AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT ("Agreement") is
made and entered into as of September 15, 1998, and deemed to have been
effective as of October 31, 1997, by and between SIERRA MEDICAL MANAGEMENT,
INC., a Delaware corporation ("Manager"), and PEGASUS MEDICAL GROUP, INC., a
California professional corporation ("GROUP").
RECITALS
A. GROUP is a California professional medical corporation duly organized
under the laws of the State of California and operated as a medical group, which
enters into agreements with organizations such as health care service plans
(HMOs), preferred provider organizations (PPOs), exclusive provider
organizations (EPOs), and other purchasers of medical services (hereinafter
collectively referred to as "Plans") for the arrangement of the provision of
health care services (the "Practice") to subscribers or enrollees of said Plans
("Members"); and
B. Manager has special expertise and experience in the operation,
management and marketing aspects of medical groups of the type operated or
intended to be operated by GROUP. Manager has made a significant investment in
the development of a system of operations, management and marketing necessary
for management of the functions desired by GROUP to be undertaken by Manager;
and
C. GROUP desires to devote all of its time to arranging for the delivery
of health care services to Plan subscribers or enrollees, and in connection
therewith desires to obtain the professional assistance of Manager in managing
the business aspects of the Practice; and
D. Manager has provided GROUP with the necessary support to manage the
business aspects of the Practice, including but not limited to clerical and
billing services, claims pursuit and collection, cash flow management, marketing
and general administrative services (collectively, "Management Services"), to
enable GROUP to concentrate on the development of the professional aspects of
the Practice pursuant to a Management Services Agreement made and entered into
as of October 31, 1997, by and between Manager and GROUP (the "Original
Management Services Agreement"); and
E. Manager and GROUP desire to enter into this Agreement to incorporate
within the terms of one agreement all of the amendments previously made and to
be made as of the date of execution hereof to the Original Management Services
Agreement; and
F. Pursuant to this Agreement Manager will continue to provide Management
Services to GROUP.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
hereinafter set forth and in exchange for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
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AGREEMENT
1. PREMISES. Pursuant to the Master Lease specified below, Manager
intends to provide GROUP with adequate administrative office space at the
addresses described therein (the "Premises") and Group shall retain all of its
remaining facilities for the operation of the Practice with leasehold
improvements, auxiliary services and utilities in order that GROUP may
effectively perform its functions and duties.
1.1. Manager intends to become the lessee under certain leases for
the Premises (hereinafter collectively referred to as the "Master Lease") copies
of which are attached hereto as Exhibit "A" and incorporated herein by this
reference. GROUP hereby acknowledges that the Premises described in the Master
Lease are suitable for the administrative office of the Practice. Based and
contingent upon GROUP's promise to timely pay all amounts due under this
Agreement, Manager hereby intends to sublease the leased Premises to GROUP upon
the following terms and conditions:
1.1.1. This sublease between Manager and GROUP of the
Premises shall be subject to all of the terms and conditions of the Master
Lease. In the event of the termination of Manager's interest as lessee under
the Master Lease for any reason, then the sublease created hereby shall
simultaneously terminate unless GROUP is willing to assume the obligations under
the Master Lease and the Lessor consents thereto.
1.1.2. All of the terms and conditions contained in the
Master Lease are incorporated herein as terms and conditions of the sublease
(with each reference therein to "Lessor" and "Lessee," to be deemed to refer to
Manager and GROUP, respectively) and, along with the provisions of this Section
1.1 and Exhibit "A," shall be the complete terms and conditions of the sublease
created hereby.
1.1.3. Notwithstanding the foregoing, as between Manager
and GROUP, Manager shall remain responsible for meeting the financial
obligations of "Lessee" under the Master Lease, and GROUP shall have no monetary
obligation in that regard. In addition, as between Manager and GROUP, Manager
shall retain all rights to exercise any options to purchase the Premises, or
other similar rights of ownership or possession, which may be granted under the
Master Lease, and GROUP shall have no rights in that regard.
1.1.4. In the event this Agreement is terminated according
to its terms, this sublease shall also terminate automatically.
1.1.5. If the Master Lease contains an option to renew the
term thereof, Manager shall notify GROUP, at least thirty (30) days prior to the
expiration of the time for exercising such option, of Manager's intention to
renew or not to renew such term. If Manager determines not to renew such term,
Manager shall, at GROUP's option and upon the consent of the Landlord in
accordance with the terms of the Master Lease, assign the Master Lease to GROUP,
including Manager's right to renew the term thereof.
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2. PROVISION OF FURNITURE, FURNISHINGS AND EQUIPMENT. Manager hereby
intends to provide to GROUP, and GROUP hereby intends to lease from Manager, all
the furniture, fixtures and equipment (the "FF&E") listed on Exhibit "B"
attached hereto and incorporated herein by this reference, which FF&E GROUP
agrees are suitable and sufficient for GROUP's use in the operation of GROUP's
medical practice at the Premises and are generally in good repair. The use by
GROUP of said FF&E shall be subject to the following conditions:
2.1. Title to all of the FF&E shall remain in Manager at all times,
and upon the termination of this Management Services Agreement, GROUP shall
immediately surrender the FF&E to Manager in as good condition as of the date
hereof, normal wear and tear excepted. Alternatively, GROUP, in its sole
discretion, shall have the option to purchase any or all of the FF&E upon
termination hereof. GROUP shall exercise such option, if at all, by giving
Manager written notice of same (the "Notice") within twenty (20) days of the
effective date of termination hereof. Upon exercise of such option, Manager
shall convey to GROUP within thirty (30) days of the effective date of
termination hereof, all of the FF&E identified in the Notice, together with (i)
any manufacturer's warranties that Manager has received in connection with such
FF&E and (ii) a xxxx of sale or such other instrument of conveyance as is
reasonably necessary to accomplish said purchase; and GROUP shall simultaneously
convey to Manager the purchase price for said FF&E. The purchase price shall be
paid all in cash, and shall equal the fair market value of the FF&E.
2.2. Manager shall be responsible for all repairs and maintenance
of the FF&E other than damage caused by negligence or willful misuse by GROUP;
provided, however, GROUP shall employ reasonable efforts to prevent damage to
and excessive wear of the FF&E, and shall promptly notify Manager of any needed
repairs thereto.
2.3. Manager shall be responsible for all property taxes and other
assessments relating to or arising out of ownership or use of the FF&E that
accrue on and after the date hereof.
2.4. Manager shall provide and maintain, at its expense, such
additional or replacement FF&E as the Practice reasonably requires from time to
time, as determined by Manager in its sole discretion, in consultation with
GROUP. Such additional or replacement FF&E shall be subject to all of the terms
of Section 2.1 above.
2.5. GROUP may provide additional equipment at the Practice ("GROUP
Equipment") at its sole cost and expense. GROUP shall be responsible for all
repairs, maintenance and replacement of, as well as all property taxes and other
assessments relating to or arising out of ownership or use of, such additional
equipment, unless GROUP requests that Manager provide such repairs, maintenance
and replacement upon such terms and conditions as the parties may agree
including, without limitation, an increase in the Management Fee (as defined in
Section 9 below). Title to said GROUP Equipment shall remain in GROUP's name at
all times.
