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MANAGEMENT SERVICES AGREEMENT
BETWEEN
VALLEY SPORTS SURGEONS, INC.
AND
VALLEY SPORTS & ARTHRITIS SURGEONS, P.C.
Effective as of September 1, 1997
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TABLE OF CONTENTS
Page
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SECTION 1 RETENTION OF THE MANAGEMENT COMPANY ........................... 2
1.1. Retention .................................................... 2
1.2. Exclusivity .................................................. 2
1.3. Relationship of Parties ...................................... 2
1.4. No Referral Obligation ....................................... 3
SECTION 2 TERM .......................................................... 3
SECTION 3 MANAGEMENT SERVICES ........................................... 3
3.1. Management Services Generally ................................ 3
3.2. Premises ..................................................... 5
3.3. Equipment .................................................... 7
3.4. New Ancillary Services ....................................... 9
3.5. Administration, Finance and Accounting ....................... 11
3.6. Billing and Collection ....................................... 14
3.7. Administrative Personnel ..................................... 18
3.8. Technical Personnel; Leased Employees ........................ 20
3.9 Medical Personnel Recruiting ................................. 21
3.10 Inventory and Supplies ....................................... 22
3.11. Taxes ........................................................ 23
3.12. Information Systems Management ............................... 23
3.13. Use of New Technologies in the Practice of Medicine .......... 24
3.14. Public Relations; Marketing and Advertising .................. 24
3.15. Insurance .................................................... 25
3.16. Files and Records ............................................ 25
3.17. Managed Care Contracts ....................................... 26
3.18. Budgets ...................................................... 26
3.19. Force Majeure ................................................ 27
SECTION 4 COSTS, COMPENSATION, AND OTHER PAYMENTS ....................... 27
4.1. Ownership of Accounts; Security .............................. 27
4.2. Bank Accounts ................................................ 28
4.3. Medical Group Compensation ................................... 28
4.4. Management Fee ............................................... 33
4.5. Management Company Costs ..................................... 34
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4.6. New Medical Office Start-Up Costs ............................ 37
4.7. Medical Group Costs .......................................... 39
4.8. New Ancillary Services Costs ................................. 40
4.9. Review and Audit of Books and Records ........................ 43
4.10. Start-Up Period .............................................. 44
4.11. New Physician Compensation Costs ............................. 44
SECTION 5 REPRESENTATIONS AND WARRANTIES OF THE MEDICAL GROUP ........... 46
5.1. Organization; Good Standing; Qualification and Power ......... 46
5.2. Equity Investments ........................................... 46
5.3. Authority .................................................... 47
5.4. Financial Information ........................................ 48
5.5. Absence of Undisclosed Liabilities ........................... 49
5.6. Absence of Changes ........................................... 49
5.7. Tax Matters .................................................. 51
5.8. Litigation, Etc. ............................................. 53
5.9. Compliance; Governmental Authorizations ...................... 54
5.10. Accounts Receivable; Accounts Payable ........................ 54
5.11. Labor Relations; Employees ................................... 55
5.12. Employee Benefit Plans ....................................... 56
5.13. Insurance .................................................... 57
5.14. Real Property ................................................ 58
5.15. Burdensome Restrictions ...................................... 58
5.16. Transfer of Medical Practice ................................. 59
5.17. Disclosure ................................................... 59
SECTION 6 REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT COMPANY ...... 60
6.1. Organization, Good Standing and Power ........................ 60
6.2. Authority .................................................... 60
SECTION 7 OPERATIONS COMMITTEE .......................................... 61
7.1. Formation and Operation of the Operations Committee .......... 61
7.2. Authoritative Functions of the Operations Committee .......... 62
7.3. Advisory Functions of the Operations Committee ............... 64
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7.4. Committee Policies and Procedures ............................ 66
SECTION 8 OBLIGATIONS OF THE MEDICAL GROUP .............................. 67
8.1. Compliance with Laws ......................................... 67
8.2. Use of Facility .............................................. 68
8.3. Choice of Braces, Splints, Appliances,
Medical Supplies, and Allografts ............................. 69
8.4. Choice of Radiologists, Anesthesiologists,
Hospitals, Physical Therapy, MRI, and Other
Medical Professionals and Facilities ......................... 68
8.5. Insurability ................................................. 69
8.6. Medicare ..................................................... 69
8.7. Accounts Receivable; Billing ................................. 70
8.8. Medical Personnel Hiring ..................................... 70
8.9. Continuing Education ......................................... 70
8.10. Clinical Research ............................................ 70
SECTION 9 CERTAIN COVENANTS ............................................. 71
9.1. Change of Control ............................................ 71
9.2. Legend on Securities ......................................... 71
SECTION 10 RECORDS ....................................................... 72
10.1. Medical Records .............................................. 72
10.2. Management Business Records .................................. 72
10.3. Access to Records Following Termination ...................... 72
SECTION 11 INSURANCE AND INDEMNITY ....................................... 73
11.1. Professional Liability Insurance ............................. 73
11.2. Life Insurance ............................................... 74
11.3. Indemnification by Medical Group ............................. 74
11.4. Indemnification by Management Company ........................ 75
SECTION 12 TERMINATION ................................................... 75
12.1. Termination by Medical Group ................................. 75
12.2. Termination by Management Company ............................ 76
12.3. Termination by Medical Group or Management Company ........... 77
12.4. Effect of Termination ........................................ 76
12.5. Repurchase of Assets ......................................... 76
SECTION 13 RESCISSION .................................................... 79
13.1. Medical Group's Rescission Option ........................... 79
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SECTION 14 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION .................... 81
14.1. Non-Disclosure ............................................... 81
SECTION 15 NON-COMPETITION ............................................... 82
SECTION 16 OBLIGATIONS OF THE MANAGEMENT COMPANY ......................... 82
16.1. No Practice of Medicine ...................................... 82
16.2. No Interference with Professional Judgment ................... 83
16.3. Surgery Center .............................................. 83
SECTION 17 ASSIGNMENT .................................................... 83
SECTION 18 NOTICES ....................................................... 84
SECTION 19 BENEFITS OF AGREEMENT ......................................... 85
SECTION 20 SEVERABILITY .................................................. 85
SECTION 21 GOVERNING LAW ................................................. 86
SECTION 22 HEADINGS ...................................................... 86
SECTION 23 ENTIRE AGREEMENT; AMENDMENTS .................................. 86
SECTION 24 ATTORNEYS' FEES ............................................... 86
SECTION 25 COUNTERPARTS .................................................. 86
SECTION 26 WAIVERS ....................................................... 87
XXXXXXX 00 XXXXXXXX XX XXXXXXXXX0X ....................................... 87
SECTION 28 CONTRACT MODIFICATION FOR PROSPECTIVE LEGAL EVENTS ............ 87
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INDEX OF DEFINED TERMS
Page No.
