that Practice itself
20
will make such deposit of, all funds received by Practice from patients or
third party payors for Medical Services provided on or after the Effective
Date and for goods and services sold by Practice in connection with the
Non-Ophthalmic Business after the Effective Date. Upon receipt by Business
Manager of any funds from patients or third party payors or from Practice
pursuant hereto for Medical Services provided on or after the Effective
Date or for goods and services sold by Practice in connection with the Non-
Ophthalmic Business after the Effective Date, Business Manager shall
deposit same into the Depository Account as soon as commercially
practicable. In the manner set forth in Section 4.9 hereof, Business
Manager shall disburse such deposited funds to creditors and other persons
on behalf of Practice, maintaining records of such receipt and disbursement
of funds.
(g) To take possession of, and endorse in the name of Practice, solely
for deposit into the Depository Account, any notes, checks, money orders,
insurance payments and any other instruments received as payment for
Medical Services, ancillary services and for all goods and services sold by
Practice in connection with the Non-Ophthalmic Business.
(h) To sign checks, drafts, bank notes or other instruments on behalf
of Practice, and to make withdrawals from the Depository Account for
payments specified in this Management Services Agreement or as requested
from time to time by Practice.
Throughout the Term (and as provided in Section 7.3 hereof), Practice hereby
grants to Business Manager an exclusive special power of attorney for the
purposes stated herein and appoints Business Manager as Practice's exclusive
true and lawful agent and attorney-in-fact, and Business Manager hereby accepts
such special power of attorney and appointment, to deposit into the Depository
Account as and when received all funds, fees and revenues generated from
Practice's provision of Medical Services and ancillary services on or after the
Effective Date and collected by Business Manager and for all goods and services
sold by Practice in connection with the Non-Ophthalmic Business on or after the
Effective Date and collected by the Business Manager, and to make withdrawals
from Depository Account solely for payments specified in this Management
Services Agreement, including any Preexisting Obligation Payments directly
affecting property used in or relating to the Office, and/or as requested from
time to time by Practice. Upon request of Business Manager, Practice shall
execute and deliver to the financial institution where the Depository Account is
maintained, such additional documents or instruments as may be necessary to
evidence or effect the special and limited power of attorney granted to Business
Manager by Practice pursuant to this Section 4.8. The special and limited power
of attorney granted herein shall be coupled with an interest and shall be
irrevocable during the term hereof, except with Business Manager Consent. The
irrevocable power of attorney shall expire on the later of the termination of
this Management Services Agreement, the collection, sale or release of all
accounts receivable purchased by Business Manager, and the payment of all
Management Fees due to Business Manager as of such date pursuant to Section 6.2
hereof. If Business Manager assigns this Management Services Agreement in
accordance with its terms, then Practice shall execute a power of attorney in
favor of the assignee and in the form of Exhibit 4.8 attached hereto.
-----------
21
4.9 Priority of Payments. As of the Effective Date, all revenue of
--------------------
Practice derived from Medical Services and ancillary services provided on and
after the Effective Date and from sales of all goods or services sold by
Practice in connection with the Non-Ophthalmic Business on or after the
Effective Date (collectively, "Post-Effective Date Revenues") shall be deposited
into the Depository Account (or, in the alternative, identified or segregated in
such a manner as to permit the Post-Effective Date Revenues to be deposited into
the Depository Account when and as directed by Business Manager) for
distribution in accordance with this Section 4.9. From and after the Effective
Date, each month Business Manager shall apply, or retain on behalf of Practice,
funds that are in the Depository Account in the following order of priority:
(a) to Business Manager, in satisfaction of Office Expense, except the
Management Fee;
(b) as directed by Practice, in satisfaction of Monthly Practice
Expense; and
(c) to Business Manager, in satisfaction of the Management Fee.
4.10 Fiscal Matters.
--------------
(a) Annual Budget.
-------------
(i) Initial Budget. The initial Budget shall be agreed upon
by the parties before the execution of this Management Services
Agreement and shall be attached hereto and made a part hereof.
(ii) Process for Succeeding Budgets. Annually and at least
forty-five (45) days prior to the commencement of each fiscal year of
Business Manager, Business Manager, in consultation with the Policy
Board, shall prepare and deliver to Practice for its approval a
proposed Budget, setting forth an estimate of Practice's revenues and
expenses for the upcoming fiscal year (including, without limitation,
the Non-Ophthalmic Business Budgeted Practice Expense, the Principal
Services Budgeted Practice Expense, the Non-Ophthalmic Business
Monthly Fee and the Principal Services Monthly Fee). Practice shall
review the proposed Budget and either approve the proposed Budget or
request any changes within fifteen (15) days after receiving the
proposed Budget. The Budget shall be adopted upon mutual agreement of
Business Manager and Practice after reasonable review and comment and
may be revised or modified only in consultation with Business Manager.
Once approved by both Business Manager and Practice, each succeeding
Budget shall be attached hereto and made a part hereof.
(iii) Deadlock. In the event the parties are unable to agree on
--------
a Budget by the beginning of the fiscal year (a "Deadlock"), then until an
agreement is reached, the Budget for the prior year shall be deemed to be
adopted as the Budget for the current year. Notwithstanding the foregoing,
the Policy Board, in its judgment, may impose reductions
22
on a consistent basis to each of Principal Services Budgeted Practice
Expense and the Principal Services Monthly Fee in the event that the Policy
Board makes a determination that general economic conditions and/or
regulatory developments adversely affecting the Medical Services provided
by Practice render the present levels of the Principal Services Budgeted
Practice Expense and the Principal Services Monthly Fee impractical. For
purposes of illustration only, and without limitation, such general
economic conditions and/or regulatory developments could include proposed
or actual cuts in Medicare/Medicaid reimbursement for procedures that are a
material component of the Medical Services performed by Practice. Following
resolution of any Deadlock, Principal Services Budgeted Practice Expense
and the Principal Services Monthly Fee (and the corresponding Principal
Services Monthly Practice Expense and Principal Services Management Fee as
calculated in Article VI hereof) shall be recomputed retroactive to the
beginning of the fiscal year based upon the parameters agreed to in the new
Budget, and appropriate adjustments in payments owing to Practice and/or
Business Manager, as the case may be, resulting from such recomputation
shall be made promptly. Notwithstanding the foregoing, if after six months
the parties are still unable to agree on a Budget, then the dispute shall
be submitted to arbitration in accordance with Section 8.6 hereof. Until
the arbitrator renders a judgment or the dispute is otherwise resolved, the
adjustments described in this Section 4.10(a)(iii) shall continue to apply.
Notwithstanding anything to the contrary contained herein, nothing in this
Section 4.10(a)(iii) shall affect the payment of Office Expense, which
shall be paid in full in accordance with the provisions of this Agreement.
For purposes of Section 4.10(iii) and (iv), "Budgeted Practice Expense" and
"Monthly Fee" shall refer to either Principal Services or the Non-
Ophthalmic Business.
(iv) Modifications to Budget. The Budget may be modified at any
time by mutual agreement of Practice and Business Manager, which
modifications may include, without limitation, modifications to the
Principal Services Monthly Fee and Principal Services Budgeted Practice
Expense in the event that additional Physicians or Optometrists become
affiliated with Practice during the calendar year.
(b) Accounting and Financial Records. Business Manager shall
--------------------------------
establish and administer adequate accounting procedures, controls and systems
for the development, preparation and safekeeping of administrative and financial
records in connection with the performance of its duties and responsibilities
hereunder, all of which shall be prepared and maintained in accordance with GAAP
and applicable laws and regulations. Business Manager shall provide Practice
with the following:
(i) Monthly Reports. As soon as practicable, and in any event
no later than fifteen (15) days after the end of each calendar month,
Business Manager shall furnish to Practice a monthly statement
reflecting the computation for the Non-Ophthalmic Business Monthly
Practice Expense, Principal Services Monthly Practice Expense, the
Non-Ophthalmic Business Management Fee and the Principal Services
Management Fee. Within forty-five (45) days after the end of each
23
month, Business Manager shall provide Practice with a monthly
statement reflecting the accounting activity for Practice prepared in
accordance with GAAP.
(ii) Annual Financial Statements. As soon as practicable, and
in any event no later than one hundred twenty (120) days after the end
of each calendar year, Business Manager shall furnish to Practice
audited financial statements of Business Manager, consisting of a
balance sheet and related statements of income, changes in members'
equity and cash flow, all of which (taken as a whole) shall reflect
the financial status of Business Manager as of the end of such
calendar year, and shall be prepared in accordance with GAAP
consistently applied.
(c) Review of Fiscal Matters. A Representative of Practice shall
------------------------
have the right to review all fiscal matters related to the operation of
Practice, including, without limitation, all xxxxxxxx, collections and
expenditures, but Practice shall not have the power to prohibit or
invalidate any expenditure that is consistent with the Budget.
(d) Tax Matters. Business Manager and Practice acknowledge and
-----------
agree that, to the extent that any of the services to be provided by
Business Manager hereunder may be subject to any state sales and use taxes,
Business Manager may have a legal obligation to collect such taxes from
Practice and to remit same to the appropriate tax collection authorities.
Practice agrees to pay, in addition to the payment of the Management Fee
and as an Office Expense, the applicable state sales and use taxes in
respect of the portion of the Management Fees attributable to such
services. In the event that the services provided hereunder by Business
Manager are ever subject to any sales or use tax, then the parties agree to
negotiate in good faith a new service arrangement or basis for compensation
for the services furnished pursuant to this Management Services Agreement
that eliminates or reduces any potential tax and approximates as closely as
possible the economic position of the parties prior to the change;
provided, however, that nothing in this Section 4.10(d) shall be construed
as tax avoidance and the parties hereto shall only be obligated to
negotiate new arrangements which are in conformance with law and which
would not subject either party to any risk of civil penalty or criminal
prosecution.
4.11 Reports and Records.
-------------------
(a) Medical Records. Business Manager shall advise and assist
---------------
Practice as to the establishment, monitoring and maintenance of procedures
and policies for the timely creation, preparation, filing and retrieval of
all medical records generated by Practice in connection with Practice's
provision of Medical Services; and, subject to applicable law, shall ensure
that medical records are promptly available to Physicians and any other
appropriate persons. All such medical records shall be retained and
maintained in accordance with all applicable state and federal laws. All
medical records are, and will remain, the property and Confidential
Information of Practice and its patients.
24
(b) Other Reports and Records. Business Manager shall create,
-------------------------
prepare and file such additional reports and records as are reasonably
necessary or appropriate for Practice's provision of Medical Services, and
shall be prepared to analyze and interpret such reports and records upon
the request of Practice.
4.12 Recruitment of Physicians and Optometrists. Upon Practice's
------------------------------------------
request, Business Manager shall perform all administrative services reasonably
necessary or appropriate to recruit potential Physicians and Optometrists to
become employees of Practice. Business Manager shall provide Practice with
model agreements to document Practice's employment, retention or other service
arrangements with such individuals. It is and will remain the sole and complete
responsibility of Practice to interview, select, contract with, supervise,
control and terminate all Physicians and Optometrists performing Medical
Services or other professional services, and Business Manager shall have no
authority whatsoever with respect to such activities.
4.13 Confidential and Proprietary Information.
----------------------------------------
(a) Business Manager will not disclose any Confidential Information of
Practice to other persons without Practice Consent. Business Manager will
not, directly or indirectly, use such Confidential Information in a manner
detrimental to Practice, and Business Manager will keep such Confidential
Information confidential and will ensure that its affiliates and advisors
who have access to such Confidential Information comply with these
nondisclosure obligations. Notwithstanding the foregoing, Business Manager
may disclose Confidential Information to those of its Representatives who
need to know Confidential Information for the purposes of this Management
Services Agreement, it being understood and agreed to by Business Manager
that such Representatives will be informed of the confidential nature of
the Confidential Information, will agree to be bound by this Section 4.13,
and will be directed by Business Manager not to disclose to any other
person any Confidential Information. Business Manager shall be responsible
for any breach of this Section 4.13 by its affiliates, advisors or
Representatives. If Business Manager is required (by interrogatories,
requests for information or documents, subpoenas, civil investigative
demands or similar legal processes) to disclose or produce any Confidential
Information furnished in the course of its dealings with Practice or its
affiliates, advisors or Representatives, Business Manager will (i) provide
Practice with prompt prior notice thereof and copies, if possible, and, if
not, a description, of the request and the Confidential Information
requested or required to be produced so that Practice may seek an
appropriate protective order or other protections to enforce the provisions
of this Section 4.13, or, alternatively, waive compliance with the
provisions of this Section 4.13, and (ii) consult with Practice as to
whether Practice should attempt to resist or narrow such request. If
Business Manager is compelled to disclose or produce Confidential
Information concerning Practice or, in the alternative, be liable for
contempt or suffer other censure or penalty, Business Manager may disclose
or produce such Confidential Information without liability hereunder;
provided, however, that Business Manager shall give Practice written notice
of the Confidential Information to be so disclosed or produced, and a copy
of the request therefor, as far in advance of its
25
disclosure or production as is reasonably practicable and shall use its
commercially reasonable efforts to obtain, to the greatest extent
practicable, an order or other reliable assurance that confidential
treatment will be accorded to such Confidential Information so required to
be disclosed or produced.
