EXECUTION COPY
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MANAGEMENT SERVICES AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A.
Effective as of September 1, 1997
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ATTACHMENTS
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SCHEDULES
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SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation
SCHEDULE IV -- Draw Date and Draw Percentage
SCHEDULE V -- Management Fee -- Applicable Percentage
SCHEDULE VI -- Professional Practice Cost Savings
SCHEDULE VII -- Computation Example
SCHEDULE VIII -- Non-Competition
SCHEDULE 6.2 -- Equity Investments
SCHEDULE 6.3 -- Consents
SCHEDULE 6.4 -- Financial Information
SCHEDULE 6.5 -- Absence of Undisclosed Liabilities
SCHEDULE 6.6 -- Absence of Changes
SCHEDULE 6.7 -- Tax Matters
SCHEDULE 6.8 -- Litigation, Etc.
SCHEDULE 6.10 -- Accounts Receivable; Accounts Payable
SCHEDULE 6.11 -- Labor Relations; Employees
SCHEDULE 6.12 -- Employee Benefit Plans
SCHEDULE 6.13 -- Insurance
SCHEDULE 6.14 -- Real Property
SCHEDULE 6.15 -- Burdensome Restrictions
SCHEDULE 6.16 -- Disclosure
SCHEDULE 7.2 -- Consents
SCHEDULE 7.4 -- Financial Information
SCHEDULE 7.5 -- Absence of Undisclosed Liabilities
SCHEDULE 7.6 -- Absence of Changes
SCHEDULE 7.7 -- Litigation, Etc.
SCHEDULE 7.9 -- Employees
SCHEDULE 7.11 -- Burdensome Restrictions
EXHIBITS
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EXHIBIT A -- Assignment of Lease
EXHIBIT B -- Restricted Stock Agreement
EXHIBIT C -- Stockholder Non-Competition Agreement
THIS MANAGEMENT
SERVICES AGREEMENT (the "Agreement") is
entered into on October 28, 1997, (the
"Signature Date"), effective as of
September 1, 1997, by and between
LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A.,
a Florida corporation (the "Medical
Group"), and BMJ MEDICAL MANAGEMENT,
INC., a Delaware corporation (the
"Management Company"), with reference to
the facts set forth below:
A. Each of the equity owners (the "Practicing Physicians") of the Medical
Group individually or through a professional corporation provides orthopedic
medical and surgical services and related medical and ancillary services to the
general public (each, a "Constituent Practice" and, collectively, the
"Constituent Practices"). As of the Closing Date, the Practicing Physicians have
transferred or assigned the Constituent Practices to the Medical Group and
formed a combined medical practice (such combined practice being referred to
herein as the "Medical Business").
B. The Management Company is a corporation engaged in the business (the
"Management Business") of providing management, administrative, financial,
marketing, information technology, and related services to professional medical
organizations.
C. Concurrently herewith, the Management Company and is entering into an
Asset Purchase Agreement (the "Asset Purchase Agreement"), with each of LOMG,
Lighthouse Orthopaedic Group (the "Partnership") and each Participating
Physician, pursuant to which the Management Company is acquiring substantially
all of the assets of the Medical Group.
D. The Management Company and the Medical Group desire to enter into this
Agreement, pursuant to which, among other
things, the Management Company will render certain management and administrative
services to the Medical Group.
NOW, THEREFORE, the Medical Group and the Management Company hereby agree
as follows:
SECTION 1. Retention of the Management Company.
1.1 Retention.
The Medical Group hereby retains the Management Company to provide all
of the management and related services identified or referenced in Section
3 hereof and as otherwise required by this Agreement (collectively, the
"Management Services"), and the Management Company hereby accepts such
retention and agrees to provide such services, upon the terms and subject
to the conditions set forth herein.
1.2 Exclusivity.
During the term of this Agreement, the Management Company shall be the
exclusive provider of all management and administrative services utilized
by the Medical Group; provided, however, that the Medical Group may
contract directly with or otherwise engage individuals or companies for the
provision of accounting, legal, consulting, or other professional or
advisory services (provided that such services shall be in addition to, and
not in replacement of, the services to be provided by the Management
Company hereunder), all in the sole discretion of the Medical Group and at
the sole cost of the Medical Group.
1.3 Relationship of Parties.
Notwithstanding anything contained herein to the contrary, (a) the
Management Company and the Medical Group intend to act and perform as
independent contractors, and the provisions hereof are not intended to
create any partnership, joint venture, or employment relationship between
the parties, and (b) the
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Management Company is hereby engaged solely to provide management and
administrative services to the Medical Group and shall not interfere with,
control, direct, or supervise the Medical Group or any medical professional
employed by the Medical Group in connection with the provision of
professional medical services.
1.4 No Referral Obligation.
The parties agree that the benefits to the Medical Group hereunder do
not require, are not payment for, and are not in any way contingent upon
the admission, referral, purchase, or any other arrangement for the
provision of any item or service to or for any of the Medical Group's
patients in or from any medical facility or laboratory or from any other
entity owned, operated, controlled, or managed by the Management Company.
SECTION 2. Term.
Provided that the Closing under the Asset Purchase Agreement shall have
occurred as provided therein, and subject to such start-up procedures as the
parties may agree upon for purposes of facilitating the transition of
responsibilities required by this Agreement, the performance of services under
this Agreement shall commence as of September 1, 1997 (the "Commencement Date")
and shall expire on the fortieth (40th) anniversary of the Commencement Date
unless terminated earlier pursuant to the terms hereof (the "Base Term"). The
Base Term of this Agreement shall be automatically extended for successive terms
(each, an "Additional Term," and together with the Base Term, the "Term") of
five years each, unless either party delivers to the other party, not less than
six (6) months nor more than nine (9) months prior to the expiration of the
then-current Term, written notice of such party's intention not to so extend the
Term of this Agreement.
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SECTION 3. Management Services.
3.1. Management Services Generally.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company
shall provide all of the management and administrative services reasonably
required by the Medical Group in connection with the provision of any and
all of the Medical Group Services (as hereinafter defined) and as otherwise
provided in this Agreement, including without limitation the services
described in Sections 3.2 through 3.17 hereof.
(b) Without limiting the generality of the provisions of Section
3.1(a), and subject to the further provisions of this Agreement, the
Management Services shall include such management and administrative
services as may be reasonably required in connection with (i) all of the
offices (including New Medical Offices, as hereinafter defined) of the
Medical Group, and (ii) all professional services and all ancillary
services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described
in this Agreement shall be applicable with respect to the items identified
as Medical Group Costs in Section 5.7 hereof, except that such Medical
Group Costs shall be paid by the Medical Group rather than by the
Management Company. Accordingly, the Management Company shall provide
accounting, bookkeeping, and related services with respect to all such
costs.
(d) The Management Company may enter into such contracts and
agreements with outside services and suppliers as the Management Company
shall reasonably deem necessary in connection with the provision of the
Management Services, and, to the extent permitted by applicable law, such
contracts and
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agreements shall, except as otherwise specified by the Operations
Committee, be in the name of the Management Company; provided, however,
that without the prior approval of the Operations Committee (as hereinafter
defined), the Management Company shall not enter into any agreement
pursuant to which an unaffiliated third party will perform substantially
all of the duties of the Management Company set forth in Section 3.6(a)
hereof. The Management Company shall have no authority, directly or
indirectly, to perform, and shall not perform or enter into any agreement
to perform, Medical Group Services or any other medical function required
by law to be performed by a licensed physician or by any other licensed
health care professional.
(e) The Management Company shall comply in all material respects with
all applicable material Federal, state and local laws, regulation, and
ordinances in connection with the provision of the Management Services
hereunder.
3.2. Premises.
(a) The Medical Group, as of the Commencement Date, has use of office
space that is leased by an affiliate of the Medical Group, and provides
Medical Group Services, at the following location(s):
0000 X.X. 00xx Xxxxxx
Xxxxxxxxxx Xxxxx, Xxxxxxx 00000
0000 Xxxxxxx Xxxx Xxxxxxxxx Xxxxx
Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
0000 X. Xxxxxxx Xxxxxxx
Units 30, 31, 32 and 33
Xxxxxxxxxx Xxxxx, Xxxxxxx 00000
Immediately prior to the Commencement Date, the above-identified premises
were leased to the Medical Group, in the Medical Group's name. Effective
from and after the Commencement Date, each of the leases for such premises
(except 00xx Xxxxxx) is to be
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assigned from the Medical Group to the Management Company pursuant to an
assignment (each, an "Assignment of Lease") substantially in the form
attached hereto as Exhibit A. During the Term, the Medical Group shall,
subject in all instances to the terms of such leases, have the right to use
such premises solely for the provision of Medical Group Services in
accordance with the terms of this Agreement. In connection therewith, the
Medical Group agrees in all instances to abide by all of the terms and
provisions of all such leases. Upon the expiration of any of the leases
assigned in accordance with this Section 3.2(a), the Management Company
shall use its best efforts to enter into a new lease, in the name of the
Management Company, with the landlord of such premises; provided, however,
that the approval of the Medical Group, which shall not be unreasonably
withheld, shall be required in the event of any substantial changes in the
terms of such lease, and if the Medical Group does not give such approval,
the failure to enter into such new lease shall not constitute a default of
the Management Company. Each assigned lease and each new lease entered into
between the Management Company and the landlord is referred to herein as an
"Office Lease."
(b) A New Medical Office (as hereinafter defined) may be opened only
upon approval of the Operations Committee. The capital costs and start-up
costs reasonably required in connection with the opening of any New Medical
Office shall be borne as set forth in Section 5 hereof. The premises of any
New Medical Office shall be leased by the Management Company, in the
Management Company's name unless otherwise specified by the Operations
Committee, and the Medical Group shall, subject in each instance to the
terms of any such lease, have the right to use the premises of any such New
Medical Office solely for the provision of Medical Group Services in
accordance with the terms of this Agreement. In connection therewith, the
Medical Group agrees in all instances to abide by all of the terms and
provisions of all such leases. Notwithstanding anything to the
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contrary contained in this Agreement, the Management Company may, in its
sole discretion, determine to permanently close any New Medical Office if
such office is not, after 12 months of operation, profitable (as determined
in the sole discretion of the Management Company).
(c) Except as set forth in Sections 3.2(a) or (b) above, the closing
or relocation of any offices of the Medical Group shall be subject to
agreement by the Medical Group and the Management Company.
(d) The services to be provided by the Management Company with respect
to the premises leased in accordance with this Section 3.2 shall include,
without limitation, the negotiation and renegotiation of leases, provision
of ongoing liaison with the landlords of the respective premises,
identification of potential new locations for Medical Group offices,
financial analysis relating to the opening, closing, and relocation of any
offices, arrangement of necessary repairs, maintenance and improvements,
procurement of property insurance, arrangement of telephone and other
utility services, and hazardous waste disposal, and all other reasonably
necessary or appropriate services related to all of the offices of the
Medical Group.
(e) The Management Company also shall provide all necessary or
appropriate leasehold improvements to each of the premises, subject to
prior approval as provided in Section 8.2 hereof.
(f) The Medical Group acknowledges that the Management Company makes
no warranties or representations, expressed or implied, regarding the
condition of any of the leased premises.
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3.3. Equipment.
(a) During the Term, the Management Company shall provide to the
Medical Group all equipment, including diagnostic and therapeutic medical
equipment, reasonably required by the Medical Group in connection with the
provision of Medical Group Services (collectively, the "Medical
Equipment"). The Management Company shall acquire (or lease), at its cost,
all Medical Equipment, and the Management Company shall retain ownership of
(or the leasehold interest with respect to) all Medical Equipment;
provided, however, that one hundred percent (100%) of the cost of such
Medical Equipment shall be charged back to the Medical Group on a
depreciated basis. As used herein, the term Medical Equipment shall not
include medical equipment used in connection with a New Ancillary Service
(as hereinafter defined).
(b) The Management Company also shall provide to the Medical Group, or
arrange for the provision of, all furniture, furnishings, trade fixtures,
and office equipment reasonably required in connection with the provision
of Medical Group Services pursuant to this Agreement (collectively,
"FF&E"). The Management Company shall acquire, at its cost, all FF&E, and
the Management Company shall retain ownership of all FF&E. As used herein,
the term FF&E does not include furniture, furnishings, trade fixtures, and
office equipment used in connection with a New Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred to
collectively as the "Equipment." The acquisition, replacement, relocation,
or other disposition of any Equipment shall require prior approval as
provided in Section 8.2 hereof.
(d) The Medical Group's right to use the Equipment shall be
subordinate to the rights of any unaffiliated third party to which the
Management Company elects, in its sole discretion, to grant any security
interest, mortgage, lien or
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other encumbrance in or on the Equipment. The Medical Group shall use the
Equipment only in connection with its provision of the Medical Group
Services, and the Medical Group shall not alter, repair, augment, or remove
the Equipment from the premises of the Medical Group without the prior
written consent of the Management Company and any lessor thereof, which
approval may be granted or withheld in the Management Company's or such
lessor's sole discretion. To the extent the Equipment is utilized by the
Medical Group in the provision of Medical Group Services, the Medical Group
shall have the right to exercise reasonable control over the use of such
Equipment.
(e) From time to time, and as reasonably requested by the Medical
Group, the Management Company shall use reasonable efforts to cause the
Equipment manufacturer or its authorized agent to provide service and
maintenance for the Equipment as needed to maintain the Equipment in an
operable condition, so that all such Equipment shall function continuously
(subject to interruptions not reasonably avoidable) in accordance with the
manufacturer's specifications and so that all conditions imposed by the
manufacturer to maintaining the continued effectiveness of any warranty on
such Equipment shall be satisfied. The Management Company shall take all
reasonable steps to provide that all necessary service and maintenance is
obtained in a prompt and timely manner, so as to minimize the amount of
time that any of the Equipment is not available for usage by or for
patients of the Medical Group.
(f) THE MEDICAL GROUP ACKNOWLEDGES THAT THE MANAGEMENT COMPANY MAKES
NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER RELATING TO THE EQUIPMENT PROVIDED TO THE MEDICAL GROUP PURSUANT
TO THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DESIGN CONDITION OF
THE EQUIPMENT, THE CONFORMANCE THEREOF TO THE PROVISIONS AND SPECIFICATIONS
OF ANY PURCHASE ORDER RELATING THERETO, OR THE FITNESS OF THE EQUIPMENT FOR
ANY PARTICULAR PURPOSE. Nothing in
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this Agreement shall be construed to affect or limit in any way the
professional discretion of the Medical Group to select and use any
Equipment acquired by the Management Company in accordance with the terms
of this Agreement insofar as such selection or use constitutes or might
constitute the practice of medicine.
3.4. New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Physical therapy;
(ii) Rehabilitative therapy;
(iii) Occupational therapy;
(iv) Magnetic resonance imaging, CT and/or other imaging services
(except diagnostic radiology);
(v) Outpatient surgery, such as may be provided in an ambulatory
surgical center;
(vi) Bone densitometry; and;
(vii) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Any services generally provided by the Medical Group
immediately prior to the Commencement Date, including
without limitation (1) plain film and other diagnostic
radiology (if any), and (2) ultrasound; and
(B) Any service performed in connection with new Medical
Equipment acquired to
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replace existing Medical Equipment so long as the new
Medical Equipment performs substantially the same
functions as the replaced Medical Equipment.
New Ancillary Services do not include the sale or provision of (or services
rendered in connection with) prosthetics, prosthetic devices, orthotics,
durable medical equipment, braces, splints, appliances, crutches, casts, or
any other supplies or similar items which are billable to patients or
payors, all of which are to be included in the scope of Medical Group
Services.
(b) New Ancillary Services may be established only upon agreement of
the Medical Group and the Management Company. Such agreement shall be
memorialized in a written agreement executed by the parties (or in a
written amendment to this Agreement) under which the Management Company
agrees to provide all of the Management Services described in this Section
3 in connection with such New Ancillary Service, and for which the
Management Company shall be compensated as described in Section 5.8 of this
Agreement, except as may otherwise be agreed upon by the parties.
3.5. Administration, Finance and Accounting.
The Management Company shall provide or arrange for the provision of
all administrative, financial, and accounting functions necessary for the
operation of the Medical Group, including, without limitation, the
following (if applicable):
(a) Creation and maintenance of bank accounts.
(b) Deposits of receipts.
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(c) Preparing accounts receivable summary reports, including various
analyses of delinquent accounts.