2.6. All revenues of the GROUP derived directly or indirectly from
any and all FF&E or GROUP Equipment located at or used in connection with the
Practice, shall be included in "Gross Revenues" as defined in Exhibit "D."
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3. MANAGER RESPONSIBILITIES.
3.1. During the term of this Agreement, GROUP appoints and engages
Manager to serve as its exclusive manager and administrator of all non-physician
functions and services relating to the operation of the Practice, and Manager
agrees to furnish to GROUP those Management Services set forth below.
Notwithstanding such appointment and engagement, GROUP will have exclusive
authority and control over the professional aspects of the Practice to the
extent the same constitute or directly affect the practice of medicine,
including all diagnosis, treatment and ethical determinations with respect to
patients which are required by applicable law to be decided by a physician.
3.1.1. GENERAL ADMINISTRATIVE SERVICES. Manager shall
provide general business management, administration and supervision for the
business operations of GROUP, which shall include secretarial and other office
personnel support services, staff support for GROUP'S board of directors and
committee meetings, administrative record keeping, and other similar
administrative services required in the day-to-day operation of GROUP.
3.1.2. ACCOUNTING AND FINANCIAL MANAGEMENT SERVICES.
Manager shall provide the following accounting and financial management
services:
3.1.2.1. Manager shall have exclusive
decision-making authority with respect to the establishment and preparation of
annual budgets for the Practice, which budgets shall reflect in reasonable
detail anticipated revenues and expenses;
3.1.2.2. Manager shall, in consultation with
GROUP, establish bank accounts in the name of GROUP ("Accounts") for the deposit
of all sums received by GROUP for services provided to Members. GROUP agrees
that Manager shall have the authority to endorse all checks made payable to
GROUP and deposit checks and funds received by GROUP in Accounts. Manager shall
further have the authority to make transfers of funds to Accounts and further,
Manager shall have the authority to sign checks and stop payment on any checks
drawn on Accounts;
3.1.2.3. Manager agrees to reconcile checks
written with bank statements on a monthly basis;
3.1.2.4. Manager agrees to make recommendations
regarding check signature approvals and banking procedures of GROUP;
3.1.2.5. Manager agrees to prepare balance sheets
and income statements on a monthly basis during the term of this Agreement.
Such financial statements shall not be audited statements. Manager agrees to
cooperate with any annual audit GROUP obtains at its sole cost and expense by an
independent public accountant selected by GROUP;
3.1.2.6. Manager shall receive and deposit on a
timely basis capitation and other payments received by GROUP;
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3.1.2.7. Manager shall calculate primary care
capitation and specialty, ancillary and other payable claims based on the
records provided by the Plans and shall prepare checks to pay such amounts due
and shall mail said payments to the respective providers;
3.1.2.8. Manager shall monitor Plan subscribers
or enrollees exceeding stop loss deductibles and communicate with Plans orally
or in writing to seek reimbursement on behalf of GROUP;
3.1.2.9. Manager shall xxxx other payors for
coordination of benefits and other third party liability payments according to
the terms of the Plan/GROUP Agreements;
3.1.2.10. Manager shall administer capitation and
other distributions from Plans including auditing and monitoring of risk pools,
negotiating settlement of GROUP's share of such pools and establishment and
maintenance of incurred but not reported ("IBNR") reserves for GROUP;
3.1.2.11. Manager shall monitor any other revenue
receipt programs Plans may have, including but not limited to pre-existing
pregnancy recovery, and seek reimbursement from said Plans; and
3.1.2.12. Manager shall assist GROUP in
establishing and administering a physician incentive system and a system to
establish and adjust reserves for medical expenses.
3.1.3. OFFICE SERVICE; BILLING. Manager shall provide
bookkeeping and accounting services, including, without limitation, maintenance,
custody and supervision of GROUP's business records, papers and documents,
ledgers, journals and reports, and the preparation, distribution and recording
of all bills and statements for professional services rendered by GROUP, as well
as all reports and forms required by applicable third party payors. GROUP shall
at all times have the ultimate responsibility for setting all fees for
professional services provided on a fee for service basis to patients of the
Practice, as well as negotiating with each managed care contract Payor. All
xxxxxxxx for services rendered to patients by the Practice shall be made under
GROUP's name and provider number(s), and Manager shall act as GROUP's agent in
the preparation, rendering and collection of such xxxxxxxx. GROUP hereby
appoints Manager for the term hereof as its true and lawful agent for the
following purposes:
3.1.3.1. to xxxx patients in GROUP's name and on
its behalf;
3.1.3.2. to collect accounts receivable generated
by such xxxxxxxx in GROUP's name and on GROUP's behalf;
3.1.3.3. to submit, process and collect all
claims for payment to, and receive on behalf of GROUP payments from, the
patients, Plans, Medicare, Medicaid, and all other third-party payors;
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3.1.3.4. to take possession of, endorse and
deposit in the name and on behalf of GROUP to one or more Accounts designated by
GROUP any notes, checks, money orders, insurance payments, and any other
instruments received as payment of accounts receivable; and
3.1.3.5. to collect in GROUP's name and on its
behalf all collections of Gross Revenues (as defined in Exhibit "D" hereto).
3.1.4. CLAIM SETTLEMENT; EXCULPATION. GROUP acknowledges
and agrees that Manager shall have discretion to compromise, settle, write off
or determine not to appeal a denial of any claim for payment for any particular
professional service rendered at the Practice. Further, GROUP agrees to hold
harmless Manager and its officers, directors, agents, contractors,
representatives and employees, from and against any and all liability, loss,
damages, claims, causes of action, and expenses associated therewith (including,
without limitation, attorneys' fees) caused or asserted to have been caused,
directly or indirectly, by or as a result of any acts, errors or omissions
hereunder of Manager or any of its officers, directors, agents, contractors,
representatives and employees, in performing Manager's billing or collection
duties hereunder.
3.1.5. FINANCIAL REPORTS. Manager shall furnish to GROUP
monthly and annual financial reports reflecting the GROUP's financial status,
provided that Manager shall have no obligations with respect to any
shareholder's of GROUP personal finances or any tax returns of the GROUP or any
shareholder of GROUP.
3.1.6. PROVIDER CONTRACT ADMINISTRATION. During the term
of this Agreement, Manager shall provide the following provider contract
administration services to GROUP:
3.1.6.1. Identify and solicit participation of
health care providers identified by the GROUP as necessary for GROUP operations;
3.1.6.2. Review and make recommendations
regarding the business terms of agreements between GROUP and health care
providers who will provide or are providing services to GROUP ("Participating
Providers");
3.1.6.3. Make recommendations regarding
compensation to Participating Providers;
3.1.6.4. Make recommendations for the
development, in conjunction with GROUP, of guidelines for the selection, hiring
or firing of Participating Providers;
3.1.6.5. Make recommendations regarding the
definition of primary, specialty and ancillary services;
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3.1.6.6. Establish and exercise exclusive
decision-making authority over the establishment of GROUP policies and
procedures, including without limitation, patient acceptance policies and
procedures, except with respect to the professional aspects of the Practice to
the extent the same constitute or directly affect the practice of medicine which
are required by applicable law to be decided by a physician;
3.1.6.7. Instruct all Participating Providers and
their office staff regarding established GROUP policies and procedures at least
annually during the term of this Agreement; and
3.1.6.8. Coordinate the preparation, negotiation
and renewal of GROUP Participating Provider Agreements.