(b) Notwithstanding clause (a) above, Business Manager may share,
subject to the restrictions of this Section 4.13(b), with other
professional corporations, associations, medical practices or health care
delivery entities, the statistics of Practice, including utilization review
data, quality assurance data, cost data, outcomes data or other Practice
data. Business Manager may disclose such statistics to other medical
groups with whom Business Manager has a management relationship, to managed
care providers or other third party payors for the purpose of obtaining or
maintaining third party payor contracts, or to financial analysts and
underwriters. In addition, Business Manager may disclose all Practice-
related information necessary or desirable in connection with any public or
private offering of any security of Business Manager, but no such data will
disclose or divulge patient identifying information.
26
4.14 Business Manager's Insurance.
----------------------------
(a) Business Manager's Insurance. Throughout the Term, Business
----------------------------
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof and in a
manner consistent with good business practice, appropriate workers'
compensation coverage for Business Manager's employed personnel provided to
Practice pursuant to this Management Services Agreement, and professional,
casualty and comprehensive general and vicarious liability insurance
covering Business Manager, the Office, Business Manager's personnel and all
of Business Manager's equipment in such amounts, on such basis and upon
such terms and conditions as Business Manager deems appropriate. Upon the
request of Practice, Business Manager shall provide Practice with a
certificate evidencing such insurance coverage and Business Manager shall
use commercially reasonable efforts to list Practice as an additional
insured. Business Manager may carry, as an Office Expense, some form of
business interruption insurance in amounts determined reasonable and
sufficient by Business Manager, listing Practice as the insured. Business
Manager may also, in its reasonable discretion, carry key person life and
disability insurance on any Physician in amounts determined reasonable and
sufficient by Business Manager, the expense of which shall be (i) a
Business Manager Expense if Business Manager is the beneficiary or, (ii)
with Practice Consent, an Office Expense if Practice is the beneficiary.
The cost of any insurance procured by Business Manager pursuant to this
Section 4.14(a) shall be an Office Expense only to the extent it relates to
Practice, the Office or Business Manager's performance of its duties
pursuant to the terms and conditions of this Management Services Agreement.
(b) Professional and General Liability Insurance of Practice.
--------------------------------------------------------
Business Manager shall obtain and maintain, on behalf of Practice and as an
Office Expense, professional and comprehensive general liability insurance
covering Practice and each of Physicians and Optometrists. The
comprehensive general liability coverage shall be in the minimum amount of
One Million dollars ($1,000,000) for each occurrence and Two Million
dollars ($2,000,000) annual aggregate; and professional liability coverage
shall be in the minimum amount of One Hundred Thousand dollars ($100,000)
for each occurrence and Three Hundred Thousand dollars ($300,000) annual
aggregate, or any other higher minimum coverage requirements established by
law. The insurance policy or policies shall provide for at least (30)
days' advance written notice to Business Manager and Practice from the
insurer as to any alteration of coverage, cancellation or proposed
cancellation for any cause. Business Manager shall cause to be issued to
Practice a certificate of such insurer or insurers reflecting such coverage
and either party hereunder shall provide written notice to the other party
promptly upon receipt of any notice canceling or proposing to cancel the
insurance coverage of Practice, or any Physician or Optometrist for any
reason. Upon the termination of this Management Services Agreement for any
reason, Practice shall obtain and maintain as a Practice Expense "tail"
professional liability coverage, in the amounts specified in this Section
4.14(b) for an extended reporting period of ten years, and Practice shall
be responsible for paying all premiums for "tail" insurance coverage.
27
(c) Health Insurance. Business Manager shall, to the extent such
----------------
coverage `is available from Business Manager's current insurance carrier,
make available to, and accessible by, Physicians and Optometrists health
benefits under any health benefit program maintained by Business Manager.
If any Physician or Optometrist elects such coverage, subject to Section
1.34(b), the cost of such coverage shall be deemed an Office Expense for
any Physician-Employee or Optometrist, and a Practice Expense for any
Physician-Shareholder.
4.15 No Warranty. Practice acknowledges that Business Manager has not
-----------
made and will not make any express or implied warranties or representations that
the services provided by Business Manager will result in any particular amount
or level of revenue or income to Practice.
4.16 Acquisition of Xx. Xxxxx'x VisionWorld. During the Term, Business
--------------------------------------
Manager hereby agrees that it will not, without Practice Consent, enter into any
acquisition, merger, consolidation or affiliation similar in nature to Business
Manager's affiliation with Practice with Xx. Xxxxx'x VisionWorld ("VisionWorld")
in the Louisville metropolitan area. The parties acknowledge and agree that the
foregoing covenant of Business Manager is unique and exclusive to VisionWorld
and shall not be interpreted as applying to any other physician, optometrist,
person, practice or other type of business in the Louisville metropolitan area.
The parties hereto further acknowledge and agree that Business Manager is a
physician practice management company in the business of affiliating with and
managing physician and optometric practices and, therefore, Business Manager
shall have the sole discretion to affiliate with and/or manage any physician,
optometrist, person, practice or other type of business as it deems fit.
4.17 Practice Development. Business Manager shall assist Practice in
--------------------
its practice development and efficiency. Practice and Physician-Shareholder
believe that they have the capacity to perform substantially more surgeries than
are presently being done. Business Manager shall develop and implement
marketing and practice development strategies with the intent of increasing the
number of surgeries performed by Practice and Physician-Shareholder.
4.18 Acquisitions and Affiliations. Business Manager shall actively
-----------------------------
pursue physician and optometric affiliations and acquisitions, all in
conjunction with market strategies which are appropriate in NovaMed's reasonable
discretion, with the intent of increasing the number of Practice's and
Physician-Shareholder's patients and the number of surgeries performed by
Practice and Physician-Shareholder.
4.19 Access to Personnel. Practice shall have reasonable access to T.
-------------------
Xxxxx Xxxxx for assistance with practice development and efficiency, Xxxxxx X.
Xxxxxxxxx for assistance with optometric affiliations, Xxxxxx X. Xxxxxxxx for
assistance with physician affiliations, and Xxxxx X. Xxxxxxx for assistance with
managed care contracts, or, in lieu of any of the aforementioned individuals,
any replacements, successors or other similarly qualified individuals.
28
4.20 Funding. Business Manager shall provide sufficient funds to allow
-------
the purchase of equipment and to provide sufficient working capital for the
efficient operation of the Practice in accordance with the terms and conditions
of this Management Services Agreement.
4.21 Allocation of Expenses. To the extent not addressed in the
----------------------
Budget, Practice and Business Manager shall mutually agree upon the reasonable
allocation of expenses between the operation of Practice and the operation of
the ambulatory surgery center. In addition, to the extent not addressed in the
Budget, Practice and Business Manager shall agree upon the reasonable allocation
of any expenses between the operation of Practice and the operation of any other
practices that Business Manager is the business manager thereof.
4.22 Reasonable Best Efforts. Business Manager shall use its
-----------------------
reasonable best efforts in performing its duties hereunder.
ARTICLE V
COVENANTS AND RESPONSIBILITY OF PRACTICE
5.1 Organization and Operation. Practice, as a continuing condition of
--------------------------
Business Manager's obligations under this Management Services Agreement, shall
at all times during the Term be and remain legally organized and operated to
provide Medical Services in a manner consistent with all state and federal laws.
(a) Employment of Physicians.
------------------------
(i) Practice shall operate and maintain within the Practice
Territory a full-time practice of medicine specializing in the
provision of Medical Services, and shall maintain and enforce
employment agreements in the form of Exhibit 5.1 (the "Employment
-----------
Agreements") with Physician-Shareholders, including, without
limitation, the initial Physician-Shareholders identified in Exhibit
-------
5.1A. Practice shall not amend the Employment Agreements in any
----
material manner or waive any material rights of Practice thereunder
without the prior written approval of Business Manager. Recognizing
that Business Manager would not have entered into this Management
Services Agreement but for Practice's covenant to maintain Employment
Agreements with Physician-Shareholders, and subject to subparagraph
(ii) below, Practice shall pay to Business Manager, in addition to the
Management Fee, any damages, compensation, payment or settlement
received by Practice from a Physician who terminates his or her
Employment Agreement without Physician Cause (as defined in the
Employment Agreement) or whose Employment Agreement is terminated by
Practice for Practice Cause (as defined in the Employment Agreement)
or for any other material breaches of the Employment Agreements (such
damages being collectively referred to herein as the "Business Manager
Damages").
29
(ii) Notwithstanding the provisions of Section 5.1(a)(i) above,
or any other provision to the contrary contained herein, Practice
shall have a period of not less than forty-five (45) days following
the occurrence of any event described in Section 5.1(a)(i) above that
entitles Business Manager to receive Business Manager Damages to take
such actions to cure the breach of any Employment Agreement by a
Physician-Shareholder (which actions to cure may, without limitation,
include retention of additional Physicians to replace the levels of
revenue and income previously generated by the Physician causing such
breach); provided, however, that the determination of whether or not
such breach has been cured shall be made by Business Manager in its
good faith discretion, and provided further, that Practice shall in no
event be permitted to cure any breach that results from a breach by a
Physician-Shareholder of any non-competition provision contained in
any Employment Agreement. Without limiting the rights of Business
Manager set forth herein, and notwithstanding the fact that Business
Manager is entitled in limited circumstances to certain damages from
Practice which arise from breaches of an Employment Agreement with any
Physician-Shareholder, NovaMed shall not be construed as being a third
party beneficiary to the Employment Agreement.
(b) Corporate Governance. Throughout the Term of this Management
--------------------
Services Agreement, Practice shall maintain and enforce written Buy-Sell
Agreements with Physician-Shareholders specified in Exhibit 5.1A, and shall
------------
cause all new shareholders of Practice to execute such agreements prior to
becoming a shareholder in Practice. Within ninety (90) days following the
Original Date, the Physician-Shareholder shall execute a new Buy-Sell
Agreement which addresses the concepts set forth on Exhibit 5.1B to the
------------
satisfaction of Business Manager, Practice and each of their respective
counsel. Practice will also maintain its articles of incorporation and by-
laws in accordance with applicable law, including, without limitation, any
laws governing the transferability of shares from disqualified shareholders
to qualified shareholders. Throughout the Term of this Management Services
Agreement, Practice shall not, without the prior written consent of
Business Manager, amend such documents or waive any rights thereunder in
any manner.
5.2 Practice Personnel.
------------------
(a) Physician Personnel and Optometrists. Practice shall retain
------------------------------------
the number of Physicians and Optometrists as is reasonably necessary and
appropriate in the sole discretion of Practice for the provision of Medical
Services. Each Physician shall hold and maintain a valid and unrestricted
license to practice medicine in the state of Indiana, shall be certified by
the American Board of Ophthalmology, and shall be competent, in the
reasonable opinion of Practice, in the practice of ophthalmology. Each
Optometrist shall hold and maintain a valid and unrestricted license to
practice optometry in the state of Indiana, and shall be competent, in the
reasonable opinion of Practice, in such practice. Practice shall enter
into and maintain with each such retained Physician and Optometrist a
written employment agreement substantially in the form of either Exhibit
-------
5.1 for
---
30
Physician-Shareholders or Exhibit 5.2A for any Physician-Employees not
------------
employed by Practice as of the Original Date. Practice will neither commit
nor permit to remain outstanding any breach of such employment agreement
that would allow any Physician or Optometrist to terminate for cause.