(d) Receiving appropriate approvals as required by the Medical
Group's articles of incorporation (the "Articles of
Incorporation") and its bylaws (the "Bylaws") prior to
distribution of payments to outside parties; provided, however,
that the Management Company shall not be responsible for or
liable with respect to interpretations of the Articles of
Incorporation or Bylaws.
(e) Disbursement of payables, including payables of the Medical
Group; provided, however, that payables of the Medical Group
shall be paid from an account of the Medical Group and not from
any of the Management Company's bank accounts, and all checks
drawn on any Medical Group account shall be signed by an
authorized representative of the Medical Group.
(f) Assisting the Medical Group in the procurement and negotiation of
vendor and managed care payor contracts.
(g) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and
preparation of financial statements.
(h) Analyzing financial data as reasonably requested by physicians.
(i) Analyzing potential New Medical Office locations, and
coordinating all functions associated with opening New Medical
Office locations.
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(j) Preparing monthly financial and medical practice statistics
reports by satellite office and by physician, and the Management
Company shall use its reasonable efforts to have such reports
available, with respect to any given month, 20 days after the end
of such month.
(k) If requested by the Medical Group, providing from the Medical
Group's bank account(s) compensation payments to physicians and
professional corporations pursuant to service agreements, monthly
profit and loss distributions, and quarterly bonus calculations;
provided, however, that the Management Company shall not be
responsible for or liable with respect to interpretations of the
Articles of Incorporation or Bylaws; provided, further, that all
checks drawn on any Medical Group bank account shall be signed by
an authorized representative of the Medical Group.
(l) Calculating physicians' annual earnings based on the Medical
Group's physician compensation formulas.
(m) Ongoing day-to-day communication with the managing partner,
member or stockholder (or other manager of the Medical Group) and
assisting such person in fulfilling his responsibilities.
(n) Preparing agendas and information packages for Medical Group
meetings.
(o) Developing budgets and long-term strategies for the Medical
Group, including an initial
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long-term plan and capital expenditures budget and the Management
Company shall use its reasonable efforts to have such plan and
budget delivered to the Medical Group within 180 days and 90
days, respectively, after the Commencement Date.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
(r) Sponsoring employee benefit plans and providing administrative
services relating thereto for the Medical Personnel (as
hereinafter defined), provided that if the Medical Group elects
not to participate in the employee benefit plans established by
the Management Company, the Management Company shall not be
required to perform the services set forth in this clause (r).
(s) Coordinating recruitment, interviewing, and hiring of new
physicians approved by the Medical Group, in the sole discretion
of the Medical Group.
(t) Implementing fee schedule increases and/or decreases established
by the Medical Group.
(u) Coordinating depositions and court appearances.
(v) Assisting in the coordination of call schedules.
(w) Assisting in the coordination of coverage of athletic team
events.
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(x) Acting as liaison to hospital administration, physical therapy,
surgery center, MRI, and other ancillary services entities.
(y) Cooperating with outside accountants in preparing various
schedules and providing other information.
(z) Interacting with legal counsel as necessary.
3.6. Billing and Collection.
(a) The Medical Group acknowledges that ownership of all Accounts (as
hereinafter defined) is transferred by the Medical Group to the Management
Company as provided in greater detail in Section 5.1 of this Agreement. In
order to facilitate the collection of the Accounts, the Management Company
shall through its personnel retained to work in the offices of the Medical
Group (i) xxxx patients and third party payors in the Medical Group's name;
(ii) collect accounts receivable resulting from such billing; (iii) receive
payments and prepayments from the Medical Group's patients, Blue Cross and
Blue Shield organizations, insurance companies, health care plans,
Medicare, Medicaid, HMOs, and any and all other third party payors; (iv)
take possession of and deposit into such bank (the "Medical Group Bank") as
the Medical Group designates, in an account established by the Medical
Group in the name of the Medical Group (the "Medical Group Collections
Account"), any and all checks, insurance payments, cash, cash equivalents
and other instruments received for Medical Group Services; and (v) initiate
with the consent of the Medical Group, which consent may be withheld by the
Medical Group in its sole and absolute discretion, legal proceedings in the
name of the Medical Group to collect any Accounts and monies owed to the
Medical Group, to enforce the rights of the Medical Group as a creditor
under any contract or in connection with the rendering of any service, and
to contest adjustments and denials by governmental agencies (or their
fiscal
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intermediaries) as third-party payors. The Medical Group shall promptly
turn over to the Management Company for deposit into the Medical Group
Collections Account in accordance with this Agreement all checks and other
payments received by the Medical Group or by any of its partners, equity
owners or employees from any patient or third party payor for Medical Group
Services rendered during the Term.
(b) From time to time at the Management Company's request, the Medical
Group shall make available to the Management Company one or more authorized
signatories (the "Authorized Signatories") of the Medical Group to sign any
letters, checks, instruments or other documents (the "Documents") on behalf
of the Medical Group that are necessary for the Management Company to take
the actions specified in this Section 3.6 and to perform its duties under
this Agreement. If the Management Company notifies the Medical Group that
an Authorized Signatory is not signing the Documents in a timely manner,
the Management Company shall not be liable for any failure to perform its
duties hereunder or for any failure to perform the Management Services to
the extent caused by the failure of an Authorized Signatory to sign the
Documents in a timely manner.
(c) The Management Company shall submit all bills and manage the
billing process on a timely basis in accordance with the terms of this
Agreement and applicable law.
(d) Without limiting the generality of the foregoing, the Management
Company shall xxxx patients, xxxx and submit claims to third party payors,
perform appropriate coding for each xxxx, and collect all fees for
professional and other services rendered and for items supplied to patients
by the Medical Group, all in a timely manner and in accordance with
applicable law and parameters and criteria established by the Operations
Committee (as hereinafter defined). Additionally, the
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Management Company shall provide the following services which are currently
being provided by or on behalf of the Medical Group:
(i) Receive and collect from patients at the time of visit all
appropriate payments and pre-payments, including co-pays, deductibles,
payments for non-covered medical services, and deposits for surgeries
(if applicable), and shall obtain all appropriate insurance and other
information required.
(ii) Submit claims utilizing electronic billing submission,
whenever appropriate.
(iii) Perform delinquent account collection calls and other
appropriate follow-up mechanics for delinquent accounts of all
insurance classifications, all in a timely fashion as determined by
the Operations Committee.
(iv) Turn over to outside collection agencies all delinquent
accounts satisfying the criteria established by the Operations
Committee. The Management Company shall also follow-up on the
performance of the outside collection agencies and make changes, if
necessary, and shall reconcile each account turned over to the summary
data provided by the collection agency.
(v) Write-off account balances according to criteria approved by
the Operations Committee.
(vi) Prepare claim reviews in accordance with criteria approved
by the Operations Committee.
(vii) Xxxx workers' compensation medical services at rates equal
to the most recently approved Florida workers' compensation fee
schedule.
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(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), determine that payments received from such PPOs
and HMOs are in compliance with their respective contracts with the
Medical Group.
(x) With respect to capitation fee contracts with HMOs:
(A) Follow-up to ensure that payments to the Medical Group
are made on a timely basis; and
(B) Review and audit enrollment data provided by the HMO to
ensure that the capitation payments are based on the
proper number of lives enrolled.
(xi) With respect to lien accounts, the Management Company shall:
(A) Ensure that appropriate documents are signed and agreed
to initially as between the Medical Group, attorney and
patient;
(B) Follow-up on a regular basis as to the status of the
account; and
(C) Apply the policies of the Operations Committee in
resolving open account balances.
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(xii) With respect to student athlete accounts, the Management
Company shall coordinate insurance and other information in compliance
with the policy of the Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance
with contracts between the payor and the Medical Group, follow-up on a
timely basis to ensure that withheld amounts are paid to the Medical
Group, if warranted, and to ensure that amounts not paid are verified
and audited for appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and
third party payors when appropriate.
3.7. Administrative Personnel.
(a) The Management Company shall retain and provide or arrange for the
retention and provision of the following non-medical personnel necessary
for the conduct of the Medical Group's business operations (collectively,
"Administrative Personnel"):
(i) Administration;
(ii) Accounting;
(iii) Billing and Collection;
(iv) Secretarial;
(v) Transcription;
(vi) Appointments;
(vii) Switchboard;
(viii) Medical Records filing and transcription;
(ix) Chart Preparation;
(x) Historians;
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(xi) Clinic Support;
(xii) Marketing; and
(xiii) Contract procurement and negotiation.
(b) The Management Company shall determine and pay, or arrange for the
payment of, the salaries and fringe benefits of the Administrative
Personnel, and shall provide or arrange for other personnel services
related to the Administrative Personnel, including, but not limited to,
scheduling, determining personnel policies, administering continuing
education benefits, and payroll administration.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as reasonably necessary, verify,
or arrange for the verification of, educational and employment experience,
licensure, and insurability.
(d) The Management Company shall attempt, consistent with sound
business practices, to honor Medical Group requests with regard to the
retention or assignment of specific Administrative Personnel to the Medical
Group. In the event that the Management Company receives a complaint from
the Medical Group that any of the Administrative Personnel is interfering
with or disrupting the provision of Medical Group Services by the Medical
Group, the Management Company will use reasonable efforts to attempt to
promptly remedy any such complaint. If any such complaint is not remedied
to the reasonable satisfaction of the Medical Group, then the Management
Company shall remove such Administrative Personnel, if requested by the
Medical Group, from the Medical Group's facilities, if and to the extent
such action by the Management Company will not violate any applicable law.
(e) All of the services provided by the Management Company under this
Section 3.7, including the obligations set
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forth in Section 3.7(d), shall be performed in compliance with all
applicable laws.
3.8. Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.8, the
Management Company shall employ or contract with, or shall arrange for, and
shall provide to the Medical Group as leased employees, such Technical
Personnel (as defined below) as may reasonably be necessary for the conduct
of the Medical Business.
(b) For purposes of this Agreement, "Technical Personnel" means
nurses, medical assistants, x-ray technicians, other technicians, and other
personnel who perform diagnostic tests or other services that are covered
by Medicare or by other third party payors when performed by an employee of
a physician under the physician's supervision.
(c) The Medical Group shall have the right to exercise, and shall
exercise, such supervision and control over the activities of the Technical
Personnel as may be necessary for the Technical Personnel to be considered
leased employees under the Medicare program and under applicable law.
Without limiting the generality of the foregoing, the Medical Group shall:
(i) have the right to have any Technical Personnel terminated
from employment;
(ii) furnish the Technical Personnel with the equipment and
supplies needed by the Technical Personnel for their work, which
equipment and supplies will be provided to the Medical Group by the
Management Company in accordance with the terms of this Agreement;
(iii) provide the Technical Personnel with any necessary
training;
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(iv) instruct the Technical Personnel regarding their activities
performed for the Medical Group;
(v) establish the hours of work for the Technical Personnel;
(vi) approve vacation time and other time off from work; and
(vii) provide that degree of supervision as is required by
Medicare and by other third party payors to satisfy applicable
conditions for coverage thereunder.
(d) With respect to each of the Technical Personnel, the Management
Company shall verify or arrange for the verification of educational and
employment experience, licensure and insurability, and shall review and
provide the Medical Group with copies of any complaints contained in public
files with applicable state and Federal commissions.
3.9. Medical Personnel Recruiting.
(a) The Management Company shall, upon request by the Medical Group,
assist the Medical Group in recruiting Medical Personnel. The Medical Group
shall be solely responsible for the selection and retention of Medical
Personnel, provided that any such Medical Personnel shall possess all of
the licensure required under applicable Federal and state law for such
individual to perform his or her duties. "Medical Personnel" means:
(i) Physicians (including fellows and residents, if any)
providing professional medical services who are employees or
independent contractors of the Medical Group; and
-22-
(ii) Physician assistants, nurse practitioners, and other health
care professionals who provide services that are billable to patients
or third party payors under the name of such health care professional
(as distinguished from services that are billable under the name of
the supervising physician).
(b) With respect to each of the Medical Personnel, the Management
Company shall verify, or arrange for the verification of, educational and
employment experience, licensure and insurability, and shall review and
provide the Medical Group with copies of any complaints contained in public
files with applicable state and Federal commissions.
3.10. Inventory and Supplies.
The Management Company shall order and purchase, or arrange for the
order and purchase of, inventory and supplies on behalf of the Medical
Group, and such other ordinary or appropriate materials as the Medical
Group reasonably deems necessary for the Medical Group to carry out its
Medical Group Services. Inventory and supplies shall include, but not be
limited, to:
(a) Medical supplies;
(b) Office supplies;
(c) Postage;
(d) Computer forms and supplies;
(e) Printing and stationery supplies;
(f) Printer supplies; and
(g) Linen and laundry supplies.
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3.11. Taxes.
The Management Company shall provide the Medical Group with access to
all information necessary for the Medical Group to prepare its tax returns.
The Management Company shall have no responsibility for:
(a) The payment of the Medical Group's taxes; or
(b) The preparation of any income tax returns for the Medical
Group.
3.12. Information Systems Management.
(a) The Management Company shall provide or arrange for the provision
of management information systems services to be utilized by the Medical
Group. These services shall include, but not be limited to, ongoing
maintenance and enhancement of the existing information systems used by the
Medical Group in connection with the provision of the following services:
(i) Accounts receivable - Billing/Insurance/ Collections;
(ii) On-line appointment scheduling;
(iii) Internal e-mail;
(iv) On-line transcription;
(v) Faxing subsystem;
(vi) Electronic claims submission;
(vii) Patient flow monitoring system;
(viii) Authorization module;
(ix) Prescription module;
(x) X-ray tracking system;
(xi) Voice mail;
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(xii) Paperless medical records;
(xiii) Bar code chart tracking system;
(xiv) Utilization management information; and
(xv) Outcome studies.
(b) The services provided by the Management Company shall protect the
confidentiality of patient medical records to the extent required by
applicable law or the Medical Group's payor agreements; provided, however,
that in no event shall a breach of such confidentiality be deemed a default
under this Agreement if the Management Company acted reasonably and in good
faith to protect such confidentiality.
3.13. Use of New Technologies in the Practice of Medicine.
The Management Company shall utilize reasonable efforts to promote the
integration of new technologies into the professional practice of the
Medical Group, including, without limitation, the use of satellite and
other telecommunications services that permit the provision of remote
consultations, virtual operations, and other professional services;
provided, however, that the foregoing shall be subject to the terms of
Section 8.2(e) hereof.
3.14. Public Relations; Marketing and Advertising.
The Management Company shall develop and implement community outreach
programs and public relations programs designed to educate the patient
population regarding the Medical Group, the availability of its medical
services, and the availability in terms of any managed care programs in
which the Medical Group participates. The Management Company also shall
develop and implement marketing and advertising programs as reasonably
required to promote and expand the Medical Business, subject to any
approved budgets. These programs shall be
-25-
developed in such manner as the Management Company (in consultation with
the Medical Group) deems practical, and shall be conducted in compliance
with applicable laws and regulations governing advertising by the medical
profession. Any promotional materials created solely for the purpose of
marketing the services provided by the Medical Group and the use of any
individual physician's name in any promotional materials shall require the
consent of the Medical Group or such physician, as the case may be.
3.15. Insurance.
The Management Company shall, to the extent permitted by applicable
law, provide the insurance coverage described in Section 12.1, and may
obtain the insurance described in Section 12.2 of this Agreement.
3.16. Files and Records.
(a) To the extent permitted by applicable law, the Management Company
shall supervise and maintain custody of all files and records relating to
the operation of the business of the Medical Group, including, without
limitation, accounting, billing, collection and patient medical records.
The management of all files and records shall be in compliance with
applicable state and Federal statutes. Patient medical records shall at all
times be and remain the property of the Medical Group and shall be located
at a location that is readily accessible for patient care. The Management
Company shall preserve the confidentiality of patient medical records and
use information contained in such records only for the limited purposes
necessary to perform the Management Services set forth herein; provided,
however, that in no event shall a breach of such confidentiality be deemed
a default under this Agreement if the Management Company acted reasonably
and in good faith to protect such confidentiality.
-26-
(b) The Management Company shall provide all off-site storage of files
and records as required by applicable law and in conjunction with policies
established by the Operations Committee. The Management Company shall
provide the Medical Group with all requested off-site files and records on
a timely basis, consistent with the policies of the Medical Group in effect
from time to time. Any change in such policies shall be subject to the
approval of the Operations Committee.
(c) In the event of termination of this Agreement, the Management
Company shall deliver to the Medical Group at no charge a copy of the books
and records of the Medical Group in the Management Company's possession. In
the event any physician of the Medical Group terminates his affiliation
with the Medical Group during the Term, the Management Company shall,
within 30 days after receipt of written instructions from the Medical
Group, deliver to such physician a copy of the books and records pertaining
to the Medical Group Services provided by such physician during the five
years prior to such physician's departure from the Medical Group; provided
that the Management Company shall not be obligated to return any books and
records pertaining to Medical Group Services provided prior to the
Commencement Date.