3.1.7. ADMINISTER MEMBER ELIGIBILITY PROCESS. Manager
shall provide the following services regarding administration of the member
eligibility process:
3.1.7.1 Maintain and update a current
eligibility list to Plan subscribers and enrollees under all Plan agreements;
3.1.7.2 Verify eligibility on claims and
referrals based on the most current information provided by Plans; and
3.1.7.3 Administer system for retroactive
eligibility determination and assist GROUP in identifying outstanding accounts
receivable from ineligible patients.
3.1.8. UTILIZATION MANAGEMENT/QUALITY ASSURANCE. Manager
agrees to provide the following services regarding utilization management and
quality assurance.
3.1.8.1. Manager shall implement systems,
programs and procedures necessary for GROUP and Participating Providers to
perform utilization and quality management;
3.1.8.2 Manager shall recommend procedures for
prior authorization of elective, urgent and emergent out-patient ambulatory
surgery and hospital procedures;
3.1.8.3 Manager shall assist GROUP with
prospective, concurrent and retrospective review of medical procedures in
accordance with GROUP policies and Plan requirements;
3.1.8.4 Manager shall provide data regarding the
use of outpatient and inpatient services by provider to GROUP;
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3.1.8.5 Manager shall provide data regarding the
use of noncontracting providers;
3.1.8.6 Manager shall provide secretarial
support, logs, and minutes to the Medical Director and the Quality and
Utilization Management Committee of GROUP;
3.1.8.7 Manager shall assist Medical Director
and the Quality and Utilization Management Committee in responding to Plan
Member grievances based on the instructions of the Medical Director;
3.1.8.8 Manager shall provide staff assistance
to GROUP in the credentialing process GROUP is required to conduct to assure
that providers have current licenses and medical staff privileges.
3.1.9. SUPPLIES. Manager shall order and purchase all
supplies required by GROUP in connection with the operation of the
administrative office of the Practice, including furnishing to GROUP all
necessary forms, supplies, postage and duplication services, provided that all
supplies acquired and services provided shall be reasonably necessary in
connection with the day-to-day operations of the Practice.
3.1.10. FILING OF REPORTS. Manager shall prepare and file
all forms, reports, and returns required by law in connection with unemployment
insurance, workers' compensation insurance, disability benefits, social
security, and other similar laws (excluding income or franchise tax forms of
GROUP or any of GROUP's shareholders, employees or contractors or providing any
other tax-related services on their behalf) now in effect or hereafter imposed.
3.1.11. MARKETING AND PUBLIC RELATIONS SERVICES. Manager
will assist GROUP in GROUP's marketing, public relations and advertising of the
health care services provided by GROUP. Manager shall provide and be
principally responsible for marketing and advertising services for GROUP and
prepare signs, brochures, letterhead, advertisements, and other marketing
materials for GROUP. Manager may, at its discretion, contract with third
parties to assist it in the provision of GROUP marketing and public relations
services, should Manager deem such action advisable. Manager shall produce and
distribute such written descriptive materials concerning GROUP's professional
services, subject to the prior approval of GROUP, as may be necessary or
appropriate to the conduct of the Practice. In providing such marketing
services, Manager is acting solely in its capacity as administrator for the
GROUP. At no time shall Manager hold itself out as providing, or actually
provide, medical services on behalf of GROUP. All such marketing services shall
be conducted in accordance with the laws, rules, regulations and guidelines of
all applicable governmental and quasi-governmental agencies, including but not
limited to the Medical Board of California. Manager shall be the owner and
holder of all right, title and interest in and to any such marketing and
advertising materials.
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3.1.12. PROFESSIONAL AND OTHER SERVICES. Manager shall be
responsible for arranging and paying for payroll, legal and accounting services
related to GROUP operations in the ordinary course of business, including the
cost of enforcing any managed care plan, physician or subcontractor contracts,
but excluding the cost of malpractice suits.
3.2. MANAGED CARE CONTRACTING.
3.2.1. Manager shall act as GROUP's exclusive agent in
seeking and negotiating managed care contracts ("Contracts"). Manager is hereby
authorized to negotiate, in its sole discretion, all terms of the Contracts.
GROUP hereby appoints Manager for the term hereof as its true and lawful agent
to perform all actions contemplated by this Section including, without
limitation, the evaluation, negotiation, administration, renewal and execution
of Contracts on GROUP's behalf and binding GROUP to performance thereunder,
provided that the Plan with whom each Contract is entered agrees to pay an
amount for GROUP's professional services thereunder equal to or greater than the
minimum rate that GROUP shall specify to Manager. GROUP shall complete and
execute the Power of Agency attached hereto as Exhibit "C."
3.2.2. Manager shall also be responsible for general
monitoring of GROUP compliance with the requirements, terms and conditions of
Contracts.
3.2.3. Manager shall notify and provide copies to GROUP of
each Contract (together with all related materials received from the applicable
Payor) that Manager executes as GROUP's agent. GROUP shall comply with all
terms of each Contract including, without limitation, the terms of all documents
or instruments incorporated therein by reference and all documents or
instruments related thereto that Manager executes or agrees to on GROUP's
behalf, as well as all applicable law. GROUP further agrees that an essential
term of this Agreement is GROUP's undertaking to provide cost-effective medical
care consistent with accepted medical practices prevailing in the GROUP's
service area.
3.2.4. Nothing in this Agreement shall prevent Manager from
entering into similar agreements with Plans on behalf of other independent
practice associations, medical groups, physicians, health care professionals or
entities comprised of physician or health care professionals.
3.2.5. GROUP acknowledges and agrees that (i) Manager shall
in no way be responsible for payment of any sums payable to GROUP under any such
Contract (whether by any Payor or otherwise), and (ii) Manager in no way
guarantees or insures the payment to GROUP of any such amounts.
3.3. PERSONNEL. Manager shall employ or contract with and provide
all necessary non-physician personnel, including quality assurance, utilization
review, claims processing, secretarial and clerical personnel as are reasonably
necessary for the conduct of the Practice (collectively, "Manager Personnel").
Manager shall, in its sole and absolute discretion, determine the types and
numbers of personnel and the number of hours and schedules of said personnel it
determines are necessary or appropriate to provide the administrative and
management
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services to be provided pursuant to this Agreement. Manager shall provide such
personnel at its sole cost and expense and such personnel may, at the sole and
absolute discretion of Manager, be employees or independent contractors of
Manager. Manager shall, in its sole and absolute discretion, have the right,
but shall not be required, to engage as Manager Personnel any or all of those
individuals who were employees of GROUP immediately prior to the effective date
hereof ("GROUP's Former Employees"). Manager shall have sole control over
promotion and employee disciplinary and termination matters with respect to
Manager Personnel (including, without limitation, GROUP's Former Employees), and
shall not be responsible for any accrued vacation, paid time off or other
benefits to such individuals that have accrued prior to the date that Manager
engages them as its employees.
3.4. All professional medical and health care services provided to
subscribers or enrollees shall be the ultimate responsibility of the GROUP's
Participating Providers. GROUP shall use its best efforts to cause
Participating Providers to cooperate with Manager in the implementation of the
protocols, programs, policies, and procedures developed for GROUP by Manager.