Regardless of whether the compensation is a Practice Expense or Office
Expense, Practice shall be responsible for paying the compensation and
benefits, as applicable, for all Physicians, Optometrists, and any other
physician personnel or other contracted or affiliated physicians, and for
withholding any sums for income tax, unemployment insurance, social
security or any other withholding required by applicable law. If requested,
Business Manager shall, on behalf and at the direction of Practice,
administer the compensation with respect to such individuals in accordance
with the written agreement between Practice and each Physician or
Optometrist. Business Manager shall neither control nor direct any
Physician or Optometrist in the performance of Medical Services for
patients.
(b) Nonphysician Personnel. Business Manager shall retain all
----------------------
nonphysician personnel necessary for the operation of Practice and such
nonphysician personnel shall be under Business Manager's control,
supervision and direction in the performance of their duties, except for
(i) Designated Allied Health Professionals, who shall perform their duties
under the supervision and control of Practice's Medical Director,
consistent with the requirements necessary to meet the "incident to"
provisions of the Medicare program, and (ii) opticians and others providing
services in Practice's Non-Ophthalmic Business, who shall perform their
duties under the supervision and control of Physicians and Optometrists.
Business Manager shall consult with, solicit the input of, and reasonably
cooperate with, Medical Director of Practice in the hiring and scheduling
of Designated Allied Health Professionals.
5.3 Professional Standards. As a continuing condition of Business
----------------------
Manager's obligations hereunder, each Physician, Optometrist and any other
physician personnel retained by Practice to provide Medical Services must comply
with, be controlled and governed by, and otherwise provide Medical Services in
accordance with, all applicable federal, State and municipal laws, rules,
regulations, ordinances and orders, and the ethical standards and standards of
care of the medical community wherein the principal office of each Physician or
Optometrist is located. In addition, each Physician and any other physician
personnel retained by Practice to provide Medical Services must obtain and
retain appropriate admitting privileges at local area hospitals or health care
facilities which are reasonably adequate for Physician to perform Medical
Services. Procurement of temporary staff privileges pending the completion of
the medical staff approval process shall satisfy this provision, provided
Physician actively pursues full admitting privileges and actually receives full
admitting privileges within a reasonable time.
5.4 Medical Services. Practice shall use reasonable efforts to ensure
----------------
that Physicians and Optometrists are available to provide Medical Services to
patients. In the event that Physicians or Optometrists are not available to
provide the relevant Medical Services coverage, Practice shall engage and retain
locum tenens coverage. Physicians and Optometrists retained on a locum tenens
basis shall meet all of the requirements of Section 5.3 hereof. The cost of
31
providing locum tenens coverage for any Optometrists and Physician-Employees
shall be an Office Expense, and the cost of providing locum tenens coverage for
any Physician-Shareholder shall be a Practice Expense. With the assistance of
Business Manager, the Medical Director of Practice shall be responsible for
scheduling the relevant coverage of all medical and eye-related procedures.
Practice shall use its best efforts to develop and promote Practice.
5.5 Peer Review/Quality Assurance. Practice shall adopt a peer
-----------------------------
review/quality assurance program to monitor and evaluate the quality and cost-
effectiveness of Medical Services provided by Physicians and Optometrists of
Practice. Upon request of Practice, Business Manager shall provide
administrative assistance to Practice in performing its peer review/quality
assurance activities, but only if such assistance can be provided in a manner
consistent with maintaining the confidentiality and privileged status of the
processes and actions of the peer review/quality assurance process of Practice.
5.6 Confidential and Proprietary Information. Practice will not
----------------------------------------
disclose any Confidential Information of Business Manager without Business
Manager's express written authorization. Such Confidential Information will not
be used in any way directly or indirectly detrimental to Business Manager, and
Practice will keep such Confidential Information confidential and will ensure
that its affiliates and advisors who have access to such Confidential
Information comply with these nondisclosure obligations. Notwithstanding the
foregoing, Practice may disclose Confidential Information to those of its
Representatives who need to know Confidential Information for the purposes of
this Management Services Agreement, it being understood and agreed to by
Practice that such Representatives will be informed of the confidential nature
of the Confidential Information, will agree to be bound by this Section 5.6, and
will be directed by Practice not to disclose to any other person any
Confidential Information. Practice shall be responsible for any breach of this
Section 5.6 by its affiliates, advisors or Representatives. If Practice is
required (by interrogatories, requests for information or documents, subpoenas,
civil investigative demands or similar processes) to disclose or produce any
Confidential Information furnished in the course of its dealings with Business
Manager or its affiliates, advisors or Representatives, Practice will (i)
provide Business Manager with prompt prior notice thereof and copies, if
possible, and, if not, a description, of the request and the Confidential
Information requested or required to be produced so that Business Manager may
seek an appropriate protective order or other protections to enforce the
provisions of this Section 5.6, or, alternatively, waive compliance with the
provisions of this Section 5.6 and (ii) consult with Business Manager as to the
advisability of Business Manager's taking of legally available steps to resist
or narrow such request. Practice further agrees that if, in the absence of a
protective order or the receipt of a waiver hereunder, Practice is nonetheless,
in the written opinion of its legal counsel, compelled to disclose or produce
Confidential Information concerning Business Manager to any tribunal or to stand
liable for contempt or suffer other censure or penalty, Practice may disclose or
produce such Confidential Information to such tribunal legally authorized to
request and receive such Confidential Information without liability hereunder;
provided, however, that Practice shall give Business Manager written notice of
the Confidential Information to be so disclosed or produced, and a copy of the
request therefor, as far in advance of its disclosure or production as is
practicable and shall use its best efforts to obtain, to the greatest extent
32
practicable, an order or other reliable assurance that confidential treatment
will be accorded to such Confidential Information so required to be disclosed or
produced.
5.7 Noncompetition. Practice hereby recognizes and acknowledges that
--------------
Business Manager will incur substantial costs in providing the equipment,
support services, personnel, management, administration, and other items and
services that are the subject matter of this Management Services Agreement and
that in the process of providing services under this Management Services
Agreement, Practice will be privy to financial and Confidential Information of
Business Manager and other Regional Practices, to which Practice would not
otherwise be exposed. The parties also recognize that the services to be
provided by Business Manager will be feasible only if Practice operates an
active practice to which Physicians associated with Practice devote their full
professional time and attention. Practice agrees and acknowledges that the
noncompetition covenants described hereunder are necessary for the protection of
Business Manager, and that Business Manager would not have entered into this
Management Services Agreement without the following covenants:
(a) During the Term of this Management Services Agreement and except
for the performance of Medical Services and ancillary services at the
Office as contemplated by this Management Services Agreement or as
expressly agreed to by Business Manager in writing, Practice shall not
establish, operate or provide Medical Services at a medical office, clinic
or other health care facility anywhere. During the Term of this Management
Services Agreement and except for the operation of the Non-Ophthalmic
Business at Offices contemplated by, or subject to, this Management
Services Agreement or as expressly agreed to by Business Manager in
writing, Practice shall not establish, operate or engage in a Non-
Ophthalmic Business at a medical office, clinic or other health care
facility.
(b) Except as specifically agreed to by Business Manager in writing,
Practice commits and agrees that during the Term of this Management
Services Agreement and for a period of five (5) years from the termination
date of this Management Services Agreement, except in the event Practice
terminates this Management Services Agreement for cause pursuant to Section
7.2(b) hereof (in which event this Section 5.7 shall not apply), Practice
shall not directly or indirectly own (excluding ownership of less five
percent (5%) of the equity of any publicly traded entity), manage, operate,
control, or otherwise be associated with, lend funds to, lend its name to,
or maintain any interest whatsoever in any enterprise (i) having to do with
the provision, distribution, promotion or advertising of any type of
management or administrative services or products to third parties in
competition with Business Manager; and/or (ii) offering any type of service
or product in the Practice Territory to third parties similar to those
offered by Business Manager to Practice. Notwithstanding the above
restriction, nothing herein shall prohibit Practice or any of its holders
from providing management and administrative services to its or their own
medical practices after the termination of this Management Services
Agreement.
33
(c) The written Employment Agreements described in Section 5.1 hereof
shall contain covenants of Physician-Shareholder whereby they agree not to
compete with Practice within the Practice Territory for one (1) year after
termination of the employment agreement, except in the event Physician
terminates such agreement for Physician Cause or certain buyout rights are
exercised.
(d) With respect to Physician-Employees employed by Practice as of
the Original Date, Practice shall enforce the current written agreements
with Physician Employees and Optometrists. With respect to any Physician
Employees commencing employment with Practice from and after the Original
Date, Practice shall enforce formal written agreements with Physician
Employees and Optometrists in the form of Exhibit 5.2A, pursuant to which
------------
the employees agree not to compete with Practice with the Practice
Territory for one (1) year after termination of the Employment Agreement,
except in the event Physician terminates such agreement for Physician
Cause.
(e) Practice understands and acknowledges that the provisions in
Section 5.6 hereof and this Section 5.7 are designed to preserve the
goodwill of Business Manager and the goodwill of the individual Physicians
and Optometrists of Practice. Accordingly, if Practice breaches any
obligation of Section 5.6 hereof or this Section 5.7, in addition to any
other remedies available under this Management Services Agreement at law or
in equity, Business Manager shall be entitled to enforce this Management
Services Agreement by injunctive relief and by specific performance of the
Management Services Agreement, such relief to be without the necessity of
posting a bond, cash or otherwise. Additionally, nothing in this paragraph
shall limit Business Manager's right to recover any other damages to which
it is entitled as a result of Practice's breach. If any provision of the
covenants herein is held by a court of competent jurisdiction to be
unenforceable due to an excessive time period, geographic area or
restricted activity, the covenant shall be reformed to comply with such
time period, geographic area or restricted activity that would be held
enforceable.
5.8 Names, Trademark. Practice represents and warrants that Practice
----------------
conducts its professional practice under the name of, and only under the name of
"American Eye Institute," that such name is the name of Practice under state
law, and that Practice is the licensee of such name under the Contribution and
Exchange Agreement. Business Manager hereby grants to Practice a paid-up, non-
transferrable license to use, during the term of this Management Services
Agreeement, the names of the optometric practices listed in Schedule 5.8.
------------
Practice represents and warrants that, subject to the foregoing license,
Practice is legally entitled to conducts its professional practice or its Non-
Ophthalmic Business under the names listed in Schedule 5.8 hereof and that
------------
Practice is legally allowed to use and practice under such names under state
law. Practice covenants and promises that, without the prior written consent of
Business Manager, Practice will not:
(a) take any action or omit to take any action that would result in
the change or loss of any of the foregoing described names;
34
(b) license, sell, give or otherwise transfer the names, or the right
to use the names, to any medical practice, physician, professional
corporation or any other entity; or
(c) cease conducting the professional practice of Practice under any
of the names.
5.9 Medical Advisory Board. The Operating Board of Business Manager has
----------------------
appointed a medical advisory board (the "Medical Advisory Board") to provide a
general forum for review and analysis of medical and clinical issues affecting
the Regional Practices and all other medical practices with which Business
Manager has entered into a Management Services Agreement or similar agreement.
The Medical Advisory Board consists of at least three Doctors of Ophthalmology,
one of whom is designated as the "Medical Director," and may include, at the
discretion of the Operating Board of Business Manager, one or more Doctors of
Optometry, Registered Nurses or other health care professionals. The Vice
President Clinical Operations of Business Manager, and/or such other designee as
Business Manager shall select, attends meetings of the Medical Advisory Board on
a consulting basis. Members of the Medical Advisory Board serve for one-year
terms and are appointed or re-appointed for such term during the first meeting
of the Operating Board of Business Manager held for each calendar year. The
Operating Board of Business Manager may name additional members, remove any
member, or fill any vacancy created by the resignation, death or disability of
any member, of the Medical Advisory Board during any duly called meeting of such
Operating Board. Notwithstanding anything to the contrary contained herein, the
Medical Advisory Board will serve in a solely advisory capacity and the ultimate
authority over medical decisions affecting Practice shall reside with Practice's
Physician-Shareholders.