3.17. Managed Care Contracts.
The Management Company shall assist the Medical Group in soliciting,
negotiating and administering all managed care contracts on behalf of the
Medical Group based on parameters and criteria established by the
Operations Committee. Such services shall be performed by the Management
Company as agent of the Medical Group, and all managed care contracts shall
be subject to the Medical Group's prior approval of any such contract. The
Management Company shall prepare cost forecasts and other analyses as
reasonably requested by the Medical Group in order to
-27-
allow the Medical Group to make an informed decision with respect to each
proposed contract.
3.18. Budgets.
The Management Company shall prepare, for the review and approval of
the Operations Committee, annual operating budgets (the "Budgets")
reflecting in reasonable detail projected Xxxxxxxx, Collections, Medical
Group Costs, and Management Company Operating Costs (all as hereinafter
defined); provided, however, that the Medical Group and the Management
Company hereby agree that the budget attached hereto as Schedule II is the
Budget for the Medical Group with respect to the initial three-month period
under this Agreement. All other budgets shall be on a calendar year basis.
The Management Company shall prepare and submit to the Operations Committee
all subsequent Budgets on or before December 15 of the year immediately
preceding the calendar year for which such Budget is applicable.
3.19. Force Majeure.
The Management Company shall not be liable to the Medical Group for
failure to perform any of the services required herein in the event of
strikes, lock-outs, calamities, acts of God, unavailability of supplies,
changes in applicable law or regulations or other events over which the
Management Company has no control for so long as such events continue and
for a reasonable time thereafter.
3.20. Use of Acquired Goodwill.
Pursuant to asset purchase agreements effective the Commencement Date
between the Management Company and each of the Practicing Physicians (as
hereinafter defined), the Management Company acquired the personal goodwill
(the "Acquired Goodwill") of the Practicing Physicians. During the Term,
the Management
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Company shall permit the Medical Group to use the Acquired Goodwill in its
medical practice.
SECTION 4. Consideration.
In consideration of the Medical Group's entering into this Agreement,
the Management Company shall provide to each person identified on Schedule
III attached hereto (the "Eligible Parties"), the consideration set forth
opposite such person's name on Schedule III, the allocation of which has
been determined and apportioned by the Medical Group.
SECTION 5. Costs, Compensation, and Other Payments.
5.1. Ownership of Accounts; Security.
The Medical Group and each Practicing Physician hereby transfers to
the Management Company ownership of all accounts receivable and other
rights to payment arising from the provision by the Medical Group or such
Practicing Physician of the Medical Group Services and related services to
the general public during the Term (the "Accounts"); provided, however,
that the right to payment of Medicaid and Medicare receivables shall remain
with the Medical Group or such Practicing Physician, as the case may be, in
accordance with applicable Federal and state law. The Management Company
shall have the right to grant to any lender (the "Lender") a lien and
security interest in and with respect to the Accounts, together with all
books, records, computer information and other general intangibles relating
thereto (collectively, the "Collateral"), as security for the obligations
of the Management Company to the Lender, and the Medical Group and each
Practicing Physician shall execute a financing statement (the "Financing
Statement") for the benefit of the Management Company evidencing the
foregoing transfer of the Accounts and perfecting the Management Company's
ownership interests therein. The Medical Group hereby acknowledges that the
Lender is a third party beneficiary of the benefits granted to the
Management Company under this Section 5.1. The Medical Group shall
-29-
cooperate with the Lender as reasonably requested in the event the Lender
seeks to enforce its rights and remedies under its agreement with the
Management Company, including granting the Lender access, to the extent
permitted by law, to all books and records associated with the Collateral.
Neither the Management Company nor the Lender shall be required to give the
Medical Group any notice in connection with any loan or related financing
arrangements affecting the Accounts or other Collateral.
5.2. Bank Accounts.
The Medical Group shall instruct the Medical Group Bank to transfer,
on a daily basis, all funds in the Medical Group Collections Account (less
the amount necessary to avoid the payment of bank charges or fees relating
to the failure to maintain a minimum balance in the Medical Group
Collections Account) to a bank (the "Management Company Bank") designated
by the Management Company, for credit to an account in the Management
Company's name (the "Operating Account").
5.3. Medical Group Compensation.
(a) Monthly Draw.
(i) On each Draw Date (as hereinafter defined) during the Term
hereof, the Management Company shall distribute to the Medical Group
an amount equal to a percentage (the "Draw Percentage") of the Medical
Group's total Xxxxxxxx (as hereinafter defined) for Medical Group
Services provided during the previous month (the "Monthly Draw"). The
Draw Date and the initial Draw Percentage are as set forth on Schedule
IV, and the Draw Percentage shall be adjusted as provided in Section
5.3(a)(ii).
(ii) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction,
the numerator of which is the
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Annual Medical Group Compensation Amount (as hereinafter defined) for
the previous year, and the denominator of which is the total amount of
Xxxxxxxx for the previous year. Additionally, the Management Company
shall adjust the Draw Percentage from time to time (but in no event
less than one additional time during any twelve-month period) based on
the actual Collections year-to-date in order to minimize the amount of
any annual settlement payment reasonably anticipated to be required
under Section 5.3(b).
(b) Annual Settlement.
(i) On or before April 30 of each year beginning 1998, the
Management Company shall calculate the compensation (the "Annual
Medical Group Compensation Amount") earned by the Medical Group with
respect to the prior calendar year in accordance with the following:
(A) The total Collections for all Medical Group Services
rendered during such year, minus
(B) the sum of the following:
(1) the Management Fee earned by the Management
Company for the previous calendar year; and
(2) the Authorized Management Company Operating Costs
(as hereinafter defined) incurred by the
Management Company during such year.
(ii) If the Annual Medical Group Compensation Amount thus
determined exceeds (the "Annual Shortfall") the total of the twelve
(12) Monthly Draws paid by the
-31-
Management Company to the Medical Group during the previous calendar
year (the "Annual Draw Amount"), the Management Company shall pay to
the Medical Group on or before May 15, an amount equal to the Annual
Shortfall. If the Annual Medical Group Compensation is less (the
"Annual Overpayment") than the Annual Draw Amount, the Management
Company shall withhold from the Monthly Draw otherwise payable to the
Medical Group, during each of the following six (6) months, an amount
equal to one-sixth (1/6) of such Annual Overpayment.
(iii) With respect to this Section 5.3(b), for purposes of
determining the total Collections for all Medical Group Services
provided during any calendar year or portion thereof during the Term,
all Collections during January, February, and March of such year shall
be deemed to be for Medical Group Services rendered during the
previous calendar year, and all Collections during April through
December shall be deemed to be for Medical Group Services rendered
during the calendar year in which such Collections were received. The
foregoing shall also apply with respect to determining the Management
Fee earned by the Management Company for the previous calendar year,
for purposes of this Section 5.3(b).
(iv) Notwithstanding anything to the contrary set forth herein,
the first period for which the annual settlement described in this
Section 5.3(b) shall be applicable is the period commencing on the
Commencement Date and ending on December 31, 1997.
(c) For purposes of this Agreement:
(i) "Xxxxxxxx" means, for any applicable period, the gross
charges of the Medical Group for all Medical Group Services furnished
during such period.
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(ii) "Collections" means, for any applicable period, all cash or
cash equivalents received during such period for Medical Group
Services, including any capitation payments, less any refunds,
recoupments, repayments or reductions applied during such period.
(iii) "Medical Group Services" means the following services
rendered by, through, or on behalf of the Medical Group: all
professional services rendered by or under the supervision of any of
the Medical Personnel (including professional services rendered in
connection with New Ancillary Services); all plain film and other
diagnostic radiology services rendered by or under the supervision of
any of the Medical Personnel; all other ancillary services (other than
New Ancillary Services); all ultrasound; all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, durable medical
equipment, and other items and supplies that are billable to patients
or to third party payors; depositions, record review services, court
appearances, and independent medical exams; and all other services
provided on a regular basis by the Medical Group immediately prior to
the Commencement Date (except as set forth below).
(iv) It is the intent of the parties that Xxxxxxxx, Collections,
and Medical Group Services not include any of the following:
(A) New Ancillary Services (excluding professional services
rendered by Medical Personnel in connection therewith,
which professional services are included under Section
5.3(c)(iii) above);
(B) interest income;
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(C) royalties payable to any Medical Group physician for
medical inventions;
(D) fees payable under consulting agreements entered into
by Medical Group physicians, including any such
agreements set forth on Annex I attached hereto;
(E) revenues from presentations, publications, medical
directorships, service as the head of a department in a
hospital or other health care facility, clinical
trials, investigations and endorsements, including any
such activities set forth on Annex I attached hereto;
(F) proceeds from the sale of any capital assets of the
Medical Group; and
(G) any income from investments.
Notwithstanding anything to the contrary contained therein, any revenues
received by any Billable Medical Personnel (as hereinafter defined) from
any source set forth in clauses (D) and (E) above, shall be included in
Xxxxxxxx, Collections and Medical Group Services if the revenues from
Medical Group Services generated by such Billable Medical Personnel during
any year are materially reduced by the Billable Medical Personnel's
participation in such activities.
(v) For illustrative purposes only, an example of the computation
of the Annual Settlement is set forth on Schedule VII attached hereto.
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5.4. Management Fee.
(a) The compensation payable to the Management Company for the
provision of Management Services under this Agreement (the "Management
Fee"), which the Management Company may retain from funds received by the
Management Company from time to time at its discretion, shall be equal to
(i) the sum of (A) an amount equal to the Applicable Percentage (as
hereinafter defined) of Collections, (B) an amount equal to sixty six and
two-thirds percent (66-2/3%) of the Professional Management Cost Savings
(as hereinafter defined) and (C) any amounts owed to the Management Company
pursuant to Section 5.11 hereof, if any, less (ii) an amount equal to the
Medical Group's pro rata portion of the Specialty Care Network Profit (as
hereinafter defined) for such period, if any, based on the number of claims
generated by the Medical Group through the specialty care network owned or
operated by the Management Company during the applicable period; provided,
however, that in the event the Applicable Percentage of Collections shall
equal an amount that is less than $535,000 for any calendar year ending on
or before December 31, 2001, the Management Fee for such period shall,
notwithstanding anything to the contrary contained herein, equal $535,000
plus the amounts described in clauses (B) and (C) above (the "Guaranteed
Minimum Fee"). The Guaranteed Minimum Fee shall be decreased by an amount
determined in accordance with the formula set forth below in the event that
any physician equity owner (a "Departing Physician") of the Medical Group
(1) retires from, or terminates his or her equity owner status in, the
Medical Group and such Departing Physician pays the Buyout Amount (as
defined in the Stockholder Non-Competition Agreement), in full, to the
Management Company pursuant to Section 5 of the Stockholder Non-Competition
Agreement (as hereinafter defined), (2) dies or becomes permanently
disabled (as such term is defined in the Restricted Stock Agreement (as
hereinafter defined)) (such death or permanent disability being referred to
herein as an "Involuntary Departure"), or (3) terminates (a "Nonpayment
-35-
Termination") his equity owner status in the Medical Group due to the
Management Company's failure to pay by March 31, 1997, all amounts due
under that certain promissory note dated the Signature Date and issued by
the Management Company in favor of such Departing Physician in connection
with the Asset Purchase Agreement between the Management Company and such
Departing Physician. Any such event shall cause a decrease in the
Guaranteed Minimum Fee only for the year in which the Buyout Amount is paid
or the Involuntary Departure or Nonpayment Termination occurs, as the case
may be. The amount of the decrease in the Guaranteed Minimum Fee shall be
determined pursuant to the following:
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Q = IC / MGC x GMF
where,
Q = the amount by which the Guaranteed Minimum Fee shall be reduced;
IC = the aggregate Collections of the Departing Physician for the
12-month period ending on the last day of the month prior to the date
the Departing Physician leaves the Medical Group;
MGC = the aggregate Collections of the Medical Group for the 12-month
period ending on the last day of the month prior to the date the
Departing Physician leaves the Medical Group; and
GMF = $535,000.
The Guaranteed Minimum Fee for the year following the year in which the
Departing Physician pays the Buyout Amount or the Involuntary Departure
occurs shall again equal $535,000. The Management Fee shall not include any
Professional Medical Cost Savings (as hereinafter defined), but all of such
savings will accrue for the benefit of the Medical Group. For illustrative
purposes only, an example of the computation of the Management Fee is set
forth on Schedule VII attached hereto.
(b) For purposes of this Section 5.4, the following terms have the
meanings set forth below:
(i) "Applicable Percentage" has the meaning set forth on Schedule
V;
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(ii) "Professional Management Cost Savings" means the actual
Professional Practice Cost Savings described in Section A.1 of
Schedule VI;
(iii) "Professional Medical Cost Savings" means the actual
Professional Practice Cost Savings described in Section A.2 of
Schedule VI.
(iv) "Professional Practice Cost Savings" means the actual cost
savings determined in the manner described on Schedule VI; and
(v) "Specialty Care Network Profit" means the excess of the
fee(s) received by the Management Company over the costs incurred by
the Management Company, each in connection with its ownership and/or
operation of a specialty care network.
(c) Notwithstanding anything contained herein to the contrary, during
the 30 day period from September 1, 2000 to September 30, 2000 (the
"Conversion Period"), the Medical Group shall have the right, upon delivery
of a written notice (the "Conversion Notice") to the Management Company, to
cause the Management Fee to be converted from a fee based upon the
Applicable Percentage of Collections to a fee that is based upon the
applicable Percentage of Net Operating Income (as hereinafter defined),
which fee will continue to be subject to the Guaranteed Minimum Fee. For
purposes hereof, Net Operating Income shall mean Collections less the
Management Company Operating Costs (without deduction of the Management
Fee). In such a case, the parties will review the 12 month period from
September 1, 1999 to August 31, 2000 (the "Look Back Period") and will
determine the Collections and Management Company Operating Costs for the
Look Back Period. The parties will then determine the Management Fee
payable during the Look Back Period (based upon the Applicable Percentage
of Collections) and divide such amount by the Net
-38-
Operating Income for the Look Back Period. The resulting percentage will
then be deemed to be the new Applicable Percentage, which will thereafter
be multiplied by the Net Operating Income to determine future Management
Fees. In the event the Medical Group delivers the Conversion Notice, the
parties will amend this Management Services Agreement within 90 days of the
expiration of the Conversion Period to so reflect the afore-referenced
change, which amendment shall be satisfactory to the Medical Group and the
Management Company.
5.5. Management Company Costs.
(a) The Management Company shall pay all Management Company Operating
Costs and all Excluded Costs (collectively, the "Management Company
Costs"). All Management Company Costs shall be incurred in the name of the
Management Company, and not in the name of the Medical Group, except as
specifically approved by the Medical Group. Management Company Costs shall
not include any costs or expenses incurred prior to the Commencement Date.
(b) The Management Company shall provide to the Medical Group, upon
reasonable request by the Medical Group from time to time, supporting
documentation and other backup detail relating to any or all of the
Management Company Costs.
(c) For purposes of this Agreement, "Management Company Operating
Costs" means all costs and expenses incurred in connection with the
provision of the Management Services to the Medical Group, including,
without limitation, those costs and expenses set forth in the Budget,
except that any costs and expenses defined as Medical Group Costs in
Section 5.7 hereof, and any Excluded Costs (as hereinafter defined) shall
not be deemed Management Company Operating Costs. To the extent that the
Medical Group and the Management Company mutually determine that an
expenditure not included in the Budget needs to be incurred in connection
with the provision of Management Services
-39-
hereunder, such expenditure shall be included in Management Company
Operating Costs for purposes of this Agreement. "Excluded Costs" means all
of the following costs and expenses incurred in connection with the
provision of the Management Services hereunder:
(i) Ancillary Service Start-Up Costs (as hereinafter defined);
(ii) New Medical Office Start-Up Costs (as hereinafter defined);
(iii) the cost of any FF&E provided by the Management Company to
the Medical Group, including the capital costs associated with any
information systems technology implemented by the Management Company
(subject to the provisions of Section 8.2(e) hereof); provided that
the costs associated with the maintenance of such technology shall be
an expense included in the Budget and shall be deemed an Authorized
Management Company Operating Cost for purposes of this Agreement;
(iv) depreciation, amortization, and interest; and
(v) corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following conditions
are satisfied, as determined by the Operations Committee:
(A) The Corporate Overhead is incurred in lieu of a
pre-existing Management Company Operating Cost;
(B) The amount of such Corporate Overhead does not exceed
the amount of the
-40-
Management Company Operating Costs being eliminated;
and
(C) The Corporate Overhead is allocated to the Medical
Group and to all other medical groups utilizing such
Corporate Overhead on a pro rata basis.