3.5. Manager is hereby expressly authorized by GROUP to perform all
services required of Manager pursuant to the terms of this Agreement in the
manner Manager deems reasonable and appropriate to meet the day-to-day
requirements of GROUP. To the extent required or desirable to enable Manager to
perform such services, GROUP hereby appoints Manager for the term hereof as its
true and lawful agent. GROUP acknowledges and agrees that Manager may
subcontract with other persons or entities, including entities related to
Manager by ownership or control, to perform any part or all of the services
required of Manager hereunder.
3.6. Subject to applicable securities, health care and other laws
or regulations, Manager agrees to use its best efforts to cause the holding
company of Manager to issue, or otherwise make available, stock or
exchange-listed stock options or warrants of such holding company for use as
consideration for the acquisition by GROUP of medical groups, IPAs or other
forms of physician practices or, as consideration for any other appropriate use.
3.7. Upon the request of GROUP, Manager shall provide or arrange
for the provision of additional services, beyond those described herein. Any
additional services provided by Manager are subject to Manager's capacity and
availability to provide the services so requested. Should Manager provide such
additional services, GROUP agrees to pay Manager for such services at its then
current rates as a supplemental payment to the Management Fee described herein.
3.8. Notwithstanding any other provision contained herein, Manager
shall not be liable to GROUP and shall not be deemed to be in default hereunder
for the failure to perform or provide any of the services, personnel or other
obligations to be performed or provided by Manager pursuant to this Agreement if
such failure is a result of collective bargaining, a labor dispute, act(s) of
God, or any other event which is beyond the reasonable control of Manager or
which was not reasonably foreseeable by Manager.
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4. RESPONSIBILITIES OF GROUP.
4.1. GROUP covenants and agrees that, at all times during the term
of this Agreement and any extension thereof, it shall conduct all corporate
activities required by its Articles of Incorporation and Bylaws, including but
not limited to election of a Board of Directors, election of Officers, and
appointment of committee members including but not limited to the Quality and
Utilization Management Committee. In addition, GROUP agrees to appoint a
Medical Director. GROUP shall be solely responsible for payment of any and all
compensation, payroll taxes, fringe benefits, disability insurance, workers'
compensation insurance and any other benefits of all such individuals.
4.2. GROUP shall not enter into any agreements with Participating
Providers unless such Participating Providers have: (i) current unrestricted
licenses to practice their respective professions in the State of California and
(ii) current unrestricted Federal Drug Enforcement Agency ("DEA") numbers. In
addition, where GROUP contracts with individual physicians, such physicians
shall have medical staff membership at the hospitals required by the Plans and
where GROUP contracts with licensed clinics and medical groups, at least one
primary care physician practicing at each clinic or medical group shall have
medical staff membership at the hospitals required by the Plans. GROUP further
agrees to establish procedures to ensure that Participating Providers meet these
requirements on an ongoing basis. Manager shall reasonably cooperate with and
assist GROUP to meet its obligations under this Section 4.2; provided however,
that GROUP acknowledges and agrees that it shall retain ultimate responsibility
for meeting such obligations.
4.3. GROUP acknowledges and agrees that it is solely responsible
for making all required reports to the Medical Board of California under Section
805 of the California Business and Professions Code and the National
Practitioner Data Bank.
4.4. GROUP shall, at its sole cost and expense, procure and
maintain at all times during the term of this Agreement comprehensive general
and professional liability insurance covering all activities of GROUP directly
or indirectly relating to GROUP, each policy in a minimum amount of
$1,000,000.00 per occurrence and $3,000,000.00 in the aggregate. The
aforedescribed comprehensive general and professional liability insurance shall
be issued by a company or companies authorized to do business in California with
a financial rating of at least A:12 or better in "Best's Key Rating Guide" or
its equivalent. In the event GROUP procures a "claims made" policy as
distinguished from an "occurrence" policy, GROUP shall procure and maintain at
its sole cost and expense, prior to termination of such insurance, "tail"
coverage to continue and extend coverage complying with this Agreement after the
end of the "claims made" policy. Upon reasonable request from Manager, GROUP
shall cause to be issued to Manager proper certificates of insurance, evidencing
that the foregoing provisions of this Agreement have been complied with, and
said certificates shall provide that prior to any cancellation or change in the
underlying insurance during the policy period, the insurance carrier shall first
give thirty (30) calendar days written notice to Manager.
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4.5. Subject to the terms and conditions of Sections 3.1.6.3 and
3.1.6.4 herein, GROUP shall, at its sole cost and expense, including, but not
limited to, the payment of all salaries, benefits, medical malpractice
insurance, employ or contract with such physicians as shall be reasonably
necessary for the conduct of the Practice.
4.6. GROUP shall ensure that Participating Providers procure and
maintain professional liability insurance with minimum coverage amounts of
$1,000,000.00 per occurrence and $3,000,000.00 in the aggregate. GROUP shall
ensure that any Participating Provider who procures insurance required hereunder
on a "claims made" rather than an "occurrences" form will obtain either extended
reporting insurance coverage ("tail coverage") with liability limits equal to
those most recently in effect prior to the day of termination of such
Participating Provider's contract with GROUP, or will enter into such other
arrangements as shall reasonably assure the maintenance of coverage for such
Provider, GROUP, and Manager against the risk of loss in respect of professional
services rendered by such provider while this Agreement was in effect and for a
period of not less than seven (7) years after the date of termination of this
Agreement.
4.7. GROUP acknowledges and agrees that it shall reasonably assist
and cooperate with Manager to meet all of Manager's obligations under this
Agreement, including approval of agreements and provision of information. GROUP
acknowledges and agrees that Manager shall have no liability for GROUP's failure
to pay any and all of GROUP's debts and expenses.
5. TERM; TERMINATION.
5.1. TERM. The term of this Agreement (the "Term") shall commence
on the date hereof and shall expire on the thirtieth (30th) annual anniversary
hereof unless earlier terminated as provided below. The term of this Agreement
shall be automatically extended for additional terms of ten (10) years each,
unless either party delivers to the other party, not less then twelve (12)
months nor earlier than fifteen (15) months prior to the expiration of the
preceding term, written notice of such party's intention not to extend the term
of this Agreement.
5.2. TERMINATION FOR CAUSE.
5.2.1. Manager may terminate this Agreement for cause at
any time during the Term immediately upon written notice (except as otherwise
provided below). For purposes of this Section 5.2.1 "cause" shall include,
without limitation, the following:
5.2.1.1. If GROUP fails to materially perform any
obligation required hereunder, and such default shall continue for sixty (60)
calendar days after written notice from Manager specifying the nature and extent
of failure to materially perform such obligation, this Agreement shall terminate
automatically and immediately upon the expiration of said sixty (60) calendar
day period; provided, however, that if the obligation which GROUP fails to
perform is other than the failure to make payment of money, and greater than
sixty (60) calendar days are required to perform said obligation, then such
party shall not be in default of this Agreement and
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the Agreement shall not terminate as provided hereinabove if such party
commences performance within said sixty day period and diligently pursues said
obligation to completion.