5.10 Indemnification of Business Manager. Practice shall hold Business
-----------------------------------
Manager, its Affiliates, Representatives, successors and assigns and each of
them harmless from and against any and all losses, damages, fines, costs,
claims, judgments, proceedings, expenses or liabilities (including, without
limitation, reasonable attorneys' fees, paralegal fees, and costs and expenses
thereof) arising out of, or attributable to, or which result from any claim of a
third party with respect to, (a) the operation of the Dispensary Business or the
performance of Medical Services (including, without limitation, malpractice
claims) or the performance of any intentional acts, or gross
negligent acts or omissions by Practice and/or its members, employees and/or
independent contractors (other than Business Manager) and (b) any miscoding or
other error in medical service or optical dispensary documentation by Practice
or its Physicians or Optometrists resulting in false or inaccurate xxxxxxxx.
5.11 Indemnification of Practice. Business Manager shall hold Practice,
---------------------------
its Affiliates, Representatives, successors and assigns and each of them
harmless from and against any and all losses, damages, fines, costs, claims,
judgments, proceedings, expenses or liabilities (including, without limitation,
reasonable attorneys' fees, paralegal fees, and costs and expenses thereof)
arising out of, or attributable to, or which result from, any claim of a third
party with respect to, (a) the performance of Management Services or the
performance of any intentional acts, or gross
35
negligent acts or omissions by Business Manager and/or its shareholders,
officers, employees and/or independent contractors (other than Practice), and
(b) any miscoding or other error in medical service documentation by Business
Manager or its employees resulting in false or inaccurate xxxxxxxx.
ARTICLE VI
FINANCIAL ARRANGEMENT
6.1 Definitions. For purposes of this Article VI, capitalized terms
-----------
used herein shall have the meanings ascribed as follows:
(a) Management Fee. The term "Management Fee" shall mean, for any
--------------
month, the sum of the Non-Ophthalmic Business Management Fee for such month and
the Principal Services Management Fee for such month.
(b) Monthly Office Expense. The term "Monthly Office Expense" shall
----------------------
mean, for any month, the sum of the Non-Ophthalmic Business Monthly Office
Expense for such month and the Principal Services Monthly Office Expense for
such month.
(c) Monthly Practice Expense. The term "Monthly Practice Expense"
------------------------
shall mean, for any month, the sum of the Non-Ophthalmic Business Monthly
Practice Expense for such month and the Principal Services Monthly Practice
Expense for such month.
(d) Non-Ophthalmic Business Budgeted Office Expense. The term "Non-
-----------------------------------------------
Ophthalmic Business Budgeted Office Expense" shall mean, for any month, the Non-
Ophthalmic Business Office Expense (other than the Non-Ophthalmic Business
Management Fee) established in the Budget for such month.
(e) Non-Ophthalmic Business Budgeted Practice Expense. The term "Non-
-------------------------------------------------
Ophthalmic Business Budgeted Practice Expense" shall mean, for any month, the
Non-Ophthalmic Business Practice Expense (as defined in the Budget) established
in the Budget for such month.
(f) Non-Ophthalmic Business Budgeted Revenue. The term "Non-
----------------------------------------
Ophthalmic Business Budgeted Revenue" shall mean, for any month, the Non-
Ophthalmic Business Revenue established in the Budget for such month.
(g) Non-Ophthalmic Business Management Fee. The term "Non-Ophthalmic
--------------------------------------
Business Management Fee" shall be, for any month, the * , except in the
event that either (i)
----------
* Confidential portions omitted and filed separately with the commission.
36
* or (ii) * for such month, in which case the "Non-Ophthalmic Business
Management Fee" for such month shall be * .
(h) Non-Ophthalmic Business Monthly Fee. The term "Non-Ophthalmic
-----------------------------------
Business Monthly Fee" shall be for any month, the * for such month.
(i) Non-Ophthalmic Business Monthly Office Expense. The term "Non-
----------------------------------------------
Ophthalmic Business Monthly Office Expense" for any month shall mean the amount
of Non-Ophthalmic Business Budgeted Office Expense for such month, plus or minus
any difference between (i) the actual Non-Ophthalmic Business Office Expense
incurred by or on behalf of Practice for the previous month (other than the Non-
Ophthalmic Business Management Fee) and (ii) Non-Ophthalmic Business Budgeted
Office Expense for the previous month.
(j) Non-Ophthalmic Business Monthly Practice Expense. The term "Non-
------------------------------------------------
Ophthalmic Business Monthly Practice Expense" shall mean, for any month, the
* for such month, except in the event that either (i) * or (ii) *
, in which case the term "Non-Ophthalmic Business Monthly Practice Expense" for
such month shall mean * .
(k) Non-Ophthalmic Business Office Expense. The term "Non-Ophthalmic
--------------------------------------
Business Office Expense" shall mean all Office Expenses, operating and non-
operating, which constitute direct expenses to produce Non-Ophthalmic Business
Revenue, as determined consistent with the Budget; provided that any
disagreement over whether an expense constitutes a direct expense to produce
Non-Ophthalmic Business Revenue shall be resolved by the Policy Board.
(l) Principal Services Budgeted Office Expense. The term "Principal
------------------------------------------
Services Budgeted Office Expense" shall mean, for any month, the Principal
Services Office Expense (other than the Principal Services Management Fee)
established in the Budget for such month; provided, however, that such monthly
amount shall not include any lease payments of Practice related to the equipment
lease described in Schedule 6.1 attached hereto (the "Equipment Lease").
------------
(m) Principal Services Budgeted Practice Expense. The term "Principal
--------------------------------------------
Services Budgeted Practice Expense" shall mean, for any month, the Principal
Services Practice Expense (as defined in the Budget) established in the Budget
for such month.
(n) Principal Services Budgeted Revenue. The term "Principal
-----------------------------------
Services Budgeted Revenue" shall mean, for any month, the amount of Principal
Services Revenue established in the Budget for such month.
(o) Principal Services Management Fee. The term "Principal Services
---------------------------------
Management Fee" shall be, for any month, the * , except in the event that
either (i) * , in which case the "Principal Services Management Fee" for
such month shall be * .
----------
* Confidential portions omitted and filed separately with the commission.
37
(p) Principal Services Monthly Fee. The term "Principal Services
------------------------------
Monthly Fee" shall mean, for any month, the * for such month.
(q) Principal Services Monthly Office Expense. The term "Principal
-----------------------------------------
Services Monthly Office Expense" shall mean, for any month, the amount of
Principal Services Budgeted Office Expense for such month, plus or minus any
difference between (i) the actual Principal Services Office Expense incurred by
or on behalf of Practice for [such] month (other than the Principal Services
Management Fee) and (ii) Principal Services Budgeted Office Expense for such
month.
(r) Principal Services Monthly Practice Expense. The term "Principal
-------------------------------------------
Services Monthly Practice Expense" shall mean, for any month, the * for
such month, except in the event that either (i) * or (ii) * , in
which case the term "Principal Services Monthly Practice Expense" for such month
shall mean * .
(s) Principal Services Office Expense. The term "Principal Services
---------------------------------
Office Expense" for any month shall mean all Office Expenses for such month
other than Non-Ophthalmic Business Office Expenses for such month.
6.2 Management Fee. Practice and Business Manager agree to the
--------------
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month, in the priority established by
Section 4.9 hereof, Business Manager will be paid the following:
(a) the amount of all Office Expense (other than the Non-Ophthalmic
Business Management Fee and the Principal Services Management Fee) for the
previous month, paid on behalf of Practice; and
(b) the Management Fee for the previous month.
6.3 Reasonable Value. Payment of the Management Fee is not intended
----------------
to be and shall not be interpreted or applied as permitting Business Manager to
share in Practice's fees for Medical Services or any other services, but is
acknowledged as the parties' negotiated agreement as to the reasonable fair
market value of the equipment, contract analysis and support, other support
services, purchasing, personnel, office space, management, administration,
strategic management and other items and services furnished by Business Manager
pursuant to this Management Services Agreement, after giving effect to the
nature and volume of the services required and the risks assumed by Business
Manager. The parties agree that it is appropriate to calculate and apply
separate fees for the management of the Non-Ophthalmic Business and Principal
Services, due to (i) the amount of Business Manager Expense incurred by
Business Manager in connection with the management of the operations of the Non-
Ophthalmic Business,
----------
* Confidential portions omitted and filed separately with the commission.
38
(ii) the fair market value of the management services provided by Business
Manager with respect to each of the Non-Ophthalmic Business and financial
services and (iii) the nature and volume of the services required and the risks
assumed by Business Manager with respect to each of the Non-Ophthalmic Business
and Principal Services.
6.4 Payment of Management Fee.
-------------------------
(a) To facilitate the payment of the Management Fee as provided in
Section 6.2 hereof, and subject to the priority of payment methodology set
forth in Section 4.9 hereof, Practice hereby expressly authorizes Business
Manager to make withdrawals of the Management Fee from the Depository
Account as such fee becomes due and payable during the Term and thereafter
as provided in Section 7.3 hereof.
(b) In calculating the Management Fee pursuant to this Article VI,
Business Manager agrees to calculate the contractual adjustment for
refractive procedures separate and apart from the contractual adjustments
for other procedures performed by Practice on a monthly basis.
(c) At the end of each calendar quarter, Business Manager agrees to
reconcile the actual collections of Principal Services Revenue and Non-
Ophthalmic Business Revenue against the amount of projected Principal
Services Revenue and Non-Ophthalmic Business Revenue based on contractual
adjustments during such calendar quarter and, following such
reconciliation, Business Manager shall then credit or debit the account of
Business Manager and Practice accordingly.
(d) In the manner set forth in Section 4.9 and as calculated pursuant
to Article VI hereof, and by the tenth business day of each month, Business
Manager agrees to make available to Practice in a bank account designated
by Practice the amount of funds constituting Practice Expense for the
immediately preceding month.
6.5 Accounts Receivable. Unless otherwise prohibited by law, to assure
-------------------
that Practice receives the entire amount of professional fees for its services
and to assist Practice in maintaining reasonable cash flow for the payment of
Office Expense, Practice hereby agrees to sell, and Business Manager hereby
agrees to purchase, with respect to any month during the Term and with recourse
to Practice for the amount of the purchase, accounts receivable of Practice (the
"Purchased Receivables") (i) in an amount equal to the difference, if any,
between (A) the sum of the Monthly Office Expense and the Monthly Practice
Expense paid or accrued by Business Manager for such month and (B) the amount of
cash collections deposited into the Depository Account during such month and
used to pay all or any portion of the Office Expenses and the Monthly Practice
Expense, by transferring such amount into the Depository Account, and (ii) in an
amount equal to the difference, if any, between the Management Fee and the
amount of cash collections deposited into the Depository Account during such
month and used to pay all or any portion of the Management Fee, in satisfaction
of Practice's obligation to pay Business Manager the Management Fee. The
consideration paid to Business Manager for the purchase shall be an
39
amount equal to the Principal Services Revenue and Non-Ophthalmic Business
Revenue with respect to the Purchased Receivables, computed in accordance with
GAAP on an accrual basis net of Adjustments. Although it is the intention of the
parties that Business Manager purchase and thereby become the owner of the
Purchased Receivables of Practice, in the event such purchase shall be
ineffective for any reason, Practice is concurrently granting to Business
Manager a security interest in the Purchased Receivables, and Practice shall
cooperate with Business Manager and shall execute all documents in connection
with the pledge of the Purchased Receivables to Business Manager. All
collections in respect to the Purchased Receivables by Business Manager shall be
received by Business Manager as the agent of Practice and shall be endorsed to
Business Manager and deposited in a bank account at a bank designated by
Business Manager. To the extent Practice comes into possession of any payments
in respect of the Purchased Receivables, Practice shall direct such payments to
Business Manager for deposit in bank accounts designated by Business Manager.
6.6 Disputes Regarding Fees.
-----------------------
(a) It is the parties' intent that any disputes regarding Business
Manager's performance hereunder shall be resolved to the extent possible by
good faith negotiations. To that end, the parties agree that if Practice
in good faith believes that Business Manager has failed to perform its
obligations, and that as a result of such failure, Practice is entitled to
a set-off or reduction in its Management Fees, Practice shall give Business
Manager notice of the perceived failure and request in the notice a set-off
or reduction in Management Fees. Business Manager and Practice shall then
negotiate the dispute in good faith, and if an agreement is reached, the
parties shall implement the resolution without further action.