Any Corporate Overhead with respect to which all of the above
conditions are satisfied shall be considered Management Company
Operating Costs.
(d) For purposes of this Agreement, "Authorized Management
Company Operating Costs" means all Management Company Operating Costs
incurred in any year by the Management Company in the provision of
Management Services hereunder reduced by any or all of the following,
as applicable:
(i) any costs that exceed the applicable Management Company
Operating Costs Budget which are not approved by the Operations
Committee;
(ii) any costs with respect to which the Medical Group has
reasonably requested supporting documentation or other backup
detail which has not been furnished by the Management Company or
which does not reasonably establish the appropriateness of such
costs; and
(iii) any costs that have been determined pursuant to an
audit under Section 5.9 not to have been reasonably incurred in
connection with the Management Services required to be provided
under this Agreement.
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5.6. New Medical Office Start-Up Costs.
(a) The Management Company shall pay, to the extent provided herein,
all New Medical Office Start-Up Costs incurred in connection with the
establishment of any New Medical Office. The Management Company shall
create a separate division (the "New Office Division") for purposes of
accounting for the income, costs, profits, and losses of any New Medical
Office. The Management Company shall utilize generally accepted accounting
principles in determining and accounting for the profits and losses related
to the operations of each New Medical Office. Notwithstanding anything to
the contrary contained herein, Corporate Overhead shall not be included in
determining the costs and expenses associated with any New Medical Office.
At the end of the New Medical Office Start-Up Period (as hereinafter
defined), (i) the Management Company shall be reimbursed for all of the
Management Company Operating Costs incurred by the Management Company for
each New Medical Office, (ii) the Management Company shall be entitled to
receive the aggregate Management Fee as described in Section 5.4 and (iii)
the Medical Group shall be entitled to receive the Annual Medical Group
Compensation Amount for such new Medical Office, in each case, as if such
New Medical Office had been any other office of the Medical Group during
the New Medical Office Start-Up Period; provided, however, that
notwithstanding the foregoing, if the aggregate Collections for such New
Medical Office during the New Medical Office Start-Up Period is equal to or
less than the New Medical Office Start-Up Costs associated with such New
Medical Office during the New Medical Office Start-up Period, then (A) the
Management Company and the Medical Group shall not be entitled to receive
the Management Fee or the Annual Medical Group Compensation Amount, as
applicable, and (B) the Management Company shall be responsible for the
deficit, if any, associated with such New Medical Office; provided that the
aggregate amount of Collections received during the New Medical Office
Start Up
-42-
Period for such New Medical Office shall belong solely to the Management
Company.
(b) Except to the extent provided in Section 5.6(a) above, the
xxxxxxxx, collections, costs and expenses relating to any New Medical
Office shall not, during the New Medical Office Start-Up Period, be
included in the computations of Medical Group Compensation, the Management
Fee, Management Company Costs, Ancillary Services, or Medical Group Costs
as described in Sections 5.3, 5.4, 5.5, 5.8, or 5.7, respectively.
(c) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and provided to the Medical Group in
accordance with the terms of Section 3.3 hereof.
(d) For purposes of this Agreement, "New Medical Office" means any
office of the Medical Group other than those offices located in the
premises identified in Section 3.2(a) hereof.
(e) For purposes of this Agreement, "New Medical Office Start-Up
Costs" means the following costs incurred in connection with the
establishment of a New Medical Office during the New Medical Office
Start-Up Period: all Management Company Operating Costs and all costs
associated with the development of such New Medical Office other than
Medical Group Costs, provided that, the costs incurred in connection with
any New Physician (as hereinafter defined) shall be borne in accordance
with the provisions of Section 5.11 hereof.
(f) For purposes of this Agreement, "New Medical Office Start-Up
Period" means the period commencing on the date that any costs are incurred
in connection with the establishment of a New Medical Office and ending on
the last day of the calendar month in which a period of twelve (12) months
has elapsed from and after the date on which the New Medical Office
-43-
first opened for the treatment of patients. In the event that the New
Medical Office is profitable (as determined by the Management Company) as
of the end of the New Medical Office Start-Up Period, at all times
thereafter such New Medical Office shall, for all purposes of this
Agreement, be treated as any other office of the Medical Group.
5.7. Medical Group Costs.
Except as otherwise provided in this Agreement, the Medical Group shall pay
all of the costs specified in this Section 5.7 (the "Medical Group Costs"). All
Medical Group Costs shall be incurred in the name of the Medical Group, and not
in the name of the Management Company, and shall be paid from an account of the
Medical Group and not from any bank account of the Management Company. The
Medical Group Costs are as follows:
(a) compensation of all Medical Personnel that (i) are authorized to
directly xxxx patients, Medicare, Medicaid and third party payors
and (ii) are employed directly by the Medical Group (such persons
being referred to herein as the "Billable Medical Personnel");
(b) any applicable fringe benefits for all Medical Personnel,
including, but not limited to, payroll taxes, workers'
compensation, health insurance (including drug coverage), dental
insurance, disability insurance, life insurance, 401(k)
retirement plan, business buy-out disability insurance and
continuing education; and
(c) the cost of any items which are not required to be provided by
the Management Company under this Agreement and/or which were
ordered, purchased, or incurred by the Medical Group
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directly, including but not limited to the cost of accounting,
legal, consulting, or other professional or advisory services,
business meetings, and business taxes.
5.8. New Ancillary Services Costs.
(a) Any agreement by the parties to establish a New Ancillary Service
as described in Section 3.4 of this Agreement shall (unless otherwise
agreed by the parties) incorporate the following, to the extent permitted
by applicable law:
(i) The Management Company shall create a separate division
("Ancillary Division") for purposes of accounting for the income,
costs, profits, and losses of any New Ancillary Service. The
Management Company shall utilize generally accepted accounting
principles in determining and accounting for the profits and losses
related to the operations of each New Ancillary Service.
Notwithstanding anything to the contrary contained herein, Corporate
Overhead shall not be included in determining the costs and expenses
associated with any New Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division shall be
divided equally between the Medical Group and the Management Company,
and all distributions to the Medical Group and to the Management
Company shall be made in equal amounts to each from available cash
(after payment of all currently due obligations incurred in connection
with such New Ancillary Division, including, without limitation, any
principal and interest amounts then due and payable under Section
5.8(a)(iv) below, and after retention of reasonable reserves) derived
from the operation of such Ancillary Division.
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(iii) All diagnostic and therapeutic equipment utilized in
connection with any New Ancillary Service ("New Ancillary Service
Medical Equipment") shall be acquired by the Management Company and
shall be provided to the Medical Group on terms substantially similar
to those set forth in Section 3.3 hereof.
(iv) The Management Company shall pay all of the Ancillary
Service Start-Up Costs. Beginning with the month immediately following
the expiration of the Ancillary Service Start-Up Period (as
hereinafter defined), the Management Company shall be entitled to
recoup all of the Ancillary Service Start-Up Costs previously paid by
the Management Company in sixty (60) equal monthly installments of
principal, plus interest on the unrecouped portion of such costs at
the lower of the prevailing prime rate as set forth in the Wall Street
Journal or at the actual rate paid by the Management Company with
respect to any part of such costs that have been financed by the
Management Company, if applicable.
(v) The Management Company shall provide, in connection with any
New Ancillary Service, the full range of management services described
in this Agreement.
(vi) The xxxxxxxx, collections, costs and expenses relating to
any New Ancillary Service shall not be included in the computations of
Medical Group Compensation, the Management Fee, Management Company
Costs, New Medical Office Start-Up Costs, or Medical Group Costs as
described in Sections 5.3, 5.4, 5.5, 5.6, or 5.7, respectively.
(b) For purposes of this Section 5.8, "Ancillary Service Start-Up
Period" means the period commencing on the date that any costs are incurred
in connection with the establishment of the New Ancillary Service and
ending on the earlier to occur
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of (i) the last day of the first period of two (2) consecutive calendar
months for which the New Ancillary Service shows a profit (as determined by
the Management Company) or (ii) the last day of the twelfth month after the
establishment of such New Ancillary Service.
(c) For purposes of this Section 5.8, "Ancillary Service Start-Up
Costs" means the total of all of the following costs incurred in connection
with the establishment of a New Ancillary Service during the Ancillary
Service Start-Up Period (whether such costs would otherwise be considered
Management Company Costs or Medical Group Costs):
(i) Any lease payments for New Ancillary Service Medical
Equipment;
(ii) All costs of acquiring furniture, fixtures, and office
equipment;
(iii) All initial occupancy costs, if any, including but not
limited to prepaid rent, and tenant improvements;
(iv) All costs related to the acquisition of materials and
supplies related to the provision of such New Ancillary Service; and
(v) All ongoing costs of the New Ancillary Service, including but
not limited to personnel (other than the Billable Medical Personnel)
and related benefits, the cost of operating any equipment utilized in
providing the service, supplies, insurance, rent, repairs and
maintenance, outside services, telephone, taxes, utilities, storage
and other ordinary ongoing expenses of providing the New Ancillary
Service.
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5.9. Review and Audit of Books and Records.
Each of the parties shall have the right, during ordinary business
hours and upon reasonable notice, to review and make copies of, or to audit
through a qualified certified public accountant approved by the other party
(which approval shall not be unreasonably withheld), the books and records
of the other party relating to the billing, collection, and disbursement of
fees, and the determination of costs, under this Agreement. Any such review
or audit shall be performed at the cost of the requesting party; provided,
however, that in the event that such review or audit requested by the
Medical Group discloses a discrepancy indicating that the Medical Group has
actually been underpaid by an amount in excess of three percent (3%) of the
total amount of Medical Group Compensation otherwise payable to the Medical
Group for the period covered by the audit, the cost of the audit shall be
borne by the Management Company. All documents and other information
obtained in the course of such review or audit shall be held in strict
confidence.
5.10. Start-Up Period.
Consistent with the provisions of Section 2 of this Agreement, the
parties acknowledge and agree that, in order to facilitate the transition
of responsibilities hereunder, certain requirements and procedures agreed
to under this Agreement may be implemented, in whole or in part and at any
time during the period commencing on the Commencement Date and ending 90
days thereafter (subject to extension by agreement of the Medical Group and
the Management Company), rather than being fully implemented immediately on
the Commencement Date. Accordingly, the parties further agree that the
Management Fee and Monthly Draw payable in respect of the Management
Services and the Medical Group Services applicable to such period of time
shall be computed, and any appropriate adjustments shall be made, such that
no material financial advantage or disadvantage shall accrue
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to either party as a result of implementing such requirements and
procedures over the course of such start-up period rather than immediately
on the Commencement Date.
5.11. New Physician Compensation Costs.
(a) Notwithstanding anything contained herein to the contrary, during
the period beginning on the New Physician Start Date (as hereinafter
defined) and ending on the Physician Breakeven Date (as hereinafter
defined), the Management Company shall be responsible for the payment of
all New Physician Compensation (as hereinafter defined) and notwithstanding
anything to the contrary contained in this Agreement, shall receive, in
consideration therefor, sixty six and two-thirds percent (66-2/3%) (such
amount being referred to herein as the "New Physician Net Collections") of
all Collections generated by such New Physician for those Medical Group
Services performed by such New Physician until the Physician Breakeven
Date, and such amounts shall not be included in determining Collections for
purposes of this Agreement. The remaining thirty three and one-third
percent (33 1/3%) of such Collections shall belong to the Medical Group
until the Physician Breakeven Date, and such amounts shall not be included
in determining Collections for purposes of this Agreement. As of the
Physician Breakeven Date, the New Physician Compensation shall be payable
by, and become the responsibility of, the Medical Group in accordance with
Section 5.7 hereof, and one hundred percent (100%) of all of the Xxxxxxxx
and Collections generated by such New Physician thereafter shall be
considered Xxxxxxxx and Collections of the Medical Group for purposes of
this Agreement.
(b) "New Physician" means, any physician who, at any time after the
Commencement Date, becomes affiliated with or employed by the Medical
Group; provided that if such physician becomes affiliated with or employed
by the Medical Group pursuant to a transaction between the Management
Company and such
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physician or a medical group with which such physician is affiliated in
which the Management Company acquires any assets or accounts receivable
from such physician or such medical group or pays any other consideration
to such physician or such medical group in connection with such physician's
affiliation or employment with the Medical Group and/or the Management
Company, then such physician shall not be deemed to be a New Physician for
purposes of this Agreement.
(c) "Physician Breakeven Date" means, with respect to any New
Physician, the date on which the New Physician Net Collections for the
period beginning on the New Physician Start Date and ending on the date of
determination first equal or exceed (i) the aggregate amount of New
Physician Compensation paid to such New Physician for the foregoing period
plus (ii) that portion of the Management Company Costs associated with such
New Physician and/or the Medical Group Services provided by such New
Physician.
(d) "New Physician Compensation" means, with respect to any New
Physician and for any period in question, the amount of compensation (wages
and otherwise) payable to such New Physician by the Medical Group.
(e) "Physician Start Date" means, with respect to any New Physician,
the date such New Physician becomes affiliated with or employed by the
Medical Group.
SECTION 6. Representations and Warranties of the Medical Group
The Medical Group hereby represents and warrants to the Management Company,
as of the Signature Date, as follows:
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6.1. Organization; Good Standing; Qualification and Power.
The Medical Group is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Florida and has all
requisite power and authority to own, lease, and operate its properties, to
carry on its business as now being conducted and as proposed to be
conducted, to enter into this Agreement, the Financing Statement and the
Stockholder Non-Competition Agreements (as hereinafter defined)
(collectively, the "Medical Group Transaction Documents"), to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The Medical Group has delivered to the
Management Company a true and correct copy of its Articles of Incorporation
and its Bylaws, each as in effect on the date hereof.
6.2. Equity Investments.
Except as set forth on Schedule 6.2, the Medical Group currently has
no subsidiaries, nor does the Medical Group currently own any capital stock
or other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
6.3. Authority.
The execution, delivery and performance of this Agreement and the
other Medical Group Transaction Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action on the part of the Medical Group. This
Agreement and the other Medical Group Transaction Documents have been duly
and validly executed and delivered by the Medical Group and constitute the
legal, valid and binding obligations of the Medical Group enforceable in
accordance with their respective terms, except as enforcement may be
limited by applicable
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bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. Neither the execution,
delivery or performance of this Agreement or any other Medical Group
Transaction Document by the Medical Group nor the consummation by the
Medical Group of the transactions contemplated hereby or thereby, nor
compliance by the Medical Group with any provision hereof or thereof will
conflict with or result in a breach of any provision of the formation
documents of the Medical Group, cause a default (with due notice, lapse of
time or both), or give rise to any right of termination, cancellation or
acceleration, under any of the terms, conditions or provisions of any note,
bond, lease, mortgage, indenture, license or other instrument, obligation
or agreement to which the Medical Group is a party or by which the Medical
Group or any of its properties or assets may be bound (with respect to
which defaults or other rights all requisite waivers or consents shall have
been obtained at or prior to the date hereof) or violate any law, statute,
rule or regulation or order, writ, judgment, injunction or decree of any
court, administrative agency or governmental body applicable to the Medical
Group or any of its properties or assets or the Medical Business. Except as
provided on Schedule 6.3, to the best of the Medical Group's knowledge, no
permit, authorization, consent or approval of or by, or any notification of
or filing with, any person (governmental or private) is required in
connection with the execution, delivery or performance by the Medical Group
of this Agreement or any other Medical Group Transaction Document or the
consummation of the transactions contemplated hereby and thereby.
6.4. Financial Information.
Schedule 6.4 contains the internal statement of assets, liabilities
and stockholders' equity of the Medical Business and each Constituent
Practice at August 31, 1997 (collectively, the "Balance Sheet"; and the
date thereof being referred to as the "Balance Sheet Date"), and the
related internal statements of
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revenue and expenses for the eight-month period then ended (including the
notes thereto and other financial information included therein)
(collectively, the "Internal Financial Statements"), and (b) the compiled
financial statements of the Medical Business and each Constituent Practice
for the periods ended December 31, 1996, December 31, 1995, and December
31, 1994 (collectively, the "Review Financial Statements"). The Internal
Financial Statements and the Review Financial Statements (i) are in
accordance with the books and records of the Medical Business, (ii) fairly
present the financial position of the Medical Business as of the dates
thereof, and (iii) have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods covered
thereby.