5.2.1.2. In the event the performance by either
party hereto of any term, covenant, condition or provision of this Agreement
should be determined by a state or federal court or governmental agency or court
of law to be in violation of any statute, ordinance, or be otherwise deemed
illegal ("Jeopardy Event"), then the parties shall use their best efforts to
meet forthwith and attempt to negotiate an amendment to this Agreement to remove
or negate the effect of the Jeopardy Event. In the event the parties are unable
to negotiate such an amendment within thirty (30) days following written notice
by either party of the Jeopardy Event, then Manager may terminate this Agreement
immediately upon written notice.
5.2.2. GROUP may terminate this Agreement for cause at any
time during the Term immediately upon written notice (except as otherwise
provided below). For purposes of this Section 5.2.2 "cause" shall include,
without limitation, the following:
5.2.2.1. If Manager fails to materially perform
any obligation required hereunder which failure amounts to gross negligence,
fraud or an illegal act on the part of Manager, and such default shall continue
for sixty (60) calendar days after written notice from GROUP specifying the
nature and extent of failure to materially perform such obligation, this
Agreement shall terminate automatically and immediately upon the expiration of
said sixty (60) calendar day period; provided, however, that if the obligation
which Manager fails to perform is other than the failure to make payment of
money, and greater than sixty (60) calendar days are required to perform said
obligation, then such party shall not be in default of this Agreement and the
Agreement shall not terminate as provided hereinabove if such party commences
performance within said sixty day period and diligently pursues said obligation
to completion.
5.2.3. Either party may terminate this Agreement for cause at
any time during the Term immediately upon written notice. For purposes of this
Section 5.2.3 "cause" shall include, without limitation, the following:
5.2.3.1. If either party shall apply for or
consent to the appointment of a receiver, trustee or liquidator in bankruptcy,
make a general assignment for the benefit of creditors, file a petition or
answer seeking reorganization or arrangement with creditors, or take advantage
of any bankruptcy, insolvency, reorganization, moratorium or other law for the
benefit of creditors or if any order, judgment, or decree shall be entered by
any court of competent jurisdiction on the application of a creditor or
otherwise adjudicating either party bankrupt or approving a petition seeking
reorganization of either party or appointment of a receiver, trustee or
liquidator of either party of all or a substantial part of its assets, and such
order, judgment or decree shall continue stayed and in effect for sixty (60)
calendar days after its entry, termination shall be effective automatically and
immediately upon the occurrence of the foregoing.
5.3. JEOPARDY. In the event the performance by either party hereto
of any term, covenant, condition or provision of this Agreement should be
determined by a state or federal court or governmental agency to be in violation
of any statute or ordinance, or be otherwise
14
deemed illegal ("Jeopardy Event"), then the parties shall use their best efforts
to meet forthwith and attempt to negotiate an amendment to this Agreement to
remove or negate the effect of the Jeopardy Event. In the event the parties are
unable to negotiate such an amendment within thirty (30) days following written
notice by either party of the Jeopardy Event, then either party may terminate
this Agreement immediately upon written notice.
6. RIGHTS OF MANAGER UPON TERMINATION.
6.1. In the event of the termination of this Agreement for any
reason, including without limitation the breach of this Agreement by either
party, Manager shall be entitled to recover (out of the Accounts (as defined in
Section 3.1.2.2 hereof) or otherwise) from GROUP all fees, and any and all
advances and other charges owed to Manager that had accrued but were unpaid as
of the date of termination.
6.2. In the event of termination of this Agreement for any reason,
Manager shall remain entitled to its Management Fee with respect to all Gross
Revenues (as defined in Exhibit "D" hereto) that have accrued on or before the
effective date of termination, which shall be payable, without limitation, out
of Net Revenues attributable thereto whether received before, on or after the
effective date of termination. Further, GROUP shall remain obligated to
reimburse Manager for any and all other unpaid Management Fees that have accrued
hereunder as of the date of termination.
7. REPRESENTATIONS AND WARRANTIES OF GROUP. The following
representations and warranties of GROUP are made to Manager for the purpose of
inducing Manager to enter into this Agreement. GROUP represents and warrants as
follows:
7.1. GROUP is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all necessary
corporate powers to own its properties and to operate pursuant to its corporate
purposes.
7.2. GROUP's Board of Directors has all requisite power to execute,
deliver and perform this Agreement. Neither the execution and delivery of this
Agreement, nor the consummation and performance of the transactions contemplated
in this Agreement, shall constitute a default or an event that would constitute
a default under, or violation or breach of, GROUP's Articles of Incorporation,
Bylaws or any license, lease, franchise, mortgage, instrument, or other
agreement to which GROUP may be bound.
7.3. GROUP has furnished Manager full and complete copies of all
contracts and agreements affecting GROUP including, but not limited to, all
contracts to which GROUP is a party.
7.4. GROUP and any and all physicians providing services to the
Plans have each complied with, and are not in violation of, applicable federal,
state or local statutes, laws and regulations including, but not limited to,
statutes, laws and regulations regarding the practice of medicine and surgery in
California, participation in the Medicaid and Medicare programs or the
15
operation of GROUP and all applicable standards of practice relating to the
provision of professional services hereunder.
7.5. GROUP and any and all Participating Providers providing
services for the GROUP have each obtained and currently maintain all necessary
licenses, permits, contracts, and approvals required by federal, state or local
statutes and regulations for the proper conduct of the business of the GROUP as
it is now being conducted and have been approved by the Board of Directors or
its properly designated committee, as documented by written committee minutes.
7.6. There is no action, suit, proceeding, investigation or
litigation outstanding, pending or, to the best of GROUP's knowledge,
threatened, affecting GROUP other than routine patient collection matters and
professional liability cases adequately covered by insurance.
7.7. GROUP represents and warrants that each GROUP Participating
Provider is as of the date hereof, and shall at all times during the term hereof
be and remain:
7.7.1. duly licensed to practice medicine within the State
of California and in possession of a federal DEA number, all without limitation,
restriction or condition whatsoever;
7.7.2. entitled to receive Medicare and Medicaid
reimbursement without limitation, restriction or condition whatsoever;
7.7.3. in compliance with the insurance requirements set
forth in Section 4.6 hereof.
7.8. GROUP represents and warrants that it and each GROUP
Participating Provider shall (i) comply with all applicable governmental laws,
regulations, ordinances, and directives and (ii) perform his or her work and
functions at all times in strict accordance with currently approved methods and
practices in his or her field.
8. REPRESENTATIONS AND WARRANTIES OF MANAGER. The following
representations and warranties of Manager are made to GROUP for the purpose of
inducing GROUP to enter into this Agreement. Manager represents and warrants as
follows:
8.1. Manager is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has all necessary
corporate powers to own its properties and to operate pursuant to its corporate
purposes.
8.2. Manager has all requisite power to execute, deliver and
perform this Agreement. Neither the execution and delivery of this Agreement,
nor the consummation and performance of the transactions contemplated in this
Agreement, shall constitute a default, or an event that would constitute a
default under, or violation or breach of, Manager's Certificate of
Incorporation, Bylaws or any license, lease, franchise, mortgage, instrument, or
other agreement to which Manager may be bound.
16
8.3. There is no action, suit, proceeding, investigation or
litigation outstanding, pending or, to the best of Manager's knowledge,
threatened, affecting Manager.