(b) If the parties cannot reach a resolution within thirty (30) days,
and the amount at issue is $25,000 or less, then the dispute shall be
submitted to the Policy Board. The Policy Board shall then consider,
develop and implement a resolution of such dispute which shall be final and
binding upon Practice and Business Manager.
(c) If the amount in dispute is greater than $25,000, and Business
Manager and Practice fail to resolve the dispute, then such dispute shall
be submitted by either party to binding arbitration as described by Article
X of the Contribution and Exchange Agreement.
ARTICLE VII
TERM AND TERMINATION
7.1 Initial and Renewal Term. The Term of this Management Services
------------------------
Agreement will be for an initial period of forty (40) years after the Original
Date, and shall be automatically renewed for successive five (5) year periods
thereafter, provided that neither Business Manager
40
nor Practice shall have given notice of termination of this Management Services
Agreement at least one hundred twenty (120) days before the end of the initial
term or any renewal term, or unless otherwise terminated as provided in Section
7.2 hereof.
7.2 Termination.
-----------
(a) Termination By Business Manager. Business Manager may
-------------------------------
terminate this Management Services Agreement upon the occurrence of any one
of the following events which shall be deemed to be "for cause:"
(i) The suspension, restriction, revocation or cancellation of
any Physician-Shareholder license to practice medicine in the state of
Indiana (excluding, however, any suspension, restriction, revocation
or cancellation due to the death or disability of any Physician-
Shareholder;
(ii) Practice's loss or suspension of its Medicare or Medicaid
provider number, and/or Practice's restriction from treating patients
of the Medicare or Medicaid programs;
(iii) The dissolution of Practice or the filing by Practice of a
petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or other action taken voluntarily under any state or
federal statute for the protection of debtors;
(iv) The filing against Practice of an involuntary petition
under any bankruptcy statute, or the appointment of a custodian,
receiver, trustee or assignee for the benefit of creditors, and such
condition shall continue undischarged or undismissed for sixty (60)
days; and
(v) Practice materially defaults in the performance of any of
its material duties or obligations hereunder, and shall fail to cure
such default within sixty (60) days after Practice receives notice
from Business Manager specifying the nature of such default.
(b) Termination By Practice. Practice may terminate this
-----------------------
Management Services Agreement upon any of the following occurrences which
shall be deemed to be "for cause":
(i) In the event that an arbitrator pursuant to Section 8.6
hereof makes a final determination that Business Manager has
materially breached a fiduciary duty owed to Practice, Practice may
terminate this Management Services Agreement upon ten (10) days'
notice to Business Manager;
(ii) With ten (10) days' written notice to Business Manager, in
the event Business Manager (A) intentionally and in bad faith
misappropriates Practice's
41
funds, or (B) fails to properly account Practice's funds and fails to
correct such accounting error within thirty (30) days of receipt of
notice from Practice describing with particularity the error; or
(iii) Business Manager materially defaults in the performance of
any of its material duties or obligations hereunder and shall fail to
cure such default within ninety (90) days after Business Manager
receives written notice from Practice specifying the nature of such
default in sufficient detail; provided, however that in the event such
breach is of a nature that it cannot reasonably be cured within such
ninety (90) day period, then such default shall arise only if Business
Manager shall fail to commence to cure such default within such ninety
(90) day period and thereafter to proceed diligently to cure such
default; provided, further, that irrespective of Business Manager's
diligent efforts to cure such default, then such default shall arise
if Business Manager fails to cure such default within one hundred
twenty (120) days after Business Manager received the original notice
from Practice specifying the nature of such default.
(iv) Upon an Event of Default (as defined in the Notes, which in
turn is defined in the Contribution and Exchange Agreement) under the
terms and conditions of the Notes issued by Business Manager to
Practice pursuant to the Contribution and Exchange Agreement, and
Business Manager shall fail to cure such Event of Default within ten
(10) business days after receipt of written notice from Practice
specifying the nature of such Event of Default; provided, however,
that this subparagraph (iv) shall not apply to any Notes issued
pursuant to Section 4 or 6 of the Notes.
(v) In the event Practice delivers the Practice Redemption
Notice (as defined in the Note) to Business Manager pursuant to the
terms and conditions of the Note, and Business Manager does not pay
the entire amount of principal then outstanding under the Notes,
together with any accrued and unpaid interest thereon through such
date, in full within thirty (30) business days of Business Manager's
receipt of the Practice Redemption Notice; provided, however, that
this subparagraph (v) shall not apply to any Notes issued pursuant to
Section 4 or 6 of the Notes.
(vi) The filing by Business Manager (or any of its affiliates)
of a petition in voluntary bankruptcy, an assignment for the benefit
of creditors, or other actions taken voluntarily under any state or
federal statute for the protection of debtors prior to the earlier of
(A) the issuance of the Automatic Exchange Shares (as defined in the
Notes) under the Exchange Formula (as defined in the Notes) to
Practice, pursuant to Section 2 of the Notes issued by Business
Manager to Practice or (B) the payment of the entire amount of
principal outstanding under the Notes or any note or notes issued in
renewal, restatement, extension modification or replacement thereof
(excluding, however, any Notes issued pursuant to Section
42
4 or 6 of the Notes), together with any accrued and unpaid interest
thereon, through such date in full within thirty (30) business days of
receipt of Practice Redemption Notice.
(vii) The filing against Business Manager (or any of its
affiliates) of an involuntary petition under any bankruptcy statute or
the appointment of a custodian, receiver, trustee or assignee for the
benefit of creditors and such condition shall continue undischarged or
undismissed for sixty (60) days prior to the earlier of (A) the
issuance of the Automatic Exchange Shares under the Exchange Formula
to Practice, pursuant to Section 2 of the notes issued by Business
Manager to Practice or (B) the payment of the entire amount of
principal outstanding under the Notes or any note or notes issued in
renewal, restatement, extension modification or replacement thereof
(excluding, however, any Notes issued pursuant to Section 4 or 6 of
the Notes), together with any accrued and unpaid interest thereon
through such date in full within thirty (30) business days of receipt
of Practice Redemption Notice.
(c) Termination by Agreement. In the event Practice and Business
------------------------
Manager shall mutually agree in writing, this Management Services Agreement
may be terminated on the date specified in such written agreement.
(d) Legislative, Regulatory or Administrative Change. In the event
------------------------------------------------
there shall be a change in the Medicare or Medicaid statutes, state or
federal statutes, case law, regulations or general instructions, the
interpretation of any of the foregoing, the adoption of new federal or
state legislation, or a change in any third-party reimbursement system, any
of which are reasonably likely to materially and adversely affect the
manner in which either party may perform or be compensated for its services
under this Management Services Agreement or which shall make this
Management Services Agreement unlawful, the parties shall immediately enter
into good faith negotiations regarding a new service arrangement or basis
for compensation for the services furnished pursuant to this Management
Services Agreement that complies with the law, regulation or policy and
that approximates as closely as possible the economic position of the
parties prior to the change. If good faith negotiations cannot resolve the
matter, it shall be submitted to arbitration as referenced in Section 8.6
hereof. If a court of competent jurisdiction compels or requires a party
hereto to refrain from performing its duties and obligations hereunder, or
a party's performance hereunder shall be directly violative of a court
order directed at such party, then, to the extent necessary to comply with
such court order, this Management Services Agreement shall be deemed
suspended. In no event shall such suspension be construed to relieve
either party's obligation under this Section 7.2(d) and the parties will
immediately commence good faith negotiations regarding a new service
arrangement or compensation structure that is in compliance with any such
court order, which arrangement or structure will allocate the economic
aspects of the relationship between the parties in a manner as nearly as
possible as that intended by this Management Services Agreement.
43
7.3 Effects of Termination. Upon termination of this Management
----------------------
Services Agreement, as heretofore provided, neither party shall have any further
obligations hereunder except for (i) obligations accruing prior to the date of
termination, including, without limitation, payment of the Management Fees,
Office Expense and Practice Expense relating to services provided prior to the
termination of this Management Services Agreement, (ii) obligations, promises or
covenants set forth herein that are expressly set forth herein to extend beyond
the Term under the circumstances giving rise to such termination, including,
without limitation, indemnity, confidentiality and noncompetition provisions,
which provisions shall survive the expiration or termination of this Management
Services Agreement by Business Manager for cause, and (iii) the applicable
obligations of Practice and Business Manager described in Section 7.4 or 7.5
hereof. In effectuating the provisions of this Section 7.3, Practice
specifically acknowledges and agrees that Business Manager shall continue to
collect and receive on behalf of Practice all cash collections from accounts
receivable in existence at the time this Management Services Agreement is
terminated, it being understood that such cash collections will be applied in
accordance with Section 4.9 hereof, and will represent, in part, compensation to
Business Manager for management services already rendered and compensation on
accounts receivable purchased by Business Manager. Upon the expiration or
termination of this Management Services Agreement for any reason or cause
whatsoever, Business Manager shall surrender to Practice all books and records
pertaining to Practice's medical practice.
7.4 Repurchase Obligation. Upon termination of this Management
---------------------
Services Agreement by Business Manager for cause or by Practice without cause,
Business Manager shall have the right, but not the obligation, to require
Practice to comply with the terms and conditions of this Section 7.4. In the
event Business Manager exercises such right by delivering written notice to
Practice within sixty (60) days of such termination, then Practice shall be
required to:
(a) Purchase from Business Manager at the greater of book or fair
market value the intangible assets, deferred charges and all other amounts
on the books of Business Manager relating to the Management Services
Agreement as adjusted, through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to
reflect amortization or depreciation of the intangible assets, deferred
charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the greater of the appraised fair market
value thereof or the then book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by
Business Manager and Practice, each selecting a duly qualified appraiser,
who in turn will agree on a third appraiser. This agreed-upon appraiser
shall perform the appraisal which shall be binding on both parties. In the
event either party fails to select an appraiser within fifteen (15) days of
the selection of an appraiser by the other party, the appraiser selected by
the other party shall make the selection of the third-party appraiser;
44
(c) Purchase at the greater of book or fair market value all
improvements, additions, or leasehold improvements that have been made by
Business Manager at any Office and that relate solely to the performance of
Business Manager's obligations under this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager and that would be characterized as an
Office Expense hereunder relating to the performance of Business Manager's
obligations under this Management Services Agreement or the properties
leased or subleased hereunder as an Office by Business Manager, provided,
however, that Practice shall only be required to assume those payables in
excess of the accounts receivable of Practice in existence at the time this
Management Services Agreement is terminated and from which funds are
available after satisfying any previous shortfalls applied in accordance
with Section 4.9 hereof; and
(e) Purchase from Business Manager at the greater of book or fair
market value all of the equipment listed in the Contribution and Exchange
Agreement or an exhibit thereto, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its
obligations under this Management Services Agreement, and all other assets,
including inventory and supplies, and tangibles and intangibles, set forth
on the books of Business Manager as adjusted through the last day of the
month most recently ended prior to the date of such termination in
accordance with GAAP to reflect operations of the Office, depreciation,
amortization and other adjustments of assets shown on the books of Business
Manager.
In the event Business Manager exercises its rights pursuant to this Section 7.4,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (e) above. In no event, however,
shall this Section 7.4 be construed as enabling Practice to repurchase any
assets acquired from Practice pursuant to the Contribution and Exchange
Agreement, which relate directly or indirectly to the ambulatory surgical
treatment center owned and operated by Practice immediately prior to the
Original Date of the Contribution and Exchange Agreement (the "ASC Assets").
The ASC Assets are expressly excluded from the assets enumerated in
subparagraphs (a) through (e) above and Practice shall have no right to
repurchase the ASC Assets under this Section 7.4 unless Business Manager shall
so elect in writing, in which case Practice shall be required to repurchase the
ASC Assets at the greater of the then book or fair market value. For purposes
of this Article VII, "fair market value" of a particular item shall be an amount
mutually agreed upon by Practice and Business Manager. If Practice and Business
Manager are unable to reach agreement on such value after ten (10) days of
deliberations, then such fair market value shall be determined by an
independent, duly qualified appraiser mutually agreed upon by Practice and
Business Manager. If Practice and Business Manager cannot agree upon an
appraiser within ten (10) days, then each party shall select a duly qualified
appraiser, who in turn will select a third appraiser. This agreed-upon
appraiser shall perform the appraisal which shall be binding upon both parties.