6.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 6.5, as of the Balance Sheet Date,
neither the Medical Business nor any Constituent Practice had any material
liability of any nature (matured or unmatured, fixed or contingent, known
or unknown) which was not provided for or disclosed on the Balance Sheet,
all liability reserves established by the Medical Business or any
Constituent Practice on the Balance Sheet were adequate and there were no
loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards
Board in March 1975) which were not adequately provided for or disclosed on
the Balance Sheet.
6.6. Absence of Changes.
Except as set forth on Schedule 6.6, since the Balance Sheet Date, the
Medical Business and each Constituent Practice have been operated in the
ordinary course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation,
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levels of working capital and the components thereof), liabilities,
operations, results of operations, earnings, business or prospects of
the Medical Business or any Constituent Practice;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any
asset or property of the Medical Business or any Constituent Practice;
(c) any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) created or
incurred, or any transaction, contract or commitment entered into, by
the Medical Business or any Constituent Practice other than such items
created or incurred in the ordinary course of the Medical Business or
such Constituent Practice and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Medical Business or any
Constituent Practice outside the ordinary course of the Medical
Business or such Constituent Practice (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other
disposition of any tangible or intangible asset of the Medical
Business or any Constituent Practice except in the ordinary course of
the Medical Business or such Constituent Practice and consistent with
past practice;
(f) any write-off as uncollectible of any accounts receivable in
connection with the Medical Business or any Constituent Practice or
any portion thereof in excess of $5,000 in the aggregate exclusive of
all normal contractual adjustments from third party payors;
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(g) except for all normal contractual adjustments from third
party payors, any account receivable in connection with the Medical
Business or any Constituent Practice in an amount greater than $10,000
which (i) has become delinquent in its payment by more than 90 days,
(ii) has had asserted against it any claim, refusal to pay or right of
set-off, (iii) an account debtor has refused to pay for any reason or
with respect to which such account debtor has become insolvent or
bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Medical
Business or any Constituent Practice;
(i) any general uniform increase in the compensation of employees
of the Medical Group or the Medical Business (including, without
limitation, any increase pursuant to any bonus, pension,
profit-sharing, deferred compensation arrangement or other plan or
commitment) or any increase in compensation payable to any officer,
employee, consultant or agent thereof, or the entering into of any
employment contract with any officer or employee, or the making of any
loan to, or the engagement in any transaction with, any officer of the
Medical Group or the Medical Business;
(j) any change in the accounting methods or practices followed in
connection with the Medical Business or any Constituent Practice or
any change in depreciation or amortization policies or rates
theretofore adopted;
(k) any agreement or commitment relating to the sale of any
material fixed assets of the Medical Business or any Constituent
Practice;
(l) any other transaction relating to the Medical Business or any
Constituent Practice other than in the ordinary
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course of the Medical Business and consistent with past practice; or
(m) any agreement or understanding, whether in writing or
otherwise, for the Medical Business or any Constituent Practice to
take any of the actions specified in items (a) through (l) above.
6.7. Tax Matters.
(a) Except as set forth on Schedule 6.7, (i) all Taxes (as hereinafter
defined) relating to the Medical Business required to be paid by the
Medical Group through the date hereof have been paid and all returns,
declarations of estimated Tax, Tax reports, information returns and
statements required to be filed by the Medical Group in connection with the
Medical Business prior to the date hereof (other than those for which
extensions shall have been granted prior to the date hereof) relating to
any Taxes with respect to any income, properties or operations of the
Medical Group or the Constituent Practices prior to the date hereof
(collectively, "Returns") have been duly filed; (ii) as of the time of
filing, the Returns correctly reflected in all material respects (and, as
to any Returns not filed as of the date hereof, will correctly reflect in
all material respects) the facts regarding the income, business, assets,
operations, activities and status of the Medical Business and any other
information required to be shown therein; (iii) all Taxes relating to the
operations of the Medical Business that have been shown as due and payable
by the Medical Group on the Returns have been timely paid and filed or
adequate provisions made to the books and records of the Medical Business;
(iv) in connection with the Medical Business (x) the Medical Group has made
provision on the Balance Sheet for all Taxes payable by the Medical Group
for any periods that end on or before the Balance Sheet Date for which no
Returns have yet been filed and for any periods that begin on or before the
Balance Sheet Date and end
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after the Balance Sheet Date to the extent such Taxes are attributable to
the portion of any such period ending on the Balance Sheet Date and (y)
provision has been made for all Taxes payable by the Medical Group for any
periods that end on or before the date hereof for which no Returns have
then been filed and for any periods that begin on or before the date hereof
and end after such date to the extent such Taxes are attributable to the
portion of any such period ending on such date; (v) no tax liens have been
filed with respect to any of the assets of the Medical Business, and there
are no pending tax audits of any Returns relating to the Medical Business;
and (vi) no deficiency or addition to Taxes, interest or penalties
applicable to the Constituent Practices for any Taxes relating to the
operation of the Medical Business has been proposed, asserted or assessed
in writing (or any member of any affiliated or combined group of which the
Medical Group or any previous operator of the Medical Business was a member
for which the Medical Group could be liable).
(b) The Medical Group is not a foreign person within the meaning of
Section 1.1445-2(b) of the Regulations under Section 1445 of the Internal
Revenue Code of 1986, as amended (the "Code").
(c) The Medical Group has provided the Management Company with true
and complete copies of all Federal, state and foreign Returns of the
Medical Group for the calendar years ending December 31, 1996 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or entity, (i) all Federal,
state, local and foreign income taxes (including any tax on or based upon
net income, or gross income, or income as specially defined, or earnings,
or profits, or selected items of income, earnings or profits) and all
Federal, state, local and foreign gross receipts, sales, use, ad valorem,
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transfer, franchise, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property or windfall profits taxes,
alternative or add-on minimum taxes, customs duties or other Federal,
state, local and foreign taxes, fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority (domestic or foreign)
on such person or entity and (ii) any liability for the payment of any
amount of the type described in the immediately preceding clause (i) as a
result of being a 'transferee' (within the meaning of Section 6901 of the
Code or any other applicable law) of another person or entity or a member
of an affiliated or combined group.
6.8. Litigation, Etc.
Except as set forth on Schedule 6.8, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration
proceedings pending or, to the best knowledge of the Medical Group,
threatened against the Medical Group, any equity owner of the Medical
Group, or in connection with the Medical Business or any Constituent
Practice, whether at law or in equity, or before or by any Federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality or (b) judgments, decrees, injunctions or orders
of any court, governmental department, commission, agency, instrumentality
or arbitrator against the Medical Group, its assets or affecting the
Medical Business or any Constituent Practice. The Medical Group has
delivered to the Management Company all documents and correspondence
relating to matters referred to in said Schedule 6.8.
6.9. Compliance; Governmental Authorizations.
The Medical Group, the Medical Business and the Constituent Practices
have complied in all material respects with
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all applicable material Federal, state, local or foreign laws, ordinances,
regulations and orders. The Medical Group has all Federal, state, local and
foreign governmental licenses and permits necessary in the conduct of the
Medical Business, the lack of which would have a material adverse effect on
the Medical Group's ability to operate the Medical Business after the date
hereof on substantially the same basis as presently operated, such licenses
and permits are in full force and effect, the Medical Group has not
received any notice indicating that any violations are or have been
recorded in respect of any thereof, and no proceeding is pending or, to the
best knowledge of the Medical Group, threatened to revoke or limit any
thereof. To the best knowledge of the Medical Group, none of such licenses
and permits shall be affected in any material respect by the transactions
contemplated hereby. To the best knowledge of the Medical Group, neither
the Medical Group, nor any of the Medical Personnel employed by the Medical
Group is now or in the last four years has been the subject of or involved
in any investigation by any Federal, state or local regulatory agency
related to its or his Medicare, Medicaid or other third party payor billing
practices.
6.10. Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 6.10, all of the accounts
receivable owing to the Medical Group or the Constituent Practices in
connection with the Medical Business as of the date hereof constitute valid
and enforceable claims arising from bona fide transactions in the ordinary
course of the Medical Business, the amounts of which are actually due and
owing, and as of the date hereof, to the best knowledge of the Medical
Group, there are no claims, refusals to pay or other rights of set-off
against any thereof. Except as set forth on Schedule 6.10, as of the date
hereof, there is no account receivable or note receivable of the Medical
Business pledged to any third party. The Medical Group has provided the
Management
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Company with an accounts receivable aging report dated as of September 23,
1997 that is true and complete as of the date thereof.
(b) All accounts payable and notes payable by the Medical Business to
third parties arose in the ordinary course of business and, except as set
forth in Schedule 6.10, there is no account payable or note payable past
due or delinquent in its payment.
6.11. Labor Relations; Employees.
Schedule 6.11 contains a true and complete list of the persons
employed by the Medical Group as of the date hereof (the "Employees").
Except as set forth on Schedule 6.11, (a) the Medical Group and the Medical
Business are not delinquent in payments to any of the Employees for any
wages, salaries, commissions, bonuses or other compensation for any
services performed by them to the date hereof or amounts required to be
reimbursed to the Employees; (b) to the best knowledge of the Medical
Group, upon termination of the employment of any of the Employees, neither
the Medical Group, the Medical Business nor the Management Company will by
reason of anything done prior to the date hereof, or by reason of the
consummation of the transactions contemplated hereby, be liable for any
excise taxes pursuant to Section 4980B of the Code or to any of the
Employees for severance pay or any other payments; (c) there is no unfair
labor practice complaint against the Medical Group or in connection with
the Medical Business pending before the National Labor Relations Board or
any comparable state, local or foreign agency; (d) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the best
knowledge of the Medical Group, threatened against or involving the Medical
Group or Medical Business; (e) there is no collective bargaining agreement
covering any of the Employees; and (f) to the best knowledge of the Medical
Group, no Employee or consultant is in
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violation of any (i) employment agreement, arrangement or policy between
such person and any previous employer (private or governmental) or (ii)
agreement restricting or prohibiting the use of any information or
materials used or being used by such person in connection with such
person's employment by or association with the Medical Group or the Medical
Business.
6.12. Employee Benefit Plans.
(a) Schedule 6.12 identifies each 'employee benefit plan', as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and all other written or oral plans, programs, policies
or agreements involving direct or indirect compensation (including any
employment agreements entered into between the Medical Group or the Medical
Business and any Employee of the Medical Group or in connection with the
Medical Business, but excluding workers' compensation, unemployment
compensation and other government-mandated programs) currently or
previously maintained or entered into by the Medical Group or in connection
with the Medical Business for the benefit of any Employee or former
employee of the Medical Group or in connection with the Medical Business
under which the Medical Group, any affiliate thereof or the Medical
Business has any present or future obligation or liability (the "Employee
Plans"). The Medical Group has provided the Management Company with true
and complete salary, service and related data for Employees of the Medical
Group and in connection with the Medical Business.
(b) Schedule 6.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
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other forms of incentive compensation or post-retirement insurance,
compensation or benefits currently maintained by the Medical Group or in
connection with the Medical Business.
(c) To the best knowledge of the Medical Group, except as set forth on
Schedule 6.12; (i) each Employee Plan has been operated and administered in
compliance with ERISA, the Code and in accordance with the provisions of
all other applicable Federal and state laws; (ii) all reporting and
disclosure obligations imposed under ERISA and the Code have been satisfied
with respect to each Employee Plan; (iii) to the best knowledge of the
Medical Group, no breaches of fiduciary duty or prohibited transactions
have occurred with respect to any Employee Plan; and (iv) all reporting,
disclosure and bonding obligations have been satisfied with respect to each
Employee Plan.
(d) The Medical Group has made available to the Management Company a
true and complete copy of each Employee Plan and a true and complete copy
of each of the following documents, prepared in connection with such
Employee Plan; (i) each trust or other funding arrangement, (ii) the two
most recently filed Annual Reports (Form 5500), including attachments, for
each Employee Plan, and (iii) the most recently received IRS determination
letter.
6.13. Insurance.
Schedule 6.13 contains a list of all policies of professional
liability (medical malpractice), general liability, theft, fidelity, fire,
product liability, errors and omissions, health and other property and
casualty forms of insurance held by the Medical Group covering the assets,
properties or operations of the Medical Group or the Medical Business
(specifying the insurer, amount of coverage, type of insurance, policy
number and any pending claims thereunder). All such policies of insurance
are valid and enforceable policies and are outstanding and duly in force
and all premiums with respect thereto are currently
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paid. Neither the Medical Group nor its predecessor in interest has, during
the last five fiscal years, been denied or had revoked or rescinded any
policy of insurance relating to the assets, properties or operations of the
Medical Group or the Medical Business.
6.14. Real Property.
Schedule 6.14 sets forth an accurate and complete legal description of
the entire right, title and interest of the Medical Group in and to all
real property, together with all buildings, facilities, fixtures and
improvements located on such real property, owned or leased by the Medical
Group (the "Real Property"), together with an accurate description of the
title insurance policy or other evidence of title issued with respect
thereto, the most current survey of such real property and a description of
the use thereof. Other than the Real Property, the Medical Group has no
other interest (leasehold or otherwise) in real property used, held for use
or intended to be used in the Medical Business. The Medical Group has a
valid leasehold interest in all Real Property leased by the Medical Group.
True and complete copies of all leases to which the Medical Group is a
party or by which the Medical Group leases space have been delivered to the
Management Company.
6.15. Burdensome Restrictions.
Except as set forth on Schedule 6.15, neither the Medical Group nor
the Medical Business is bound by any oral or written agreement or contract
which by its terms prohibits or restricts it from conducting the Medical
Group or the Medical Business (or any material part thereof).
6.16. Disclosure.
Neither the Medical Group Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any
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other document, certificate or written statement furnished to the
Management Company by or on behalf of the Medical Group in connection with
the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained herein and therein not misleading. Except as set
forth on Schedule 6.16, there have been no events or transactions, or
information which has come to the attention of the Medical Group, which, as
they relate directly to the Medical Group or the Medical Business, could
reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Medical Group and the
Medical Business.
6.17. Medical Practice Combination.
The Medical Business includes the complete medical practices of
Xxxxxxx Xxxxxxxxx, M.D., Xxxxx Xxxxx, M.D., Xxxxxx Xxxxxxxx, M.D. Xxxxxx
Xxxxxxxxxx, M.D., and Xxxxxxx XxXxx, M.D., and such physicians do not
maintain any medical practice or perform Medical Group Services
independently of the Medical Group.
SECTION 7. Representations and Warranties of the Management Company.
The Management Company represents and warrants to the Medical Group,
as of the Signature Date, as follows:
7.1. Organization, Good Standing and Power.
The Management Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
(b) has all requisite corporate power and authority to own, lease and
operate its properties, to carry on its business as now being conducted, to
execute and deliver this Agreement and each of the Asset Purchase
Agreement, the Restricted Stock Agreements (as hereinafter defined), the
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Assignments of Lease, and the Stockholder Non-Competition Agreements
(collectively, the "Management Company Transaction Documents"), to perform
its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby.
7.2. Authority.
The execution, delivery and performance of this Agreement and the
other Management Company Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Management
Company. This Agreement and each Management Company Transaction Document
has been duly and validly executed and delivered by the Management Company,
and this Agreement and each such Management Company Transaction Document is
the valid and binding obligation of the Management Company, enforceable in
accordance with its respective terms, except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors generally. Neither the execution,
delivery or performance of this Agreement or any other Management Company
Transaction Document, nor the consummation by the Management Company of the
transactions contemplated hereby or thereby, nor compliance by the
Management Company with any provision hereof or thereof, will (a) conflict
with or result in a breach of any provisions of the Amended and Restated
Certificate of Incorporation or the Bylaws of the Management Company, (b)
cause a default (with due notice, lapse of time or both), or give rise to
any right of termination, cancellation or acceleration, under any of the
terms, conditions or provisions of any material note, bond, lease,
mortgage, indenture, license or other instrument, obligation or agreement
to which the Management Company is a party or by which it or any of its
properties or assets is or may be bound (with respect to which defaults or
other rights all requisite waivers or consents shall have been
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obtained at or prior to the date hereof) or (c) violate any law, statute,
rule or regulation or order, writ, judgment, injunction or decree of any
court, administrative agency or governmental body applicable to the
Management Company or any of its properties or assets. Except as set forth
on Schedule 7.2, to the best of the Management Company's knowledge, no
permit, authorization, consent or approval of or by, or any notification of
or filing with, any person (governmental or private) is required in
connection with the execution, delivery or performance by the Management
Company of this Agreement or any other Management Transaction Document or
the consummation by the Management Company of the transactions contemplated
hereby or thereby.