9. MANAGER COMPENSATION.
9.1. As compensation for its services hereunder, Manager shall be
reimbursed its Costs (as defined in Exhibit D attached hereto) and paid a
management fee (the "Management Fee") in the amount set forth on Exhibit D
attached hereto and incorporated herein by reference.
9.2. After deduction of amounts which are reimbursed to Manager and
which are retained by Manager as Management Fee compensation, all remaining
Gross Revenues shall be remitted to GROUP. From such sums, Manager shall pay,
on GROUP's behalf, the Cost of Medical Services (as defined in Exhibit D
attached hereto), such other payments or disbursements which Manager may be
authorized or required to make pursuant to this Agreement and such payments or
disbursements which GROUP shall direct Manager to make. Should the funds in
GROUP's accounts not be sufficient at any time during the term of this Agreement
to make such disbursements and to meet the GROUP's financial obligations,
Manager shall have the right (but not the obligation) to loan to GROUP funds in
an amount sufficient to allow GROUP to meet its financial obligations. Such
loan shall bear interest at a rate that is at or above fair market value and
shall have such other terms as the parties may agree from time to time. Manager
shall not lend any funds to GROUP for such purposes without the prior approval
of GROUP's Board of Directors or the officer(s) of GROUP delegated such power of
approval by GROUP's Board of Directors.
10. RECORDS.
10.1. All medical records and documents, including reports, x-rays,
and other similar types of reports for patients of GROUP providers shall be the
property of GROUP's providers. GROUP agrees to require GROUP providers to allow
Manager and its duly authorized representatives to inspect, audit and duplicate
any data or records necessary for Manager to perform its duties pursuant to this
Agreement. GROUP and Manager shall comply with all applicable federal, state,
and local laws and regulations pertaining to the confidentiality of said medical
records.
10.2. All business records, information, software and systems of the
Manager relating to the provision of its services under this Agreement shall
remain the property of the Manager and may be removed by the Manager upon any
termination of this Agreement.
11. INDEMNIFICATION. Each party shall indemnify, defend and hold harmless
the other, its officers, directors, agents, contractors, representatives and
employees, and each of its affiliates from and against any and all liability,
loss, damages, claims, causes of action, and expenses associated therewith
(including, without limitation, attorneys' fees) caused or asserted to have been
caused, directly or indirectly, by or as a result of any acts, errors or
omissions hereunder of the other, its contractors, shareholders, employees or
agents during the term hereof. The provisions of this section shall survive the
expiration or earlier termination of this Agreement.
17
12. PROPRIETARY INFORMATION.
12.1. At all times during the term hereof and following the
expiration or earlier termination of this Agreement, all trade secrets and
proprietary confidential information of Manager, including without limitation,
all forms of contracts and other business documents or information of Manager,
whether currently or in the future developed or maintained by Manager and
including any and all deletions, additions, modifications and amendments thereto
and further including the amount of compensation to be paid to Manager for its
services hereunder (collectively, "Manager's Proprietary Materials"), shall be
the exclusive, sole and absolute property of Manager. Both parties acknowledge
and agree that Manager has developed Manager's Proprietary Materials at
significant expense, and that said Proprietary Materials are not available for
review or use by members of the public. All of Manager's Proprietary Materials
are and shall at all times remain confidential and proprietary and constitute
valuable trade secrets of Manager. Except in the ordinary course of performing
its obligations under this Agreement and except upon Manager's prior written
consent, GROUP shall not disclose to anyone, use, copy, or take any of Manager's
Proprietary Materials for GROUP's benefit or gain either during the term of this
Agreement or at any time after the termination hereof. Upon any expiration or
earlier termination of this Agreement for any reason, GROUP shall not, without
the prior written consent of Manager, take or use any of Manager's Proprietary
Materials, and shall return to Manager all of Manager's Proprietary Materials in
GROUP's possession or control.
12.2. At all times during the term hereof and following the
termination of this Agreement, GROUP shall not, directly or indirectly,
interfere with, disrupt or attempt to disrupt the relationship, contractual or
otherwise, between Manager and any health care provider or supplier (including,
without limitation, any physician or osteopath), or any employee, independent
contractor, consultant or agent of Manager. GROUP further agrees not to hire,
engage or contract with, either as an independent contractor, employee or in any
other capacity, any personnel of Manager, other than personnel of Manager who
are GROUP's Former Employees, during the first twelve (12) months following the
effective expiration or termination date hereof without Manager's prior written
consent.
12.3. The provisions of this Section 12 shall survive the
termination of this Agreement.
13. INDEPENDENT CONTRACTORS. The parties hereto acknowledge and agree
that the relationship created between Manager and GROUP is strictly that of
independent contractors. Nothing contained herein shall be construed as
creating a partnership or joint venture relationship between the parties. Each
party hereto shall be responsible for all compensation, salaries, taxes,
withholdings, contributions, benefits, and workers' compensation insurance with
respect to all personnel employed or contracted by said party and shall
indemnify, defend and hold harmless the other party and its officers, directors,
agents, contractors, representatives and employees (and, in the case of GROUP's
indemnification of Manager, Manager's affiliates and subcontractors) from and
against any and all liability, loss, damages, claims, causes of action, and
expenses associated therewith (including, without limitation, attorneys' fees)
caused or asserted
18
to have been caused, directly or indirectly, by or as a result of same. The
provisions of this Section shall survive the expiration or earlier termination
of this Agreement.
14. ASSIGNABLE OPTION AGREEMENT. The parties shall enter into an
Assignable Option Agreement in the form attached hereto as Exhibit E.
15. MISCELLANEOUS.
15.1. NO THIRD PARTY BENEFICIARIES. The parties intend that the
benefits of this Agreement shall inure only to Manager and GROUP and not to any
third person, except as expressly so stated herein. Notwithstanding anything
contained herein, or any conduct or course of conduct by any party hereto,
before or after signing this Agreement, this Agreement shall not be construed as
creating any right, claim or cause of action against either Manager or GROUP by
any other person or entity.
15.2. ENTIRE AGREEMENT. This Agreement, together with all exhibits
and schedules hereto, and all documents referred to herein, constitutes the
entire agreement between the parties with respect to the subject matter hereof,
supersedes all other and prior agreements on the same subject, whether written
or oral, and contains all of the covenants and agreements between the parties
with respect to the subject matter hereof. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
orally or otherwise, have been made by the other party(ies), or by anyone acting
on behalf of any party, that are not embodied herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding. This Agreement incorporates the Original Management Services
Agreement, together with all amendments previously made and to be made to the
date of execution hereof, and is deemed to have been effective as of the date of
the Original Management Services Agreement.
15.3. SUCCESSORS AND ASSIGNS. All of Manager's rights and duties
under this Agreement may be assigned or delegated by Manager, including but not
limited to, an assignment to Imperial Bank, a California banking corporation.
Notwithstanding any other provision of this Agreement, neither this Agreement
nor the rights and duties of this Agreement may be assigned or delegated by
GROUP. This Agreement binds the successors, heirs, and authorized assignees of
the parties.
15.4. COUNTERPARTS. This Agreement, and any amendments thereto, may
be executed in counterparts, each of which shall constitute an original
document, but which together shall constitute one and the same instrument.