All expenses of such appraisal shall be borne fifty percent (50%) by Business
Manager and fifty percent (50%) by Practice. In no event shall the price to be
repaid by Practice pursuant to this Section 7.4 exceed the aggregate purchase
price paid to
45
Practice (excluding the ambulatory surgery center) by NovaMed pursuant to the
terms and conditions of the Contribution and Exchange Agreement.
7.5 Repurchase Option. Upon termination of this Management Services
-----------------
Agreement by Practice for cause pursuant to Section 7.2(b) hereof, Practice
shall have the right, but not the obligation, to:
(a) Purchase from Business Manager at the greater of book or fair
market value the intangible assets, deferred charges and all other amounts
on the books of Business Manager relating to the Management Services
Agreement as adjusted, through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to
reflect amortization or depreciation of the intangible assets, deferred
charges or covenants;
(b) Purchase from Business Manager any real estate owned by Business
Manager and used as an Office at the greater of the appraised fair market
value or then book value thereof. In the event of any repurchase of real
property, the appraised value shall be determined in accordance with the
appraisal mechanism described in Section 7.4 hereof;
(c) Purchase at the greater of book or fair market value all
improvements, additions or leasehold improvements that have been made by
Business Manager at any Office and that relate solely to the performance of
Business Manager's obligations under this Management Services Agreement;
(d) Assume all debt and all contracts, payables and leases that are
obligations of Business Manager that would be characterized as an Office
Expense hereunder relating to the performance of Business Manager's
obligations under this Management Services Agreement or the properties
leased or subleased by Business Manager; provided, however, that Practice
shall only be required to assume those payables in excess of the accounts
receivable of Practice in existence at the time this Management Services
Agreement is terminated and from which funds are available after satisfying
any previous shortfalls applied in accordance with Section 4.9 hereof; and
(e) Purchase from Business Manager at the greater of book or fair
market value all of the equipment listed in the Contribution and Exchange
Agreement or an exhibit thereto, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its
obligations under this Management Services Agreement, and all other
tangible assets, including inventory and supplies, set forth on the books
of Business Manager as adjusted through the last day of the month most
recently ended prior to the date of such termination in accordance with
GAAP to reflect operations of the Office, depreciation, amortization and
other adjustments of assets shown on the books of Business Manager.
46
(f) Acquire the name, American Eye Institute, from Business Manager.
In the event Practice exercises its rights pursuant to this Section 7.5,
Practice shall have the obligation to purchase all, and not less than all, of
the items listed in subparagraphs (a) through (f). In no event, however, shall
this Section 7.5 be construed as enabling Practice to repurchase any assets
acquired from Practice pursuant to the Contribution and Exchange Agreement,
which relate directly or indirectly to the ASC Assets. The ASC Assets are
expressly excluded from the assets enumerated in subparagraphs (a) through (f)
above and Practice shall have no right to repurchase the ASC Assets under this
Section 7.5 unless Business Manager shall so elect in writing, in which case
Practice shall be required to repurchase the ASC Assets at the greater of the
then book or fair market value. In lieu of paying cash for the items described
in this Section 7.5, Practice shall have the option of: (i) offsetting the cash
amount required pursuant to this Section 7.5 against the outstanding balance due
and owing under the Note (as such term is defined in the Contribution and
Exchange Agreement); or (ii) contributing to Business Manager that number of
Exchange Shares (as such term is defined in the Contribution and Exchange
Agreement) which, based on the then fair market value of such shares (determined
in accordance with a consistent application of the valuation procedure
established under Section 7.01(d) of the Contribution and Exchange Agreement),
equals the cash amount required pursuant to this Section 7.5. In no event shall
the price to be repaid by Practice pursuant to this Section 7.5 exceed the
aggregate purchase price paid to Practice (excluding the ambulatory surgery
center) by NovaMed pursuant to the terms and conditions of the Contribution and
Exchange Agreement.
7.6 Closing of Repurchase. Except as expressly provided in Section
---------------------
7.5 hereof, Practice shall pay cash for the repurchased assets. The amount of
the purchase price shall be reduced by the amount of debt and liabilities of
Business Manager, if any, assumed by Practice. Practice and, if required by
law, any Physician associated with Practice, shall execute such documents as may
be required, (i) for Practice to assume the liabilities set forth in Section
7.4(d) or 7.5(d) hereof, as applicable, and (ii) for Practice to indemnify or
remove Business Manager from any liability with respect to such repurchased
asset and with respect to any property leased or subleased by Business Manager.
Business Manager shall execute such documents as may be required to convey the
assets, free and clear of all liens (except for those liens assumed by
Practice). The closing date for the repurchase shall be determined by mutual
agreement of Practice and Business Manager but shall in no event occur later
than sixty (60) days from the date of the notice of termination. The
termination of this Management Services Agreement shall become effective upon
the closing of the sale of the assets under Section 7.4 or 7.5 hereof, as the
case may be, and all parties shall be released from any restrictive covenants
provided for in Section 5.7 hereof on such closing date. From and after any
termination, each party shall provide the other party with reasonable access to
the books and records then owned by it to permit such requesting party to
satisfy reporting and contractual obligations that may be required of it.
7.7 Rights and Remedies. In the event of a material breach of this
-------------------
Management Services Agreement by either party hereunder, the nonbreaching party
shall have, in addition to any other rights and remedies contained in this
Management Services Agreement, all rights and remedies available to such party
at law or equity. Without limiting the generality of the
47
foregoing, the parties acknowledge and agree that the parties have entered into
this Management Services Agreement with the understanding that the Term of this
Management Services Agreement would be forty years. In the event of a material
breach hereunder by either party, the parties acknowledge and agree that the
actual damages to be suffered by a party will be difficult to ascertain. Each
party recognizes that, in the event a party shall fail to materially perform,
observe or discharge any of its duties, obligations or liabilities under this
Management Services Agreement, any remedy at law may prove to be inadequate
relief to such other party. Therefore, the parties agree that, if a party so
elects and in addition to any other remedies available at law or equity, such
party shall be entitled to temporary and permanent injunctive relief in any such
case without the necessity of proving actual damages, or to specific performance
of any provision hereof. In addition to all other remedies of Business Manager
for any material breach hereunder by Practice, and without limiting any and all
rights set forth herein, Business Manager may set-off any and all amounts which
are due or which Business Manager reasonably believes will become due and owing
to Business Manager under this Agreement, against any and all amounts which are
due and owing under the Note. Such rights of set-off shall be governed by the
terms and conditions set forth in the Note.
7.8 Interpretation. The purpose and intent of this Article VII is to
--------------
establish the limited instances in which a party may terminate this Management
Services Agreement. Unless the parties mutually agree to terminate this
Management Services Agreement, neither party shall be entitled to terminate this
Management Services Agreement prior to the expiration of the Term unless a
party's breach gives rise to a termination "for cause" pursuant to Section
7.2(a) or (b) hereof, as the case may be. Nothing in this Agreement (including
Section 7.4 hereof) shall be construed as permitting Practice to terminate this
Agreement without cause.
48
ARTICLE VIII
MISCELLANEOUS
8.1 Administrative Services Only. Nothing in this Management
----------------------------
Services Agreement is intended or shall be construed to allow Business Manager
to exercise control or direction over the manner or method by which Practice and
its Physicians and Optometrists perform Medical Services or other professional
health care services. The rendition of all Medical Services, including, but not
limited to, the prescription or administration of medicine and drugs shall be
the sole responsibility of Practice and its Physicians and Optometrists, and
Business Manager shall not interfere in any manner or to any extent therewith.
Nothing contained herein shall be construed to permit Business Manager to engage
in the practice of medicine, it being the sole intention of the parties hereto
that the services to be rendered to Practice by Business Manager are solely for
the purpose of providing nonmedical management and administrative services to
Practice to enable Practice to devote its full time and energies to the
professional conduct of its medical practice and provision of Medical Services
to its patients and not to administration or practice management. Practice,
through the Physicians and Optometrists, shall be responsible for and shall have
complete authority, responsibility, supervision and control over the opticians
and other employees of Business Manager providing services in connection with
the Non-Ophthalmic Business, consistent with the requirements necessary to
satisfy the "in-office ancillary service exception" to the Xxxxx Act.
8.2 Status of Contractor. It is expressly acknowledged that the
--------------------
parties hereto are "independent contractors," and nothing in this Management
Services Agreement is intended and nothing shall be construed to allow either
party to exercise control or direction over the manner or method by which the
other party performs the services that are the subject matter of this Management
Services Agreement; provided that the services to be provided hereunder shall be
furnished in a manner consistent with the standards governing such services and
the provisions of this Management Services Agreement. Each party understands
and agrees that (i) neither party will withhold on behalf of the other party any
sums for income tax, unemployment insurance, social security or any other
withholding pursuant to any law or requirement of any governmental body or make
available any of the benefits afforded to its employees, (ii) all of such
payments, withholdings and benefits, if any, are the sole responsibility of the
party incurring the liability, and (iii) each party will indemnify and hold the
other harmless from any and all loss or liability arising with respect to such
payments, withholdings and benefits, if any.
8.3 Notices. Any notice, demand or communication required, permitted
-------
or desired to be given hereunder shall be in writing and shall be served on the
parties at the following respective addresses:
49
Practice:
American Eye Institute, P.C.
000 Xxxxx Xxxxxx
Xxx Xxxxxx, Xxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, M.D.
Xxxx X. Xxxxxxx
with a copy to:
Xxxx Xxxx Xxxxxx & Darko
Bank One Tower
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxxx, Xxxxxxx 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Business Manager:
NovaMed Eyecare Management, LLC
000 Xxxxx Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
Xxxx X. Xxxxxxxx, Xx.
with a copy to:
Xxxxxx Xxxxxx & Xxxxx
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxxx, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate. Any notice, demand, or
communication required, permitted or desired to be given hereunder shall be sent
either (a) by hand delivery, in which case notice shall be deemed received when
actually delivered, (b) by prepaid certified or registered first class mail,
return receipt requested, in which case notice shall be deemed received five
calendar days after deposit, postage prepaid in the United States Mail, (c) by
facsimile if also delivered by hand, or deposited in the United States Mail,
postage prepaid, registered or certified mail, on or before two (2) business
days after its delivery by facsimile, in which case notice shall be deemed
received one (1) business day after the facsimile transmission, or (d) by a
nationally recognized overnight
50
courier, in which case notice shall be deemed received one business day after
prepaid deposit with such courier.
8.4 Governing Law and Consent to Jurisdiction. This Management
-----------------------------------------
Services Agreement shall be governed by the laws of the State of Illinois
applicable to agreements to be performed wholly within the State of Illinois.
8.5 Assignment. Except as may be herein specifically provided to the
----------
contrary, this Management Services Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their respective legal representatives,
successors and permitted assigns; provided, however, Practice may not assign
this Management Services Agreement without the prior written consent of Business
Manager, which consent may be withheld in Business Manager's discretion. The
sale, transfer, pledge or assignment of any of the voting shares of Practice
held by any shareholder of Practice or the issuance by Practice of common or
other voting shares to any other person, or any combination of such transactions
within a period of one (1) year, such that the existing shareholders in Practice
immediately prior to such transactions or the beginning of the one-year period,
as applicable, fail to maintain a majority of the voting interests in Practice
shall be deemed an attempted assignment by Practice, and shall be null and void
unless consented to in writing by Business Manager prior to any such transfer or
issuance. Any breach of this provision, whether or not void or voidable, shall
constitute a material breach of this Management Services Agreement, and in the
event of such breach, Business Manager may terminate this Management Services
Agreement upon twenty-four (24) hours' notice to Practice. The rights and
obligations of Business Manager under this Management Services Agreement shall
not be assignable without Practice Consent; provided, however, that Business
Manager shall have the right to assign its rights, duties and obligations
hereunder, without Practice Consent: (i) to any Affiliate of Business Manager
(provided Business Manager remains primarily liable hereunder) or (ii) in
connection with and in contemplation of a reorganization, merger, consolidation
or sale of all or substantially all of the capital stock or assets of Business
Manager (or any other transaction substantially similar in effect) (provided
assignee agrees to assume all obligations hereunder). Moreover, Business
Manager shall have the right to collaterally assign its interest in this
Management Services Agreement and its other rights hereunder to any financial
institution or other third party without Practice Consent.