7.3. Capitalization.
(a) The total authorized capital of the Management Company consists of
25,000,000 shares of common stock, of which 10,422,695 shares are issued
and outstanding, and 9,233,049 shares of preferred stock, of which (i)
999,999 shares of Series A Convertible Preferred Stock, (ii) 2,000,001
shares of Series B Convertible Preferred Stock, (iii) 254,999 shares of
Series C Convertible Preferred Stock, (iv) 188,072 shares of Series D
Convertible Preferred Stock, and (v) 741,667 shares of Series E Convertible
Preferred Stock are issued and outstanding. Each of the outstanding shares
of capital stock has been duly and validly authorized and issued, is fully
paid for and non-assessable, and was issued in compliance with all
applicable Federal and state securities laws.
(b) The Management Company has taken all action necessary or
appropriate to duly authorize the creation, issuance and sale of the common
stock to be issued hereunder. Such shares of common stock, when issued,
sold and delivered, as provided for herein and in the Restricted Stock
Agreements, will be validly issued, fully paid and nonassessable, with no
personal liability
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attaching to the ownership of the shares. The issuance of such shares of
common stock will not violate any preemptive or similar right of any
person.
7.4. Financial Information.
Schedule 7.4 contains (a) the unaudited statements of assets,
liabilities and stockholders' equity of the Management Business at the date
set forth therein (the "Management Company Balance Sheet"; and the date
thereof being referred to as the "Management Company Balance Sheet Date"),
and the related unaudited statements of revenue and expenses for the
periods then ended (including the notes thereto and other financial
information included therein) (collectively, the "Unaudited Financial
Statements"). The Unaudited Financial Statements (i) were prepared in
accordance with the books and records of the Management Business and (ii)
fairly present the financial position of the Management Business as of the
dates thereof.
7.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 7.5, as of the Management Company
Balance Sheet Date, (a) the Management Business did not have any material
liability of any nature required to be disclosed on a balance sheet
(matured or unmatured, fixed or contingent, known or unknown) which was not
provided for or disclosed on the Management Company Balance Sheet, (b) all
liability reserves established by the Management Business on the Management
Company Balance Sheet were adequate and (c) there were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which were not adequately provided for or disclosed on the Management
Company Balance Sheet.
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7.6. Absence of Changes.
Except as set forth on Schedule 7.6, since the Management Company
Balance Sheet Date, the Management Business has been operated in the
ordinary course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, results of operations,
earnings, business or prospects of the Management Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any
asset or property of the Management Business;
(c) any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) created or
incurred, or any transaction, contract or commitment entered into, by
the Management Business other than such items created or incurred in
the ordinary course of the Management Business and consistent with
past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Management Business
outside the ordinary course of the Management Business (whether
absolute, accrued, contingent or otherwise and whether due or to
become due);
(e) any license, sale, transfer, pledge, mortgage or other
disposition of any material tangible or intangible asset of the
Management Business except in the ordinary course of the Management
Business and consistent with past practice;
(f) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the
Management Business;
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(g) any change in the accounting methods or practices followed in
connection with the Management Business or any change in depreciation
or amortization policies or rates theretofore adopted;
(h) any other transaction relating to the Management Business
other than in the ordinary course of the Management Business and
consistent with past practice; or
(i) any agreement or understanding, whether in writing or
otherwise, for the Management Business to take any of the actions
specified in items (a) through (h) above.
7.7. Litigation, Etc.
Except as set forth on Schedule 7.7, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration
proceedings pending or, to the best knowledge of the Management Company,
threatened against the Management Company or in connection with the
Management Business, whether at law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, which, if adversely determined,
could have a material adverse effect on the Management Company or (b)
judgments, decrees, injunctions or orders of any court, governmental
department, commission, agency, instrumentality or arbitrator against the
Management Company its assets or affecting the Management Business.
7.8. Compliance; Governmental Authorizations.
The Management Company and the Management Business shall have complied
in all material respects with all applicable material Federal, state, local
or foreign laws, ordinances, regulations and orders. The Management Company
has all Federal, state, local and foreign governmental licenses and permits
necessary in the conduct of the Management Business, the lack of
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which would have a material adverse effect on the Management Company's
ability to operate the Management Business after the date hereof on
substantially the same basis as presently operated, such licenses and
permits are in full force and effect, the Management Company has not
received any notice indicating that any violations are or have been
recorded in respect of any thereof, and no proceeding is pending or, to the
best knowledge of the Management Company, threatened to revoke or limit any
thereof. To the best knowledge of the Management Company, none of such
licenses and permits shall be affected in any material respect by the
transactions contemplated hereby.
7.9. Employees.
Except as set forth on Schedule 7.9, the Management Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by
them through the date hereof.
7.10. Insurance.
The Management Company has obtained such policies of insurance as are
usual and customary for businesses of the type conducted by the Management
Company. All such policies of insurance are valid and enforceable policies,
and all premiums with respect thereto are currently paid.
7.11. Burdensome Restrictions.
Except as set forth on Schedule 7.11, neither the Management Company
nor the Management Business is bound by any oral or written agreement or
contract which by its terms prohibits it from conducting the Management
Company or the Management Business (or any material part thereof).
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7.12. Disclosure.
Neither the Management Company Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document,
certificate or written statement furnished to the Medical Group by or on
behalf of the Management Company in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein and therein not misleading.
SECTION 8. Operations Committee.
8.1. Formation and Operation of the Operations Committee.
The Management Company and the Medical Group shall establish a
committee (the "Operations Committee") responsible for directing the
Management Company in connection with the development of certain specific
management and administrative policies for the overall operation of the
Medical Group. The Operations Committee shall consist of two (2) members.
All of the equity owners of the Medical Group shall constitute one member
of the Operations Committee and the Management Company shall designate a
representative to be the other member of the Operations Committee. The
equity owners of the Medical Group shall vote as a unit (with the vote of
the majority of such equity owners determining the vote for the Medical
Group's representative to the Operations Committee). The business of the
Operations Committee shall be conducted in accordance with the policies and
procedures described in Section 8.3 hereof.
8.2. Authoritative Functions of the Operations Committee.
The Operations Committee shall perform the following functions, and
the decisions of the Operations Committee with
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respect to such functions shall be binding on the Management Company and
the Medical Group:
(a) Approve the annual budgets for:
(i) Xxxxxxxx and Collections;
(ii) Medical Group Costs;
(iii) Capital expenditures to be made by the Management
Company in fulfillment of its obligations hereunder;
(iv) Management Company Operating Costs (which, in the
absence of approval by the Operations Committee, shall
be increased by two and one-half percent (2.5%) over
the total amount approved for the preceding period)
(b) Approve costs and expenses that exceed the Management
Company Operating Costs Budget.
(c) Establish parameters and criteria (including the location
from which such services may be provided) with respect to
the establishment and maintenance of relationships with
institutional providers and payors and managed care
contracts (except with respect to the establishment of
professional fees).
(d) Establish parameters and criteria with respect to:
(i) Xxxxxxxx
(ii) Claims submission
(iii) Collections of fees
(iv) Delinquent account collection policies
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(v) Turnover of delinquent accounts to outside collection
agencies
(vi) Write-offs of account balances
(vii) Claim review requests
(viii) "Insurance only" and other courtesy write-off
policies
(ix) Lien account collection policies
(x) Student Athlete account policies
(e) Approve the acquisition, replacement, relocation, or other
disposition of Medical Equipment and FF&E, approve the
integration of new technologies into the professional
practice of the Medical Group as contemplated by Section
3.11 hereof, and approve the renovation and expansion of any
offices of the Medical Group ("Tenant Improvements");
provided, however, that the approval of the Management
Company also shall be required prior to (i) the acquisition
of any Equipment (including any Medical Equipment, FF&E or
other items relating to or necessary in connection with the
integration of new technologies into the professional
practice of the Medical Group), (ii) the undertaking of any
Tenant Improvements relating to patient care facilities, or
(iii) the undertaking of any other Tenant Improvements, if,
with respect to any of the foregoing, the cost would exceed
$10,000.
(f) Establish parameters and criteria for off-site storage of
files and records of the Medical Group.
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(g) Identification of physician subspecialties required for the
efficient operation of the Medical Group; advice regarding
all Medical Personnel employment and recruitment contracts
to be utilized by the Medical Group.
(h) Development of long-term strategic planning objectives for
the Medical Group.
(i) Public relations, advertising, and other marketing of
Medical Group Services, including design of exterior signs.
(j) The establishment of fees for professional services and
ancillary services rendered by the Medical Group.
(k) Access and quality issues pertaining to ancillary services.
(l) Insurance limits and insurance coverage of the Medical Group
and the Management Company, as such coverage may relate to
Medical Group operations and activities.
(m) Any matters arising in connection with the operations of the
Medical Group that are not specifically addressed in this
Agreement and as to which the Management Company or the
Medical Group requests consideration by the Operations
Committee.
Notwithstanding anything to the contrary contained in this Section
8.2, the Operations Committee does not have the power to bind the
Medical Group on any decision with respect to which discretion
regarding such matters is vested in the Medical Group under the terms
of this Agreement or by applicable law and, in such case, the Medical
Group shall have ultimate responsibility for the exercise of such
discretion.
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8.3. Committee Policies and Procedures.
(a) One of the equity owners of the Medical Group (which individual
shall be appointed by vote of a majority of the equity owners) shall act as
Chairman of the Committee, and the Management Company representative shall
act as Vice Chairman. Each party may substitute or change its designated
Operations Committee members at any time upon notice to the other party,
and any Operations Committee member may designate his or her own substitute
at any meeting without notice. Each member shall have one vote and shall
have the right to grant his or her proxy to another member of the
Operations Committee. The Chairman, if present, shall preside at all
meetings of the Operations Committee. In the absence of the designated
Chairman, the Vice Chairman shall preside. The only powers of the Chairman
and the Vice Chairman that differ from those of the other members of the
Operations Committee shall be to call and preside over meetings in
accordance with this Section 8.3.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to
time determine. A meeting of the Operations Committee also may be called by
at least two (2) members of the Operations Committee or by the Chairman or
Vice Chairman thereof upon at least three (3) days' written notice to the
other members of the Operations Committee. Such notice requirement shall be
deemed waived with respect to any member of the Operations Committee who
attends such meeting. Meetings may be held in person or by telephone. The
Operations Committee also may act by written consent as provided in Section
8.3(c). Minutes shall be kept of all formal actions taken by the Operations
Committee.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of both members of the Operations Committee present
or represented by proxy at the
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applicable meeting. A quorum of the Operations Committee consist of both
members of the Operations Committee, in person, by telephone, or by proxy,
and a quorum must remain for the duration of the meeting. The Operations
Committee may establish such procedures to act by written consent, without
a meeting, as the Operations Committee determines are advisable, provided
that both members (in person or by proxy) must sign any written consent.
SECTION 9. Obligations of the Medical Group.
The Medical Group shall have the following obligations during the
Term:
9.1. Compliance with Laws.
The Medical Group shall use its best efforts to provide professional
services to patients in compliance at all times with those ethical
standards, laws and regulations to which they are subject, including,
without limitation, Medicare and Medicaid regulations. The Medical Group
shall verify, with the assistance of the Management Company, that each
physician and other Medical Personnel associated with the Medical Group for
the purpose of providing medical care to patients of the Medical Group is
appropriately licensed. The Medical Group shall monitor the quality of
medical care practiced by physicians and other health care personnel
associated with the Medical Group. In the event that any medical
malpractice actions are filed or any disciplinary actions are initiated
against any such physician by any payor, patient, state or Federal
regulatory agency or any other person or entity, the Medical Group shall
immediately inform the Management Company of such action and its underlying
facts and circumstances.
9.2. Use of Facility.
The Medical Group shall use and occupy any Facility (as defined below)
exclusively for the practice of medicine, and
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shall use its best efforts to comply with all applicable Federal, state and
local rules, ordinances and standards of medical care. The medical practice
or practices conducted at any Facility described in clause (i) of the
definition of the term "Facility" shall be conducted solely by Medical
Personnel associated with the Medical Group, and no other physician or
medical practitioner shall be permitted to use or occupy any Facility
described in clause (i) below without the prior written consent of the
Management Company, which consent shall not be unreasonably withheld or
delayed. The term "Facility" shall mean (i) any medical office or
laboratory controlled, managed or operated by the Management Company or
(ii) any hospital at which any Medical Personnel practices medicine or
maintains admitting privileges.
9.3. Choice of Braces, Splints, Appliances, Medical Supplies, and
Allografts.
The Medical Group shall have the exclusive control over the choice of
vendors and products utilized with respect to all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, medical supplies and
allografts.
9.4. Choice of Radiologists, Anesthesiologists, Hospitals, Physical
Therapy, MRI, and Other Medical Professionals and Facilities.
The Medical Group shall have exclusive control over the choice of
specific physicians and facilities to be utilized by the Medical Group with
respect to radiology, anesthesiology, hospitals, physical therapy, MRI, and
other medical professionals and facilities; provided, however, that the
foregoing shall not be considered New Ancillary Services or New Medical
Offices, as the case may be, unless the parties have agreed thereto in
accordance with Section 3.4(b) or 3.2(b), as the case may be.
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9.5. Insurability.
The Medical Group shall cooperate with the Management Company in (i)
ensuring that its Medical Personnel are insurable under commercially
available malpractice insurance policies or (ii) instituting proceedings to
terminate within thirty business days any Medical Personnel who is not so
insurable or who loses his or her malpractice insurance eligibility unless
the Medical Group makes (within such 30-day period) other arrangements
reasonably appropriate under the circumstances and reasonably acceptable to
the Management Company. The Medical Group shall notify the Management
Company in writing of any change in the insurance status of any Medical
Personnel within two days after the Medical Group receives notice of any
such change. The Medical Group shall require all Medical Personnel to
participate in an on-going risk management program.
9.6. Medicare.
The Medical Group shall cause all physicians to be participating
providers and accept assignment under Medicare.
9.7. Accounts Receivable; Billing.
From the Commencement Date, the Medical Group acknowledges and agrees
that all Accounts of the Medical Group or its Medical Personnel shall be
the property of the Management Company hereunder and the Medical Group and
the Medical Personnel hereby transfer and assign all of their right, title
and interest to such Accounts to the Management Company; provided, however,
that the right to payment of Medicaid and Medicare receivables shall remain
with the Medical Group in accordance with applicable Federal law. The
Medical Group's Medical Personnel shall be responsible for providing the
appropriate current CPT4 coding with respect to the fee tickets prepared by
such Medical Personnel.
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9.8. Medical Personnel Hiring.
The Medical Group shall have the ultimate control over and
responsibility for the hiring, compensation, supervision, evaluation and
termination of its Medical Personnel; provided, however, that at the
request of the Medical Group, the Management Company shall consult with the
Medical Group regarding such matters.
9.9. Continuing Education.
The Medical Group and its Medical Personnel shall be solely
responsible for ongoing membership in professional associations and
continuing professional education. The Medical Group shall ensure that its
Medical Personnel participate in such continuing professional education as
is necessary for such physician or professional to remain current in his or
her field of medical practice.
9.10. Clinical Research.
The Medical Group shall have the ultimate control over and
responsibility for any clinical research program pertaining to patients of
the Medical Group. This shall include but not be limited to research
personnel interviewing, hiring, termination, compensation, day-to-day
supervision, and assignment of responsibilities and projects. However, the
Medical Group will cooperate with and take direction from the Management
Company in its nationwide efforts to provide an effective disease
management information system and outcome studies programs.
SECTION 10. Certain Covenants.
10.1. Change of Control.
During the Term of this Agreement, the Medical Group shall not enter
into any single transaction (or group of related transactions undertaken
pursuant to a common plan) involving the
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admission of new stockholders, the transfer of ownership interests, or the
reorganization or restructuring of the Medical Group, if in any such case
the effect would be to transfer a majority of the ownership interest in the
Medical Group, without the prior written consent of the Management Company,
which consent shall not be unreasonably withheld or delayed. The Management
Company hereby consents to the proposed business combination between the
Medical Group and Orthopedic Surgery Associates, Inc. ("OSA"), as described
in that certain letter agreement dated the Signature Date, provided that
such combined entity enters into a management services agreement identical
to this agreement in all material respects, and each of those physicians
practicing within each of the Medical Group and OSA transfer his respective
medical practice to such combined entity.