15.5. HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.6. NOTICES. Any notices required or permitted to be given
hereunder by either party to the other shall be in writing and shall be deemed
delivered upon personal delivery or
19
delivery by electronic facsimile; twenty-four (24) hours following deposit with
a courier for overnight delivery; or seventy-two (72) hours following deposit in
the U.S. Mail, registered or certified mail, postage prepaid, return-receipt
requested, addressed to the parties at the following addresses or to such other
addresses as the parties may specify in writing:
If to GROUP: Pegasus Medical Group, Inc.
00000 Xxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: President
If to Manager: Sierra Medical Management, Inc.
00000 Xxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: President
15.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
15.8. AMENDMENT. This Agreement may be amended at any time by
agreement of the parties, provided that any amendment shall be in writing and
executed by both parties.
15.9. SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be invalid or unenforceable, the remaining
provisions will nevertheless continue in full force and effect, unless such
invalidity or unenforceability would defeat an essential business purpose of
this Agreement.
15.10. EXHIBITS AND SCHEDULES. All exhibits and schedules attached
to this Agreement are incorporated herein by this reference and all references
herein to "Agreement" shall mean this Agreement together with all such exhibits
and schedules.
15.11. TIME OF ESSENCE. Time is expressly made of the essence of
this Agreement and each and every provision hereof of which time of performance
is a factor.
15.12. DISPUTE RESOLUTION.
15.12.1. Subject to the terms of Section 15.12.2, in the event
the parties hereto are unable to resolve any and all disputes in connection with
this Agreement, either party may commence arbitration by sending a written
demand for arbitration to the other party, setting forth the nature of the
matter to be resolved by arbitration. Except as may be expressly provided to
the contrary herein, the arbitration procedure described in this Section shall
be the sole means of resolving any disputes hereunder.
15.12.2. Notwithstanding the foregoing, it is expressly
understood by the parties that the arbitration procedure described in this
Section shall not be applicable to any disputes between the parties as to
matters over which Manager has exclusive decision-making authority pursuant to
the terms hereof, including without limitation, the Manager's exclusive
decision-making
20
authority with respect to the development of guidelines for the selection,
hiring and firing of health care professionals, compensation payable to health
care professionals, scope of services to be provided, patient acceptance
policies and procedures, pricing of services, negotiation and execution of
contracts, and approval of operating and capital budgets.
15.12.3. There shall be one arbitrator. If the parties shall
fail to select a mutually acceptable arbitrator within ten (10) days after the
demand for arbitration is mailed, then the parties stipulate to arbitration
before a retired judge sitting on the Los Angeles Judicial Arbitration Mediation
Services (JAMS) panel.
15.12.4. The parties shall share all costs of arbitration.
The prevailing party shall be entitled to reimbursement by the other party of
such party's attorneys' fees and costs and any arbitration fees and expenses
incurred in connection with the arbitration hereunder.
15.12.5. The substantive law of the State of California shall
be applied by the arbitrator. The parties shall have the rights of discovery as
provided for in Part 4 of the California Code of Civil Procedure and as provided
for in Section 1283.05 of said Code. The California Code of Evidence shall
apply to testimony and documents submitted to the arbitrator.
15.12.6. Arbitration shall take place in Los Angeles,
California unless the parties otherwise agree. As soon as reasonably
practicable, a hearing with respect to the dispute or matter to be resolved
shall be conducted by the arbitrator. As soon as reasonably practicable
thereafter, the arbitrator shall arrive at a final decision, which shall be
reduced to writing, signed by the arbitrator and mailed to each of the parties
and their legal counsel.
15.12.7. All decisions of the arbitrator shall be final,
binding and conclusive on the parties and shall constitute the only method of
resolving disputes or matters subject to arbitration pursuant to this Agreement.
The arbitrator or a court of appropriate jurisdiction may issue a writ of
execution to enforce the arbitrator's judgment. Judgment may be entered upon
such a decision in accordance with applicable law in any court having
jurisdiction thereof.
15.12.8. Notwithstanding the foregoing, because time is of
the essence of this Agreement, the parties specifically reserve the right to
seek a judicial temporary restraining order, preliminary injunction, or other
similar short term equitable relief, and grant the arbitrator the right to
make a final determination of the parties' rights, including whether to make
permanent or dissolve such court order.
15.12.9. Notwithstanding the foregoing, any and all
arbitration proceedings are conditional upon such proceedings being covered
under the parties' respective risk insurance policies.
15.13. ATTORNEYS' FEES. Should either party institute any action or
procedure to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach
21
of this Agreement or of any provision hereof, or for a declaration of rights
hereunder (including, without limitation, arbitration), the prevailing party in
any such action or proceeding shall be entitled to receive from the other party
all costs and expenses, including without limitation reasonable attorneys' fees,
incurred by the prevailing party in connection with such action or proceeding.
15.14. FURTHER ASSURANCES. The parties shall take such actions and
execute and deliver such further documentation as may reasonably be required in
order to give effect to the transactions contemplated by this Agreement and the
intentions of the parties hereto.
15.15. RIGHTS CUMULATIVE. The various rights and remedies herein
granted to Manager or GROUP shall be cumulative and in addition to any other
rights Manager or GROUP, respectively, may be entitled to under law. The
exercise of one or more rights or remedies shall not impair the right of Manager
or GROUP to exercise any other right or remedy, at law or equity.
15.16. FEDERAL SOCIAL SECURITY REQUIREMENTS. Pursuant to Section
1395x (V)(1)(I) of Title 42 of the United States Code, with respect to any
services furnished under the terms of this Agreement if the value or cost of
which is Ten Thousand Dollars ($10,000) or more over a twelve (12) month period,
until the expiration of four (4) years after the termination of this Agreement,
Manager shall make available upon written request to the Secretary of the United
States Department of Health and Human Services, or upon request by the
Comptroller General of the United States General Accounting Office, or any of
their duly authorized representatives, a copy of this Agreement and such books,
documents and records as are necessary to certify the nature and extent of the
costs of the services provided by Manager under this Agreement.
Manager further agrees that in the event Manager carries out any of
its duties under this Agreement through a subcontract, with a value or cost of
Ten Thousand Dollars ($10,000) or more over a twelve (12) month period, such
subcontract shall contain a clause to the effect that until the expiration of
four (4) years after the furnishing of such services pursuant to such
subcontract, the subcontractor shall make available, upon written request to the
Secretary of the United States Department of Health and Human Services, or upon
request to the Comptroller General of the United States General Accounting
Office, or any of their duly authorized representatives, the subcontract and
such books, documents and records of such organization as are necessary to
verify the nature and extent of such costs.
22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"MANAGER" "GROUP"
SIERRA MEDICAL MANAGEMENT, INC. PEGASUS MEDICAL GROUP, INC.
By: By:
------------------------------- ------------------------------
Its: Its:
------------------------------- ------------------------------
23
LIST OF EXHIBITS AND SCHEDULES
Exhibits
--------
A - Master Lease
B - Furniture, Fixtures & Equipment
C - Power of Agency
D - Management Fee
Schedule
--------
7.9.2 Practice Employee Liabilities
EXHIBIT "A"
MASTER LEASE
Set forth below is a list of the leases which comprise the Master Lease and
are attached as Exhibit "A" to the Management Services Agreement, made and
entered into as of October 31, 1997, by and between Sierra Medical Management,
Inc. and Pegasus Medical Group, Inc.; these leases have been intentionally
omitted from this copy of said Management Services Agreement.