8.6 Arbitration. Except as expressly provided in Section 6.6 hereof,
-----------
the parties shall negotiate in good faith to resolve any controversy, dispute or
disagreement arising out of or relating to this Management Services Agreement or
the breach of this Management Services Agreement. Any matter not resolved by
negotiation shall be submitted to binding arbitration and such arbitration shall
be governed by the terms of Article XII of the Contribution and Exchange
Agreement, which, as it applies to the parties hereto, is incorporated herein by
reference in its entirety; provided, however, that nothing contained in this
Section 8.6 shall prevent either party hereto from pursuing any right or remedy
afforded it under Section 7.7 hereof.
51
8.7 Waiver of Breach. The waiver by either party of a breach or
----------------
violation of any provision of this Management Services Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
8.8 Enforcement. In the event either party resorts to legal action
-----------
to enforce or interpret any provision of this Management Services Agreement, the
prevailing party shall be entitled to recover the costs and expenses of such
action so incurred, including, without limitation, reasonable attorneys' fees.
8.9 Gender and Number. Whenever the context of this Management
-----------------
Services Agreement requires, the gender of all words herein shall include the
masculine, feminine and neuter, and the number of all words herein shall include
the singular and plural.
8.10 Additional Assurances. Except as may be specifically provided
---------------------
herein to the contrary, the provisions of this Management Services Agreement
shall be self-operative and shall not require further agreement by the parties;
provided, however, at the request of either party, the other party shall execute
such additional instruments and take such additional acts as are reasonable, and
as the requesting party may reasonably deem necessary, to effectuate this
Management Services Agreement.
8.11 Consents, Approvals, and Exercise of Discretion. Whenever this
-----------------------------------------------
Management Services Agreement requires any consent or approval to be given by
either party, or either party must or may exercise discretion, and except where
specifically set forth to the contrary, the parties agree that such consent or
approval shall not be unreasonably withheld or delayed, and that such discretion
shall be reasonably exercised.
8.12 Force Majeure. Neither party shall be liable or deemed to be in
-------------
default for any delay or failure in performance under this Management Services
Agreement or other interruption of service deemed to result, directly or
indirectly, from acts of God, civil or military authority, acts of public enemy,
war, accidents, explosions, earthquakes, floods, failure of transportation,
strikes or other work interruptions by either party's employees, or any other
similar cause beyond the reasonable control of either party unless such delay or
failure in performance is expressly addressed elsewhere in this Management
Services Agreement.
8.13 Severability. The parties hereto have negotiated and prepared
------------
the terms of this Management Services Agreement in good faith with the intent
that each and every one of the terms, covenants and conditions herein be binding
upon and inure to the benefit of the respective parties. Accordingly, if any
one or more of the terms, provisions, promises, covenants or conditions of this
Management Services Agreement or the application thereof to any person or
circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction or an
arbitration tribunal, such provision shall be as narrowly construed as possible,
and each and all of the remaining terms, provisions, promises, covenants and
conditions of this Management Services Agreement or their application to other
persons or circumstances shall not be affected thereby and shall be valid and
enforceable
52
to the fullest extent permitted by law. To the extent this Management Services
Agreement is in violation of applicable law, then the parties agree to negotiate
in good faith to amend the Management Services Agreement, to the extent possible
consistent with its purposes, to conform to law.
8.14 Divisions and Headings. The divisions of this Management
----------------------
Services Agreement into articles, sections and subsections, and the use of
captions and headings in connection therewith is solely for convenience and
shall not affect in any way the meaning or interpretation of this Management
Services Agreement.
8.15 Amendments and Management Services Agreement Execution. This
------------------------------------------------------
Management Services Agreement and amendments hereto shall be in writing and
executed in multiple copies on behalf of Practice and Business Manager by their
respective duly authorized officers. Each multiple copy shall be deemed an
original, but all multiple copies together shall constitute one and the same
instrument.
8.16 Entire Management Services Agreement. With respect to the
------------------------------------
subject matter of this Management Services Agreement, this Management Services
Agreement supersedes all previous contracts and constitutes the entire agreement
between the parties. Neither party shall be entitled to benefits other than
those specified herein. No prior oral statements or contemporaneous
negotiations or understandings or prior written material not specifically
incorporated herein shall be of any force and effect, and no changes in or
additions to this Management Services Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment to become
effective on the date stipulated in such amendment. The parties specifically
acknowledge that, in entering into and executing this Management Services
Agreement, the parties rely solely upon the representations and agreements
contained in this Management Services Agreement and no others.
* * *
53
IN WITNESS WHEREOF, Practice and Business Manager have caused this
Management Services Agreement to be executed by their duly authorized
representatives, all as of the Effective Date.
PRACTICE:
AMERICAN EYE INSTITUTE, P.C.,
an Indiana professional corporation
By: /s/ Xxxxxxx X. Xxxxxxx, M.D.
------------------------------------
Name: Xxxxxxx X. Xxxxxxx, M.D.
------------------------------------
Title: President
------------------------------------
BUSINESS MANAGER:
NOVAMED EYECARE MANAGEMENT, LLC,
a Delaware limited liability company
By: /s/ Xxxxxxx X. Xxxxxx
------------------------------------
Xxxxxxx X. Xxxxxx,
President and Chief Executive Officer
54
EXHIBIT 1.4
BUDGET
See attached.
American Eye Institute (Louisville Optical overlay)
------------------------------------------------------------------------------------------------------------
1998 MSA Budget (Fourth Quarter)
Description Oct Nov Dec Total 1998 %
---------------------------------- ----------------- -------------------
Non-Ophthalmic Business * * * * * * * *
Revenue * * * * * * * *
------- * * * * * * * *
Optometric revenue * * * * * * * *
ASC facility revenue * * * * * * * *
Optical revenue - glasses * * * * * * * *
Optical revenue - contacts * * * * * * * *
Optometric revenue * * * * * * * *
Other revenue * * * * * * * *
Contractual adjustments * * * * * * * *
* * * * * * * *
Other Revenue * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Budgeted Revenue * * * * * * * *
* * * * * * * *
Expenses * * * * * * * *
-------- * * * * * * * *
Salaries and Wages: * * * * * * * *
Center Staff Salaries: * * * * * * * *
----------------------
Administration * * * * * * * *
Technician * * * * * * * *
Nurses * * * * * * * *
Other salaries * * * * * * * *
Overtime pay * * * * * * * *
* * * * * * * *
Payroll Taxes & Benefits * * * * * * * *
------------------------
Vacation & leave pay * * * * * * * *
Bonuses * * * * * * * *
Incentive compensation * * * * * * * *
FICA Tax * * * * * * * *
SUI * * * * * * * *
FUI * * * * * * * *
Other payroll taxes * * * * * * * *
Labor allocation * * * * * * * *
401k Match * * * * * * * *
Life & Disability ins. * * * * * * * *
Employee Health ins. * * * * * * * *
* * * * * * * *
Benefits % * * * * * * * *
Total Salaries & Wages * * * * * * * *
* * * * * * * *
MD/OD Compensation * * * * * * * *
* * * * * * * *
* * * * * * * *
Pharmaceuticals and supplies: * * * * * * * *
Optometric supplies * * * * * * * *
ASC - general * * * * * * * *
ASC - refractive * * * * * * * *
Pillar point fees * * * * * * * *
Optical COS - glasses * * * * * * * *
Optical COS - contacts * * * * * * * *
Optometric supplies * * * * * * * *
Total Pharmac. & Supplies * * * * * * * *
Non-Ophthalmic Business * * * * * * * *
G&A expenses: * * * * * * * *
* * * * * * * *
*Confidential portions omitted and filed separately with the commission.
21
American Eye Institute (Louisville Optical overlay)
------------------------------------------------------------------------------------------------------------
1998 MSA Budget (Fourth Quarter)
Description Oct Nov Dec Total 1998 %
---------------------------------- ----------------- -------------------
Office & Administrative: * * * * * * * *
Office Supplies * * * * * * * *
---------------
Office supplies * * * * * * * *
Software/computer expense * * * * * * * *
Food service * * * * * * * *
Bank charges * * * * * * * *
Credit card fees * * * * * * * *
* * * * * * * *
Postage & freight * * * * * * * *
Employee & patient programs * * * * * * * *
Continuing education * * * * * * * *
Dues and subscriptions * * * * * * * *
Telephone * * * * * * * *
Utilities * * * * * * * *
Printing * * * * * * * *
Misc. office expense * * * * * * * *
Total Office & Admin. Expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Marketing: * * * * * * * *
Advertising * * * * * * * *
Marketing - Other * * * * * * * *
Total Marketing * * * * * * * *
* * * * * * * *
* * * * * * * *
Professional and Service Fees: * * * * * * * *
Legal * * * * * * * *
Accounting * * * * * * * *
Other prof. consulting * * * * * * * *
Collection fees * * * * * * * *
Answering service * * * * * * * *
Linens & uniforms * * * * * * * *
Other services * * * * * * * *
Temporary services * * * * * * * *
Total Professional Fees * * * * * * * *
* * * * * * * *
* * * * * * * *
Rental Expense: * * * * * * * *
Building rent * * * * * * * *
Other office rent & parking * * * * * * * *
Equipment leases * * * * * * * *
Optical equipment rent * * * * * * * *
Total Rent Expense * * * * * * * *
* * * * * * * *
* * * * * * * *
Repairs & Maintenance: * * * * * * * *
Building maintenance * * * * * * * *
Repairs - equipment * * * * * * * *
Non-capitalized tools * * * * * * * *
Total Repairs & Maint. * * * * * * * *
Non-Ophthalmic Business * * * * * * * *
* * * * * * * *
Taxes and Insurance: * * * * * * * *
MalOptometric * * * * * * * *
Liability & casualty * * * * * * * *
Workers' compensation ins. * * * * * * * *
* Confidential portions omitted and filed separately with the commission.
22
American Eye Institute (Louisville Optical overlay)
------------------------------------------------------------------------------------------------------------
1998 MSA Budget (Fourth Quarter)
Description Oct Nov Dec Total 1998 %
---------------------------------- ----------------- -------------------
D&O * * * * * * * *
Key Man Life * * * * * * * *
Other insurance * * * * * * * *
Property tax * * * * * * * *
Sales & Use tax * * * * * * * *
Property tax * * * * * * * *
Other taxes * * * * * * * *
Total Taxes & Ins. * * * * * * * *
* * * * * * * *
* * * * * * * *
Other Expenses: * * * * * * * *
Travel & entertainment * * * * * * * *
Recruitment & relocation * * * * * * * *
Auto & Van * * * * * * * *
Contracted patient transport. * * * * * * * *
Donations and gifts * * * * * * * *
Allocated IT/Computing costs * * * * * * * *
Other * * * * * * * *
Total Other Expense * * * * * * * *
* * * * * * * *
Total G&A expenses * * * * * * * *
* * * * * * * *
* * * * * * * *
Depreciation & Amortization: * * * * * * * *
Building depreciation * * * * * * * *
Equipment depreciation * * * * * * * *
Goodwill amortization * * * * * * * *
Other intangible amortization * * * * * * * *
Amortization of deferred charges * * * * * * * *
* * * * * * * *
Total Depr. and Amortization * * * * * * * *
* * * * * * * *
* * * * * * * *
Interest (income) and expense: * * * * * * * *
Depository Interest * * * * * * * *
Investment Income * * * * * * * *
Bank Line Interest Expense * * * * * * * *
Cap. Lease Interest Expense * * * * * * * *
Other Interest Expense * * * * * * * *
* * * * * * * *
Total Interest (income)/expense * * * * * * * *
* * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Budgeted
Office Expense * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business * * * * * * * *
Non-Ophthalmic Business Budgeted * * * * * * * *
Practice Expense * * * * * * * *
* * * * * * * *
Non-Ophthalmic Business Monthly Fee * * * * * * * *
* Confidential portions omitted and filed separately with the commission.
23
EXHIBIT 1.33(g)
EQUIPMENT
Approximate
Monthly
Equipment Lessor Payments ($)
----------------------------------------------- -------------------------- ----------------
Excimer PNC Leasing 7,800.00
Excimer Upgrade PNC Leasing 2,051.00
Evansville Equipment PNC Leasing 1,233.00
Retina Lease 1 PNC Leasing 3,400.00
Retina Lane Equip. PNC Leasing 2,180.00
Voice Mail System* Tech. Credit 271.00
A-Scan Copelco 250.00
Motor Vehicle Lease** (1996 Taurus) FMCC 493.70
Pagers 91.00
Scale and Postage Machine 90.00
* Fifty percent of lease cost will be allocated to the ambulatory surgery
center operations of NovaMed Eye Surgery Center of New Albany, LLC.