10.2. Legend on Securities.
During the Term of this Agreement, any certificate or similar evidence
representing an equity interest in the Medical Group issued by the Medical
Group shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT
SERVICES AGREEMENT EFFECTIVE AS OF SEPTEMBER 1, 1997,
BETWEEN LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A., A FLORIDA
CORPORATION, AND BMJ MEDICAL MANAGEMENT, INC., A DELAWARE
CORPORATION."
Nothing herein shall be construed as requiring the Medical Group to
issue any certificate or other evidence representing an equity
interest in the Medical Group, if such has not been issued prior to
the date hereof.
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SECTION 11. Records.
11.1. Medical Records.
Upon termination of this Agreement, the Medical Group shall retain all
patient medical records maintained by the Medical Group or the Management
Company in the name of the Medical Group.
11.2. Management Business Records.
All books and records relating in any way to the operation of the
Management Business which are not patient medical records shall at all
times be the property of the Management Company. The Management Company
shall maintain custody of such records, and the Medical Group shall, upon
its written request, be entitled to copies of any such records relating to
the Management Services performed by the Management Company.
11.3. Access to Records Following Termination.
Following the termination of this Agreement, the Medical Group shall
grant (to the extent permitted by law) to the Management Company, for the
purpose of preparing for any actual or anticipated legal proceeding or for
any other reasonable purpose, reasonable access (which shall include making
photocopies) to the patient medical records described in Section 11.1
hereof and any other pertinent information regarding the Medical Group
during the Term. Prior to accessing such patient medical records, the
Management Company shall obtain any required patient authorization.
Following the termination of this Agreement, the Management Company
shall provide to the Medical Group, promptly upon the Medical Group's
written request, photocopies of the Management Business records described
in Section 11.2 hereof, and
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shall grant to the Medical Group, for the purpose of preparing for any
actual or anticipated legal proceeding or for any other reasonable purpose,
any other pertinent information regarding the Management Company during the
Term.
SECTION 12. Insurance and Indemnity.
12.1. Professional Liability Insurance.
During the Term, the Management Company shall, to the extent permitted
by applicable law and to the extent commercially available, procure and
maintain for the benefit of itself and the Medical Group comprehensive
professional liability insurance providing for (a) general liability
coverage and (b) medical malpractice coverage with limits of not less than
the greater of what each physician shareholder or the Medical Group has in
place immediately prior to the Commencement Date or $250,000 per claim and
with aggregate policy limits of not less than $750,000 (or such higher
amounts as may be necessary to comply with any regulatory requirement
and/or contractual requirement to which such Medical Personnel or the
Medical Group may be subject) covering the Medical Group and each of the
Medical Personnel of the Medical Group , including coverage for claims made
eight (8) years before, during and eight (8) years after the termination
date of this Agreement relating to events or occurrences at any time prior
thereto. The parties hereto acknowledge that the Management Company is
procuring the malpractice insurance referenced herein to ensure that the
Management Company has protection in the event it is sued as a result of an
act or omission of an employee of the Medical Group. The Management Company
shall pay the premiums for such general and medical malpractice liability
coverage, which payments shall be considered Management Company Operating
Costs under this Agreement, subject to recoupment by the Management Company
under Section 5 hereof. The Management Company shall be designated as an
additional insured under all such insurance policies.
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12.2. Life Insurance; Business Interruption.
The Management Company may, at its option, obtain a $500,000 life
insurance policy for each duly licensed physician partner in or equity
owner of the Medical Group. The Medical Group shall, and shall cause each
such partner in or equity owner of the Medical Group to, cooperate with the
Management Company in the procurement of such policies. The Management
Company shall be designated as the beneficiary under any such policies. The
premiums for such policies shall be paid by the Management Company and
shall not be included as Management Company Operating Costs or otherwise
charged to the Medical Group.
12.3. Indemnification by Medical Group.
The Medical Group shall indemnify, hold harmless and defend the
Management Company, its officers, directors, shareholders, employees,
agents and independent contractors from and against any and all
liabilities, losses, damages, claims, causes of action and expenses
(including reasonable attorneys' fees and expenses), whether or not covered
by insurance, caused or asserted to have been caused, directly or
indirectly, by or as a result of (i) the performance of Medical Group
Services, including without limitation the performance of such services
prior to the Commencement Date, (ii) any other acts or omissions of the
Medical Group and its Medical Personnel, including without limitation any
such acts or omissions that occurred prior to the Commencement Date, or
(iii) any breach of or failure to perform any obligation under this
Agreement or the Medical Group Transaction Documents (which, for purposes
hereof, shall be deemed to include the Restricted Stock Agreement to be
signed by the Management Company and each partner, stockholder or employee
of the Medical Group receiving stock of the Management Company, in the form
of Exhibit B attached hereto (the "Restricted Stock Agreement")) by the
Medical Group and/or the Medical Personnel
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and/or their respective agents and/or subcontractors (other than the
Management Company) during the Term.
12.4. Indemnification by Management Company.
The Management Company shall indemnify, hold harmless and defend the
Medical Group, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable
attorneys' fees and expenses), whether or not covered by insurance, caused
or asserted to have been caused, directly or indirectly, by or as a result
of (i) the performance of Management Services, (ii) any other acts or
omissions of the Management Company and its employees or (iii) any breach
of or failure to perform any obligation under this Agreement or the
Management Company Transaction Documents by the Management Company and/or
its agents, personnel and/or subcontractors (other than the Medical Group)
during the Term, including, without limitation, any such acts or omissions
that occurred prior to the Commencement Date.
SECTION 13. Termination; Rescission.
13.1. Termination by Medical Group.
The Medical Group may terminate this Agreement effective immediately
by giving written notice of termination to the Management Company (a) in
the event of the filing of a petition in voluntary bankruptcy or an
assignment for the benefit of creditors by the Management Company or upon
other action taken or suffered, voluntarily or involuntarily, under any
Federal or state law for the benefit of debtors by the Management Company,
except for the filing of a petition in involuntary bankruptcy against the
Management Company which is dismissed within ninety (90) days thereafter (a
"Bankruptcy Event"), (b) in the event the Management Company shall default
in any material respect in the performance of any duty or obligation
imposed upon it by this
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Agreement and (i) the Management Company shall not have cured such default
within thirty (30) days after written notice specifying the default has
been given to the Management Company by the Medical Group, (ii) if such
default cannot be cured within such thirty (30) day period, the Management
Company shall not have taken reasonable action commencing curing of such
default within such thirty (30) day period or (iii) the Management Company
does not thereafter diligently prosecute such action to completion;
provided, however, that the Management Company shall have only 10 days
after written notice to cure a default arising as a result of its failure
to pay the Monthly Draw pursuant to Section 5.3(a) or any other monetary
obligation owed to the Medical Group hereunder, (c) in the event that any
of the representations and warranties made by the Management Company in
Section 7 is untrue or misleading in any material respect, provided that
the Medical Group shall have previously given written notice to the
Management Company describing in reasonable detail the nature of the item
in question and the Management Company shall not have cured such matter
within thirty (30) days of such notice, (d) the Management Company shall
have been sanctioned in writing by the Health Care Finance Administration
or the Medicaid Program Office of the Department of Health of the State of
Florida for any violation of the Social Security Act, the Health Care
Quality Improvement Act or any similar Federal or state law in a final,
nonappealable proceeding and such sanction prevents the Management Company
from fulfilling its obligations hereunder in accordance with all applicable
law; or (e) in the event that the Management Company fails to pay all
amounts due under either of those certain promissory notes dated the
Signature Date (each, a "Medical Group Promissory Note"), and issued by the
Management Company in favor of LOMG and the Partnership, respectively, in
connection with their respective Asset Purchase Agreements, by March 31,
1998.
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13.2. Termination by Management Company.
The Management Company may terminate this Agreement effective
immediately by giving written notice of termination to the Medical Group
(a) in the event of a Bankruptcy Event relating to the Medical Group, (b)
in the event the Medical Group shall default in any material respect in the
performance of any duty or obligation imposed upon it by this Agreement and
(i) the Medical Group shall not have cured such default within thirty (30)
days after written notice specifying the default has been given to the
Medical Group by the Management Company, (ii) if such default cannot be
cured within such thirty (30) day period, the Medical Group shall not have
taken reasonable action commencing curing of such default within such
thirty (30) day period or (iii) the Medical Group does not thereafter
diligently prosecute such action to completion; provided, however, that the
Medical Group shall have only 10 days after written notice to cure a
default arising as a result of its failure to pay any monetary obligation
owed to the Management Company hereunder, (c) in the event that any of the
representations and warranties made by the Medical Group in Section 6 is
untrue or misleading in any material respect, provided that the Management
Company shall have previously given written notice to the Medical Group
describing in reasonable detail the nature of the item in question and the
Medical Group shall not have cured such matter within thirty (30) days of
such notice, or (d) in the event the Medical Group is excluded from the
Medicaid or Medicare program for any reason and the Medical Group has not
successfully appealed such exclusion within 120 days after the
effectiveness thereof.
13.3. Termination by Medical Group or Management Company.
The Medical Group and the Management Company shall each have the right
to terminate this Agreement effective immediately
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by giving written notice of termination to the other party pursuant to
Section 28 of this Agreement.
13.4. Effect of Termination.
(a) Upon the termination of this Agreement in accordance with the
terms hereof, neither party hereto shall have any further obligation or
liability to the other party hereunder, except as provided in Sections
3.15(c), 5.3(b) (as modified by Section 13.4(b) below), 13.5, 26 and this
Section 13.4, and except to pay in full and satisfy any and all outstanding
obligations of the parties accruing through the effective date of
termination.
(b) Upon the termination of this Agreement, the Annual Medical Group
Compensation Amount described in Section 5.3(b) shall be calculated on or
before the end of the fourth month following the termination date, rather
than on or before April 30 as specified in Section 5.3(b), and the
computation made under such Section shall be made with respect to the
portion of the year ending on the termination date (if the termination date
is other than December 31); provided, however, that in the event the
Medical Group terminates this Agreement pursuant to Section 13.1, such
calculation shall be made within 90 days following such termination. In
making such computation, all Collections during January, February, and
March of such year shall be excluded, and all Collections during the
three-month period following termination shall be included. All Collections
during the three-month period following termination shall continue to be
owned by the Management Company (and the Medical Group shall immediately
forward any amounts received in connection therewith to the Management
Company) and all Collections thereafter shall be owned by the Medical
Group. Any payment required under the terms of Section 5.3(b)(ii) shall be
made within fifteen (15) days after the date by which the foregoing
calculation is to be made, rather than on May 15.
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(c) Upon termination of this Agreement, the Management Company agrees
to deliver to the Medical Group upon request by the Medical Group, a
Financing Statement amending the terms of any Financing Statement filed
with the Secretary of State of the State of Florida, excluding from the
collateral thereunder any accounts receivable generated after the date of
termination of this Agreement.
(d) Notwithstanding anything contained herein to the contrary, in the
event that the Medical Group terminates this Agreement pursuant to Section
13.1(e) hereof, the Medical Group shall deliver to the Management Company
an amount in cash or by certified or cashier's check equal to
$3,704,933.69, which amount shall, upon delivery to the Management Company
of both Medical Group Promissory Notes, be decreased by an amount equal to
the sum of the outstanding balance (including principal and interest) of
each Medical Group Promissory Note. The Medical Group shall also cause each
physician affiliated with the Medical Group who received shares of capital
stock of the Management Company in connection with the execution and
delivery of this Agreement to, and each such physician shall, return and
deliver to the Management Company the certificates representing all of such
shares of capital stock. Certificates delivered shall be duly endorsed for
transfer to the Management Company.
13.5. Repurchase of Assets.
Promptly following termination of this Agreement for any reason, the
Management Company shall sell, transfer, convey, and assign to the Medical
Group, and the Medical Group shall purchase, assume, and accept from the
Management Company, at such price and upon such terms as may be agreed upon
by the parties -- or, if the parties are unable to agree, at fair market
value, determined in the manner set forth below -- all of the following
items which are used in connection with the professional practice and
related activities of the Medical Group and which, in the
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case of items (a), (b), (c) and (d), are physically located in any of the
offices of the Medical Group, subject to any required consent from any
third party having an interest therein but otherwise free and clear of any
liens, claims or encumbrances; provided that any leased equipment or
property shall be assigned to the Medical Group subject to the applicable
lease agreement and any liens granted thereunder:
(a) the Medical Equipment owned by the Management Company and used
solely in connection with the Medical Business;
(b) the furniture, furnishings, trade fixtures, and office equipment
owned by the Management Company and used solely in connection
with the Medical Business;
(c) the Management Company's rights and interests in any equipment
leased by the Management Company for the sole use of the Medical
Group, subject to the Medical Group's assumption of the
obligations accruing thereunder after the date of termination of
this Agreement;
(d) the supplies owned by the Management Company and used solely in
connection with the Medical Business;
(e) the Management Company's rights and interests under all of the
Office Leases, subject to the Medical Group's assumption of the
obligations accruing thereunder after the date of termination of
this Agreement; and
(f) the deposits of the Management Company relating to the Medical
Group.
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Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected
shall select a third appraiser. All of the appraisers shall appraise the
assets, and for purposes of determining the purchase price, the highest and
lowest appraisals shall be disregarded, and the remaining appraisal shall
be used. Notwithstanding anything contained herein to the contrary, the
consideration payable by the Medical Group to the Management Company under
this Section 13.5 shall be reduced by the aggregate amount, if any, payable
by the Management Company to the Stockholders (as such term is defined in
the Restricted Stock Agreements).
13.6. Rescission By Medical Group.
The Medical Group may, in its sole discretion at any time during the
period beginning August 1, 2004 and ending August 31, 2004 (such 30-day
period being referred to herein as the "Rescission Period"), rescind (the
"Rescission Option") this Agreement and disengage itself from its
obligations under this Agreement. The Medical Group may exercise its
Rescission Option during the Rescission Period by giving written notice
(the "Rescission Notice") to the Management Company and by complying with
the other provisions contained in this Section 13.6. The effective date
(the "Rescission Effective Date") of the rescission shall be that date
which is 30 days after the date of the Rescission Notice; provided that
such date shall not be prior to the seventh anniversary of the Commencement
Date. The Medical Group must comply with the provisions set forth in this
Section 13.6 in order to effectively exercise its Rescission Option.
(a) Effect of Rescission. In the event that the Medical Group
exercises its Rescission Option pursuant to this
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Section 13.6, the procedures set forth in Section 13.4 above shall apply.
(b) Repurchase of Assets. Within 30 days following the Rescission
Effective Date the Management Company shall, subject to the prior receipt
of any required landlord and third party consents, transfer, convey and
assign to the Medical Group, and the Medical Group shall purchase, assume
and accept from the Management Company, the property described in Section
13.5 above according to the provisions set forth in such Section.
(c) Repayment of Consideration. In the event that the Medical Group
elects to exercise its Rescission Option, the Medical Group shall pay to
the Management Company $1,895,625.00, half of which shall be payable in
cash, by cashier's or certified check or by wire transfer of funds
delivered to a depository institution designated by the Management Company
and the other half of which shall be payable by delivery of a promissory
note from the Medical Group to the Management Company, which note shall
bear interest (payable quarterly) at a rate per annum equal to the greater
of either the prime rate announced from time to time by The Chase Manhattan
Bank (National Association) plus 1/2% or the "applicable Federal rate" (as
defined in Section 1274(d) of the Internal Revenue Code) in effect from
time to time and shall be payable in full 12 months after the Rescission
Effective Date.
(d) Repayment of Management Fee. Notwithstanding anything contained
herein to the contrary, in the event that the Medical Group exercises its
Rescission Option under this Section 13.6, the Management Company shall not
be required to refund to the Medical Group any portion of the Management
Fees paid, or due to be paid, by the Medical Group under the terms of this
Agreement for the period beginning on the Commencement Date and ending on
the Rescission Effective Date.
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(e) Waiver of Rescission Option. Notwithstanding anything contained
herein to the contrary, the parties hereto expressly agree and acknowledge
that if the Medical Group shall fail to deliver the Rescission Notice prior
to the end of the Rescission Period, then the Medical Group shall be deemed
to have expressly and irrevocably waived its right to rescind this
Agreement and to disengage itself from its obligations hereunder.