1. Xxxx Xxxxxxxxx Xxxxx Lease commencing on November 1, 1997 by and
between The Prudential Insurance Company of America, Inc., a New Jersey
Corporation and Pegasus Medical Group, Inc., a California Corporation (for 0000
Xxxx Xxxxxx X, Xxxxxxxxx, Xxxxxxxxxx 00000).
2. Lease for 0000 Xxxx Xxxxxxxx Xxxxxxxxx, Xxxxxxxx, Xxxxxxxxxx by and
between 22nd Street Plaza, a California Limited Partnership and Pegasus Medical
Group, Inc.
EXHIBIT "B"
FURNITURE, FIXTURES & EQUIPMENT
EXHIBIT "C"
POWER OF AGENCY
EXHIBIT "C"
POWER OF AGENCY
This Power of Agency is made and entered into in connection with that
certain Management Services Agreement (the "Agreement") dated as of the 31st day
of October, 1997, between Sierra Medical Management, Inc., a Delaware
corporation ("Manager"), and Pegasus Medical Group, Inc., a professional
corporation ("GROUP"), as amended.
1. DEFINITIONS. Capitalized terms used herein and not otherwise defined
herein shall have the meaning assigned to them in the Agreement.
2. POWER OF MANAGER. GROUP hereby appoints the Manager or its designee
or successor, as GROUP's agent ("Agent") to act for GROUP and in GROUP's name,
place and stead for the purposes of: (a) communicating the terms and conditions
under which GROUP would accept a Contract with each Plan, as set forth in the
Agreement and Exhibit "C" thereto; (b) executing on behalf of GROUP each
Contract that contains said terms and conditions or that contains any other
terms and conditions that are not rejected by GROUP; (c) administering executed
Contracts, as set forth below; (d) performing all actions on behalf of GROUP
contemplated by the Agreement relating to Contracts, including, without
limitation, the evaluation, negotiation and renewal of Contracts; (e)
negotiating and executing all business agreements and leases on GROUP's behalf
in accordance with the Agreement; (f) endorsing all checks made payable to GROUP
for services provided to Members; (g) taking all steps required or desirable to
submit, process and collect all claims for payment to patients, Plans, Medicare,
Medicaid and all other third party payors; and (h) receiving and depositing
capitation and other payments received by GROUP.
3. ADMINISTRATION. Agent shall maintain in his/her files a copy of each
executed Contract and shall provide to GROUP a list of Plans contracting with
GROUP. Notwithstanding anything herein to the contrary, GROUP shall look solely
to Plans and/or enrollees or beneficiaries of Plans, as applicable, for payment
for medical services and supplies and neither Manager nor any officer, employee,
agent or affiliate of Manager shall be liable for such payment.
4. TERM. The term of this Power of Agency shall be coextensive with the
term of the Agreement.
5. FULL AUTHORITY. Agent is hereby granted full authority to act in any
manner proper, necessary or convenient to the exercise of the foregoing powers,
including substitution and revocation. GROUP hereby ratifies every act that
Agent may lawfully perform in exercising those powers.
IN WITNESS WHEREOF, this Power of Agency is executed effective as of the
day and year first above written.
"MANAGER" "GROUP"
SIERRA MEDICAL MANAGEMENT, INC. PEGASUS MEDICAL GROUP, INC.
By: By:
------------------------------- ------------------------------
Its: Its:
------------------------------- ------------------------------
EXHIBIT "D"
MANAGEMENT FEE
EXHIBIT "D"
MANAGEMENT FEE
A. DEFINITIONS
COST OF MEDICAL SERVICES means with respect to the GROUP, the
aggregate compensation of GROUP's employed physicians and physician extenders
(e.g. physician assistants and nurse practitioners), charges incurred by the
GROUP for independent contractor physicians, the cost of services ordered by
GROUP through its physicians for managed care patients, the cost of GROUP's
employee benefits including, but not limited to, vacation pay, employer and
employee contributions to any 401(k) plan or other retirement plan for the
benefit of GROUP employees, sick pay, health care expenses, GROUP's share of
employment and payroll taxes, GROUP's employees' professional dues and all other
expenses and payments required to be made by GROUP to or for physicians pursuant
to physician employment and independent contractor agreements (including expense
reimbursements, discretionary bonuses, incentives based on profitability or
productivity, and payments paid and accrued or deferred).
MANAGER'S COSTS means all operating and non-operating expenses and
other costs directly or indirectly incurred by Manager, including but not
limited to direct labor costs (for all employees of Manager or its affiliates
and for any independent contractors or consultants to Manager), indirect labor
costs, supplies, all amounts paid by Manager or GROUP to satisfy any obligations
of GROUP to non-professional employees and third parties (other than for the
Cost of Medical Services), obligations under any lease or purchase agreement or
arrangement for which Manager has direct or indirect financial liability, and
direct and indirect overhead and other expenses relating to the operation of
GROUP's administrative and non-medical management affairs and relating to
GROUP's direct and indirect corporate overhead (including but not limited to all
interest expense and other expenses which are attributable generally to
Manager's business operations in accordance with Manager's corporate allocation
policies as such are in effect from time to time).
GROSS REVENUES means all sums which are (i) attributed to GROUP
(determined on an accrual basis) as compensation for the provision of medical
services by GROUP employed and independent contractor physicians and physician
extenders, including but not limited to all capitated income, all rights to
receive GROUP's portion of hospital and other shared risk pool payments, all
copayments, coordination of benefits, third party recovery, insured services,
enrollment protection (or other such revenue as is available to replenish
capitated services) and all rights to receive fee-for-service income for
medical, diagnostic and therapeutic services provided to GROUP patients; and
(ii) derived by GROUP or its employees other than from the provision of medical
services, including but not limited to consulting services, insurance and legal
recoveries, royalties and licensing payments, franchise payments, rents and
lease payments, and proceeds from the sale of assets or the merger or other
business combination of GROUP.
NET-PRE-TAX INCOME means Gross Revenues less the sum of Manager's
Costs and the Cost of Medical Services after provision of related bonuses but
before provision for income taxes.
B. MANAGEMENT FEE
For its services hereunder, which shall include the providing of all
facilities and furniture, fixtures and equipment at the Premises and all
non-physician employees of Manager who perform services at or for the
Practice and all management services provided hereunder, Manager shall (i)
retain that portion of the Gross Revenues which is equal to Manager's Costs
plus (ii) [**] of Gross Revenues plus (iii) a fee for marketing and public
relations services of [**] per month plus (iv) [**] of Net Pre-tax Income in
excess of [**] of Gross Revenues; provided however, that if after the payment
of Manager's Costs as set forth in item (i) herein GROUP's working capital is
insufficient to meet GROUP's liabilities or other obligations, including but
not limited to the payment of $700,000 to Prospect Medical Group, Inc.
pursuant to the terms of a Secured Promissory Note, of even date herewith, by
and between GROUP and Prospect Medical Group, Inc., the amount of Gross
Revenues paid to Manager shall be deferred until GROUP is able to meet such
obligations.
2