** This expense will become a Practice Expense upon either: (i) Xx. Xxxxxxx
terminating his employment or (ii) the lease expense no longer being
deducted from Xx. Xxxxxxx' salary.
EXHIBIT 1.20
OPTOMETRISTS EXCLUDED FROM DEFINITION OF
NON-OPHTHALMIC BUSINESS REVENUE
.519 Xxxxx Xxxxxx, Xxx Xxxxxx, Xxxxxxx 00000
.1700 Xxxxx Xxxxx Xxxxx Xxxx, Xxxxxxxxxx, Xxxxxxx 00000
.000 Xxxx Xxxxxx, Xxxxxxxxx, Xxxxxxx 00000
.6440 Dutchman's Parkway, Xxxxxxxxxx, Xxxxxxxx 00000
EXHIBIT 1.45
PREEXISTING OBLIGATION PAYMENTS
Subject to a letter agreement between the parties, a Lease Agreement with PNC
Leasing (Lease No. 23691) regarding Retinal Operating Room Equipment at Xxxxx
Memorial Hospital:
Lease Agreement with Federal Leasing Corp. re: Optical Edger
Motor Vehicle Lease Agreement with Raceway Ford re: Ford Explorer
EXHIBIT 3.1
MEMBERS OF INITIAL POLICY BOARD
Xxxxxxx X. Xxxxxxx, M.D.
E. Xxxxxxx Xxxxxxx
EXHIBIT 4.8
POWER OF ATTORNEY
See tab 14.
EXHIBIT 5.1
FORM OF EMPLOYMENT AGREEMENT (SHAREHOLDERS)
See tab 3.
EXHIBIT 5.1A
LIST OF INITIAL PHYSICIAN-SHAREHOLDER
Xxxxxxx X. Xxxxxxx, M.D.
EXHIBIT 5.1B
FORM OF BUY-SELL AGREEMENT
The Buy-Sell Agreement referenced in Section 5.1(b) will address the following
concepts to the satisfaction of Business Manager and its counsel:
Applicable state statutes generally require that the shares of a
professional corporation held by a physician-shareholder be transferred to
a person qualified to render professional medical services if (i) such
shareholder dies, (ii) such shareholder becomes a disqualified person, or
(iii) the shares of a professional corporation are transferred by operation
of law or court decree to a disqualified person. Illinois law requires
that the articles of incorporation, by-laws or a separate agreement provide
for the purchase or redemption of the shares of any shareholder upon death
or disqualification. Accordingly, the Buy-Sell Agreement must contain a
provision providing for (i) redemption, (ii) cross-purchase, or (iii) a
combination thereof, in the case of a shareholder's death or
disqualification. In addition, the transfer of shares to disqualified
persons must be specifically prohibited.
A provision must also be included which governs succession in the case of
death or disqualification of the last remaining shareholder of the
professional corporation. Business Manager and Practice will work together
to structure an arrangement mutually acceptable to both parties.
Specifically, the Buy-Sell Agreement will incorporate the provisions set
forth on Schedule 1 attached to this Exhibit 5.1B.
SCHEDULE 1
TO
EXHIBIT 5.1B
Definitions.
-----------
"Act" means the [applicable state Medical Corporation Act or Professional
Corporation Act].
"NovaMed" means NovaMed Eyecare Management, LLC, a Delaware limited
liability company.
"NovaMed Agreement" means that certain ___________ Agreement dated as of
_________ __, 199_, by and among the Corporation, the Shareholders and NovaMed.
["Partnership" means the limited partnership formed pursuant to that
certain Limited Partnership Agreement by and between __________ and __________,
dated ______________.] [If applicable]
"Selling Shareholder" means a Shareholder affected by a Triggering Event
other than a Final Triggering Event.
"Shares" means the shares of common stock of the Corporation, and any
shares of any other class of stock, presently authorized and issued or which the
Corporation may hereafter authorize and issue, including subscription and other
purchase rights relative to any such shares of stock and all securities and
obligations convertible into such shares of stock, in each case whether now or
hereafter issued.
"Transfer" means any sale, gift, bequest, distribution, disposition,
assignment, pledge or any other voluntary or involuntary transfer, disposition
or encumbrance, including any disposition by operation of law.
"Triggering Event" means any of the following events:
(a) the death of a Shareholder;
(b) the disability of a Shareholder (which is defined as a
Shareholder's inability to engage in the practice of medicine for ninety
(90) days within any period of one hundred eighty (180) consecutive days);
(c) the disqualification of a Shareholder from the practice of
medicine;
(d) the termination of a Shareholder's employment or active
involvement with the Corporation for any reason; or
(e) the voluntary or involuntary transfer, transfer by operation of
law (including without limitation a transfer in connection with a divorce
or bankruptcy), or any other transfer or attempted transfer of Shares or
any right or interest therein in violation of this Agreement.
Restriction On Transfer.
-----------------------
Each Shareholder agrees not to make any Transfer of Shares that he or she
now owns or may hereafter own, outright or beneficially, except in accordance
with and as expressly permitted in this Agreement. Except as expressly
permitted in this Agreement, no Transfer of Shares may be made by any
Shareholder without the prior written consent of the remaining Shareholders, and
no such Transfer shall be effective unless and until the Transferee agrees in
writing to be subject to and bound by all of the terms, conditions and
restrictions of this Agreement and the NovaMed Agreement by signing a
counterpart hereof and thereof. Any Transfer of Shares not in strict compliance
with this Agreement shall be null and void ab initio.
Additional Shareholders.
-----------------------
The parties hereto acknowledge and agree that from time to time other
physicians may acquire Shares in the Corporation. Notwithstanding the
foregoing, the Corporation shall not issue any Shares to another person unless
such person agrees in writing to be subject to and bound by all of the terms,
conditions and restrictions of this Agreement and the NovaMed Agreement by
signing a counterpart hereof and thereof.
Licensing Requirement.
---------------------
Under no circumstances shall any Transfer or issuance of Shares of the
Corporation to an additional shareholder be valid unless the proposed new or
additional shareholder is a licensed physician in good standing under the laws
of the State of Missouri, except as otherwise permitted under the Act.
Final Triggering Event.
----------------------
(a) Application. Upon the occurrence of a Triggering Event affecting all
-----------
Shareholders simultaneously or affecting the last remaining Shareholder(s)
(each, a "Final Triggering Event"), the following provisions shall apply and
shall supersede any other provision contained in this Agreement relating to
cross-purchases or redemptions of a Selling Shareholder's Shares.
(b) Repurchase of Shares. Promptly upon the occurrence of a Final
--------------------
Triggering Event, but in any event not later than within three (3) days, the
Shareholder(s) to whom such Final Triggering Event relates and any Selling
Shareholder with respect to whom this Section ___ supersedes the application of
any other provision of this Agreement pursuant to subsection (a) above, and/or
such Shareholders' estates, transferees or other representatives (all such
Shareholders or such Shareholders' estates, transferees or other
representatives, as the case may be, hereinafter referred to as "Terminating
Shareholders") shall notify NovaMed's Medical Director of the occurrence of such
Final Triggering Event, and NovaMed's Medical Director shall have the right to
purchase Shares in accordance with subsection (c) below or to designate a New
Shareholder in accordance with the provisions of the NovaMed Agreement. Upon
such designation, the Terminating Shareholders shall (i) sell to the
Corporation, and the Corporation shall purchase from each such Terminating
Shareholder, ninety-nine percent (99%) of all Shares then held by each such
Terminating Shareholder, and (ii) sell to NovaMed's Medical Director or the New
Shareholder (as defined in the NovaMed Agreement), as the case may be, and
NovaMed's Medical Director or such New Shareholder, as the case may be, shall
purchase from each such Terminating Shareholder, the remainder of the Shares
then held by each such Terminating Shareholder, in accordance with the
provisions of this Section ___.
(c) Purchase Price. The purchase price to be paid for each Terminating
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Shareholder's Shares (the "Purchase Price") shall be as follows:
(i) The Purchase Price for the Shares to be purchased by the
Corporation shall consist of each Terminating Shareholder's pro rata share
of the [Partnership] interests held by the Corporation.
(ii) The Purchase Price for the Shares to be purchased by NovaMed's
Medical Director or the New Shareholder, as the case may be, shall be an
amount equal to ______________________________________.
(d) Closing. The closing of any purchase and sale pursuant to this Section
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___ (the "Closing") shall take place within [thirty (30)] days after the Final
Triggering Event at the principal office of the Corporation or at such other
place as the parties to such purchase and sale may mutually agree. At the
Closing, each Terminating Shareholder shall deliver certificates for the Shares
to be purchased, duly endorsed in blank, and such Shares shall be conveyed (i)
to the Corporation effective as of the close of business of the day of the Final
Triggering Event, and (ii) to NovaMed's Medical Director or the New Shareholder,
as the case may be, effective as of the opening of business on the day after the
Final Triggering Event, in each case free and clear of all claims, liens,
encumbrances and other rights of third parties, and the Corporation and
NovaMed's Medical Director or the New Shareholder, as the case may be, shall
deliver the Purchase Price in the form of instruments of transfer, in form and
substance satisfactory to the Terminating Shareholders, assigning and
transferring to the Terminating Shareholders, effective as of the date of the
Final Triggering Event, each Terminating Shareholder's share of the
[Partnership] interests and all of the Corporation's right, title and interest
therein, free and clear of all claims, liens, encumbrances and other rights of
third parties, or in immediately available funds, as applicable.
(e) Taxable Year. The Corporation's taxable year shall be closed as of the
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close of business of the day of the Final Triggering Event.
(f) Violation of Law. In the event that the consummation of the purchase
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and sale of Shares as contemplated under this Section ___ violates applicable
law, the Terminating Shareholders and NovaMed's Medical Director shall in good
faith negotiate and consummate an alternative transaction structure, including
without limitation, the purchase of the Corporation's assets and assumption of
the Corporation's liabilities by NovaMed's Medical Director or his designee,
which will allow (i) the continuation of the Corporation's business by the
Corporation or a successor entity, (ii) the continued performance by the
Corporation or a successor entity and
NovaMed of their respective obligations under that certain Management Services
Agreement by and between NovaMed and the Corporation, dated as of _______ __,
199_, and (iii) the transfer of the [Partnership] interests held by the
Corporation to the Terminating Shareholders.
(g) NovaMed's Failure to Designate New Shareholder. In the event that
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NovaMed's Medical Director fails to elect to purchase Shares or to designate a
New Shareholder as required pursuant to the NovaMed Agreement, the provisions of
this Section ___ shall not be binding on the Corporation or the Terminating
Shareholders.
Legend on Certificates.
----------------------
The certificates representing all Shares now or hereafter owned by the
Shareholders shall be subject to the terms of this Agreement, and shall bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A SHAREHOLDERS'
AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION. THE SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT IN STRICT ACCORDANCE WITH THE
TERMS OF THE SHAREHOLDERS' AGREEMENT. BY ACCEPTING THE SHARES OF STOCK
EVIDENCED BY THIS CERTIFICATE, THE HOLDER AGREES TO BE BOUND BY THE
SHAREHOLDERS' AGREEMENT.
Termination.
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This Agreement and all restrictions on the transfer of Shares created
hereby shall terminate upon the bankruptcy or receivership of the Corporation or
the execution by all parties hereto of a written instrument terminating this
Agreement. Termination of this Agreement for any reason shall not affect any
right or remedy existing hereunder prior to the effective date of termination.
Binding Effect.
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This Agreement is binding upon, and shall inure to the benefit of, the
Corporation, its successors, and assigns and to the Shareholders and their
respective heirs, personal representatives, successors, and assigns.
EXHIBIT 5.2A
FORM OF EMPLOYMENT AGREEMENT (NONSHAREHOLDERS)
See attached.
EXHIBIT 5.8
NAMES
.Louisville Optical
.Doctors Eyecare
.Advantage Optical
EXHIBIT 6.1
EQUIPMENT LEASE
See tab 17.