13.7. Nonpayment Termination.
In the event the Management Company fails to pay all outstanding
amounts due under the promissory note dated the Signature Date and
delivered by the Management Company to a Practicing Physician by March 31,
1998, such Practicing Physician may cease practicing medicine with the
Medical Group and must, on the date of such cessation of practice, return
to the Management Company (a) in cash or by certified or cashier's check
that amount set forth below opposite the name of such Practicing Physician,
which amount shall, upon delivery to the Management Company of such
promissory note that is in default, be decreased by an amount equal to the
outstanding balance (including principal and interest) of such promissory
note, and (b) stock certificates representing all of the shares of common
stock of the Management Company issued to such Practicing Physician under
the Restricted Stock Agreement, duly endorsed for transfer to the
Management Company.
Physician Name Repayment Amount
-------------- ----------------
Xxxxxx Xxxxxxxxxx, M.D. $353,841.70
Xxxxxxx Xxxxxxxxx, M.D. $397,943.50
Xxxxxx Xxxxxxxx, M.D. $279,804.02
Xxxxxxx XxXxx, M.D. $604,631.73
Xxxxx Xxxxx, M.D. $406,212.73
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SECTION 14.Non-Disclosure of Confidential Information.
14.1. Non-Disclosure.
(a) Neither the Management Company nor the Medical Group, nor their
respective employees, stockholders, consultants or agents shall, at any
time after the execution and delivery hereof, directly or indirectly
disclose any Confidential or Proprietary Information relating to the other
party hereto to any person, firm, corporation, association or other entity,
nor shall either party, or their respective employees, stockholders,
consultants or agents make use of any of such Confidential or Proprietary
Information for its or their own purposes or for the benefit of any person,
firm, corporation or other entity except the parties hereto or any
subsidiary or affiliate thereof. The foregoing obligation shall not apply
to any information which a party hereto can establish (a) to have become
publicly known without breach of this Agreement by it or them, (b) to have
been given to such party by a third party who is not obligated to maintain
the confidentiality of such information, or (c) is disclosed to a third
party with the prior written consent of the other party hereto. Nothing
contained herein shall be construed to prevent any party hereto from
disclosing any Confidential or Proprietary Information of any other party
to its professional advisers for purposes of evaluating, negotiating or
otherwise assisting such party in connection with the transactions
contemplated by this Agreement; provided that such party shall be liable to
such other party for the disclosure by any of its professional advisers of
such other party's Confidential or Proprietary Information, unless such
information falls within one of the categories set forth in clauses (a),
(b) or (c) of the preceding sentence.
(b) For purposes of this Section 14, the term "Confidential or
Proprietary Information" means all information known to a party hereto, or
to any of its employees,
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stockholders, officers, directors or consultants, which relates to the
Transaction Documents, patient medical and billing records, trade secrets,
books and records, supplies, pricing and cost information, marketing plans,
strategies and forecasts. Nothing contained herein shall prevent a party
hereto from furnishing Confidential or Proprietary Information pursuant to
a direct order of a court of competent jurisdiction.
SECTION 15. Non-Competition.
In consideration of the premises contained herein and the consideration to
be received hereunder, and in consideration of and as an inducement to the
Management Company to consummate the transactions contemplated hereby, the
Medical Group hereby (a) agrees to the Non-Competition covenants attached hereto
as Schedule VIII and (b) agrees to require each of the physicians receiving
capital stock of the Management Company as of the date hereof, and each person
who after the date hereof becomes entitled to receive stock (or options to
receive stock) in the Management Company in connection with his or her
performance of services for the Medical Group, to execute a Stockholder
Non-Competition Agreement substantially in the form attached hereto as Exhibit
C.
SECTION 16. Obligations of the Management Company.
16.1. No Practice of Medicine.
The Medical Group and the Management Company acknowledge that certain
Federal and state statutes severely restrict or prohibit the Management
Company from providing medical services. Accordingly, during the Term, the
Management Company shall not provide or otherwise engage in services or
activities which constitute the practice of medicine, as defined in
applicable state or Federal law, except in compliance therewith.
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16.2. No Interference with Professional Judgment.
Without in any way limiting Section 16.1 hereof, during the Term, the
Management Company shall not interfere with the exercise of professional
judgment by any physician or other licensed health care professional who is
a partner, employee, or contractor of the Medical Group, nor shall the
Management Company interfere with, control, direct, or supervise any
physician or other licensed health care professional in connection with the
provision of Medical Group Services. The foregoing shall not preclude the
Management Company from assisting in the development of professional
protocols and monitoring compliance with policies and procedures that have
been instituted in accordance with this Agreement.
16.3. Market Development Limitation.
(a) The Management Company shall not at any time during the period
beginning on the Commencement Date and ending on May 31, 1998 (the
"Exclusivity Period"), without the prior written consent of the Medical
Group (which consent shall not be unreasonably withheld), provide
management services substantially similar to those provided to the Medical
Group hereunder to any orthopedic surgeon or group of orthopedic surgeons
(other than OSA and Lauderdale Orthopaedic Surgeons) that practices in the
Combined Exclusivity Area (as hereinafter defined) nor shall the Management
Company employ any such orthopaedic surgeon; provided, however, that
notwithstanding the foregoing restrictions, the Management Company may,
without the consent of the Medical Group, provide contract management
services to an independent physician association. In the event that the
Medical Group has combined with OSA on or before May 31, 1998, the
Exclusivity Period shall be extended to August 31, 2000; provided, that if
the Medical Group, as combined, consists of at least 15 practicing
orthopedic surgeons as of August 31, 2000, the Exclusivity Period shall
extend throughout the Term, but if the Medical Group, as
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combined, consists of less than 15 practicing orthopedic surgeons as of
such date, the Exclusivity Period shall terminate as of August 31, 2000. As
used herein, the "Combined Exclusivity Area" means and includes the
physical land area bounded on the north by Lake Worth Road, bounded on the
south by McNab Road, bounded on the east by the Atlantic Ocean and bounded
on the west by the Everglades.
(b) In the event that the Medical Group and OSA have not combined on
or before May 31, 1998, the Exclusivity Period shall be extended to August
31, 2000 and the boundaries for such exclusivity shall be reduced from the
Combined Exclusivity Area to the Simplified Exclusivity Area (as
hereinafter defined), provided, that if the Medical Group has increased the
number of practicing orthopedic surgeons within the Medical Group to seven
(7) by August 31, 2000, then the Exclusivity Period shall extend throughout
the Term in the Simplified Exclusivity Area, but if the Medical Group
consists of less than seven (7) practicing orthopedic surgeons as of such
date, the Exclusivity Period shall terminate as of August 31, 2000. As used
herein, the "Simplified Exclusivity Area" means and includes the physical
land area bounded on the north by Xxxxxx Road, bounded on the south by
McNab Road, bounded on the east by the Atlantic Ocean and bounded on the
west by the Everglades.
(c) Notwithstanding the foregoing, in the event that the Management
Company acquires (the "Acquisition") a company (the "Acquired Company")
that provides management services to orthopaedic surgeons (the "Acquired
Physicians") practicing medicine in the Combined Exclusivity Area or the
Simplified Area, as applicable, the Management Company may provide to such
Acquired Physicians management services substantially similar to those
provided to the Medical Group hereunder if, during the twelve-month period
prior to the consummation of the Acquisition, the Acquired Company earned
at
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least 51% of its revenues through the provision of management services to
medical groups practicing in musculoskeletal specialties; provided,
however, that the Management Company shall not permit the Acquired Company
to solicit any additional orthopaedic surgeons in the Combined Exclusivity
Area or the Simplified Exclusivity Area, as applicable, after consummation
of such Acquisition.
16.4. Physician Advisory Board.
The Management Company is developing an advisory group (the "Physician
Advisory Board") to be comprised of physicians practicing in the State of
Florida. Upon the establishment of the Physician Advisory Board, and in
accordance with the governing documents thereof, the Management Company
shall, or shall cause the Physician Advisory Board to, appoint one
representative from the Medical Group, which representative shall be a
physician equity owner of the Medical Group, to serve on the Physician
Advisory Board.
16.5. Ancillary Services Facilities.
(a) The Management Company shall use its reasonable best efforts to
develop and establish (i) a diagnostic services facility within 12 months
after the Signature Date and (ii) an ambulatory surgery center within 18
months after the Signature Date, each for use by the Medical Group.
(b) The Management Company shall perform or cause to be performed
feasibility studies for a hand center and a joint center for use by the
Medical Group, and if either such center is deemed commercially feasible,
then the Management Company shall use its best efforts to develop and
establish such center within 18 months after the Signature Date.
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16.6. Business Plan.
The Management Company shall cooperate with the Operations Committee
in developing an annual business plan (the "Business Plan") for the Medical
Group. The Business Plan shall include the goals and objectives of the
Medical Group, and will set forth the efforts, methods and resources to be
used by the Management Company and the Medical Group to achieve such annual
goals and objectives. The Business Plan shall be prepared and delivered by
the Operations Committee to the Medical Group and the Management Company
within 60 days after the end of each fiscal year. The Management Company
shall, as soon as reasonably practicable after the end of each year,
deliver to the Operations Committee a written annual report on the
completion of the goals and objectives set forth in the Business Plan.
16.7. Business Combination.
In the event the Medical Group and OSA agree to consummate a business
combination between them, the Management Company shall use its best efforts
to effectuate such combination. The Management Company shall pay all costs
(excluding legal fees and disbursements) actually incurred by any party
hereto relating to the administrative changes required in connection with
such combination.
SECTION 17. Assignment.
The Management Company shall have the right to assign its rights and
delegate its obligations hereunder for security purposes or as collateral
to any affiliate and to assign its rights hereunder to any lending
institution from which the Management Company or any affiliate obtains
financing. Except as set forth in the preceding sentence, neither the
Management Company nor the Medical Group shall have the right to assign
their respective rights and delegate their respective obligations hereunder
without the prior written consent of the other party;
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provided, however, that after the consummation of an initial public
offering of the Management Company's common stock, the Medical Group's
consent shall not be required in connection with any assignment by the
Management Company arising out of or in connection with a sale of all or
substantially all of the stock or assets of the Management Company or the
merger, consolidation, or reorganization of the Management Company.
SECTION 18. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed sufficient if personally delivered,
telecopied (with original sent by mail), sent by nationally-recognized
overnight courier, or by registered or certified mail, return receipt
requested and postage prepaid, addressed as follows:
If to the Management Company:
BMJ Medical Management, Inc.
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000X
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx Xxxxxx, M.D., President
Telecopier: (000) 000-0000;
with a copy to:
X'Xxxxxxxx Graev & Karabell, LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Held, Esq.
Telecopier: (000) 000-0000; and
If to the Medical Group:
Lighthouse Orthopaedic Management Group, Inc.
0000 X.X. 00Xx Xxxxxx
Xxxxxxxxxx Xxxxx, Xxxxxxx 00000
Attention: President
Telecopier: (000) 000-0000;
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with a copy to:
Xxxxxx, Xxxxxxxx & Xxxxx, P.A.
00 Xxxxxxxxx Xxxxxx Xxxxxx
Xxxxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telecopier: (000) 000-0000;
or to such other address as the party to whom notice is to be given may
have furnished to each other party in writing in accordance herewith. Any
such notice or communication shall be deemed to have been received (a) in
the case of personal delivery and telecopier, on the date of such delivery,
(b) in the case of nationally-recognized overnight courier, on the next
business day after the date when sent, and (c) in the case of mailing, on
the third business day following the day on which the piece of mail
containing such communication is posted.
SECTION 19. Benefits of Agreement.
This Agreement shall bind and inure to the benefit of any successors
to or permitted assigns of the Management Company and the Medical Group.
SECTION 20. Severability.
It is the desire and intent of the parties hereto that the provisions
of this Agreement be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement
is sought. Accordingly, if any particular provision of this Agreement shall
be adjudicated by a court of competent jurisdiction to be invalid,
prohibited or unenforceable for any reason, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of
this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction. Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited
or
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unenforceable in such jurisdiction, it shall, as to such jurisdiction, be
so narrowly drawn, without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such provision in
any other jurisdiction.
SECTION 21. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to
the laws and principles thereof, or of any other jurisdiction, which would
direct the application of the laws of another jurisdiction. The parties to
this Agreement agree that jurisdiction and venue in any action brought by
any party hereto pursuant to this Agreement may lie in any Federal or state
court located in Broward County, Florida or the Southern District of
Florida. By execution and delivery of this Agreement, the parties hereto
irrevocably submit to the non-exclusive jurisdiction of such courts for
themselves and in respect of their property with respect to such action.
Nothing in this Agreement shall affect any right that any party may
otherwise have to bring any action or proceeding relating to this Agreement
in the courts of any other jurisdiction. The parties hereto irrevocably
agree that venue would be proper in such court, and hereby waive any
objection that such court is an improper or inconvenient forum for the
resolution of such action. The parties hereto shall act in good faith and
shall refrain from taking any actions to circumvent or frustrate the
provisions of this Agreement.
SECTION 22. Headings.
Section headings are used for convenience only and shall in no way
affect the construction of this Agreement.
SECTION 23. Entire Agreement; Amendments.
This Agreement and the exhibits and schedules hereto contain the
entire understanding of the parties with respect to
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its subject matter, and neither this Agreement nor any part of it may in
any way be altered, amended, extended, waived, discharged or terminated
except by a written agreement signed by all of the parties against whom
enforcement is sought.
SECTION 24. Attorneys' Fees.
In the event of any dispute or controversy arising out of or relating
to this Agreement, the prevailing party shall be entitled to recover from
the other party all reasonable costs and expenses, including attorneys'
fees and accountants' fees, incurred in connection with such dispute or
controversy.
SECTION 25. Counterparts.
This Agreement may be executed in counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
SECTION 26. Waivers.
Any party to this Agreement may, by written notice to the other party,
waive any provision of this Agreement. The waiver by any party of a breach
of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
SECTION 27. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections
3.3(f), 11, 12.3, 12.4, 13, 14, 15, 18, 19, 20, 21, 23, 24 and this Section
27 shall survive any expiration or termination of this Agreement.
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SECTION 28. Contract Modification for Prospective Legal Events.
In the event that legal counsel for either party determines (the
"Legal Determination") that the ability of the parties to fulfill their
material obligations hereunder are materially and adversely impacted by any
change in Federal, state or local law, rules, regulations or any published
official interpretation of any of the foregoing, as applied to this
Agreement, and such Legal Determination is confirmed in writing by
independent legal counsel jointly selected by the parties, then the parties
shall negotiate in good faith to amend this Agreement to avoid such
materially adverse impact, while maintaining the material economic benefits
intended to be conferred hereby, if possible. If this Agreement is not so
amended within thirty (30) days after confirmation by the independent legal
counsel, then this Agreement may be terminated by either party. The fees
and expenses of the independent counsel shall be borne equally by the
parties if such independent counsel confirms the Legal Determination, and
shall be borne solely by the initiating party if the Legal Determination is
not so confirmed. Each party shall pay its own legal costs and fees in
connection with the foregoing.
SECTION 29. Transfer of Management Services.
Each Practicing Physician acknowledges that in the event such
physician elects to practice medicine separate from the Medical Group, such
physician will enter into a management services agreement with the
Management Company pursuant to which the Management Company will provide
services substantially similar to those set forth in this Agreement for
such physician's new medical practice, and such physician will pay the
Management Company a fee equal to twelve and one-half percent (12.5%) of
the Collections of such new medical practice as compensation therefor.
Notwithstanding the foregoing, no Practicing Physician shall be subject to
the terms of this covenant in the event that
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such Participating Physician separates from the Medical Group due to the
Management Company's failure to pay all outstanding amounts due under that
certain promissory note dated the Signature Date between the Management
Company and such Practicing Physician by March 31, 1998.
* * * * *
IN WITNESS WHEREOF, the parties have duly executed this Management
Services Agreement as of the date first above written.
LIGHTHOUSE ORTHOPAEDIC ASSOCIATES, P.A.
By: /s/ Xxxxxxx Xxxxxxxxx, M.D.
-------------------------------------
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By: /s/ Xxxxxx X. Xxxxxxx
-------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: VP
Acknowledged and Agreed to
(as to Sections 4, 5.1, 6, 9.7,
12.2, 13.7, 14, 15 and 29):
/s/ Xxxxx Xxxxx
------------------------------
Xxxxx Xxxxx, M.D.
/s/ Xxxxxxx Xxxxxxxxx, M.D.
------------------------------
Xxxxxxx Xxxxxxxxx, M.D.
/s/ Xxxxxxx XxXxx
------------------------------
Xxxxxxx XxXxx, M.D.
/s/ Xxxxxx Xxxxxxxx
------------------------------
Xxxxxx Xxxxxxxx, M.D.
/s/ Xxxxxx Xxxxxxxxxx
------------------------------
Xxxxxx Xxxxxxxxxx, M.D.