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Accounts................................................................... 27
Additional Term............................................................ 3
Administrative Personnel................................................... 19
Agreement.................................................................. 1
Ancillary Division......................................................... 41
Ancillary Service Start-Up Costs........................................... 42
Ancillary Service Start-Up Period.......................................... 42
Annual Draw Amount......................................................... 30
Annual Medical Group Compensation Amount................................... 29
Annual Overpayment......................................................... 30
Annual Shortfall........................................................... 30
Applicable Percentage...................................................... 34
Authorized Management Company Operating Costs.............................. 36
Authorized Signatories..................................................... 15
Balance Sheet.............................................................. 48
Balance Sheet Date......................................................... 48
Bankruptcy Event........................................................... 75
Base Term.................................................................. 3
Billable Items............................................................. 40
Billable Medical Personnel................................................. 39
Xxxxxxxx................................................................... 31
Budgets.................................................................... 26
Code....................................................................... 52
Collateral................................................................. 27
Collections................................................................ 31
Commencement Date.......................................................... 3
Confidential or Proprietary Information.................................... 81
Corporate Overhead......................................................... 36
Documents.................................................................. 15
Draw Percentage............................................................ 28
Employee Plans............................................................. 56
Employees.................................................................. 55
Equipment.................................................................. 8
ERISA...................................................................... 56
Excluded Costs............................................................. 35
Facility................................................................... 68
FF&E....................................................................... 7
Financing Statement........................................................ 27
Former PC.................................................................. 1
Governance Documents....................................................... 11
Guaranteed Minimum Fee..................................................... 33
Internal Financial Statements.............................................. 48
Lender..................................................................... 27
Management Business........................................................ 1
Management Company......................................................... 1
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INDEX OF DEFINED TERMS
Page No.
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Management Company Bank.................................................... 28
Management Company Costs................................................... 34
Management Company Operating Costs......................................... 35
Management Company Transaction Documents................................... 60
Management Fee............................................................. 33
Management Services........................................................ 2
Medical Business........................................................... 1
Medical Equipment.......................................................... 7
Medical Equipment Master Lease Agreement................................... 7
Medical Group.............................................................. 1
Medical Group Bank......................................................... 15
Medical Group Collections Account.......................................... 15
Medical Group Costs........................................................ 39
Medical Group Services..................................................... 31
Medical Group Transaction Documents........................................ 46
Medical Personnel.......................................................... 21
Monthly Draw............................................................... 28
New Ancillary Service Medical Equipment.................................... 41
New Ancillary Services..................................................... 9
New Medical Office......................................................... 38
New Medical Office Start-Up Costs.......................................... 38
New Medical Office Start-Up Period......................................... 38
New Office Division........................................................ 37
New Physician.............................................................. 45
New Physician Compensation................................................. 46
New Physician Net Collections.............................................. 44
Office Lease............................................................... 5
Office Sublease............................................................ 5
Operating Account.......................................................... 28
Operations Committee....................................................... 61
Physician Breakeven Date................................................... 45
Physician Start Date....................................................... 46
Professional Management Cost Savings....................................... 34
Professional Medical Cost Savings.......................................... 34
Professional Practice Cost Savings......................................... 34
Provider Account Agreement................................................. 28
PT Collections............................................................. 34
PT Net Income.............................................................. 34
Real Property.............................................................. 58
Rescission Effective Date.................................................. 79
Rescission Fee............................................................. 80
Rescission Notice.......................................................... 79
Rescission Option.......................................................... 79
Rescission Period.......................................................... 79
Returns.................................................................... 51
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INDEX OF DEFINED TERMS
Page No.
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Review Financial Statements................................................ 48
Signature Date............................................................. 1
Surgery Center............................................................. 83
Tax........................................................................ 52
Taxes...................................................................... 52
Technical Personnel........................................................ 20
Tenant Improvements........................................................ 63
Term....................................................................... 3
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THIS MANAGEMENT SERVICES
AGREEMENT (the "Agreement") is
entered into on October 3, 1997
(the "Signature Date"), effective
as of September 1, 1997, by and
between VALLEY SPORTS & ARTHRITIS
SURGEONS, P.C., a Pennsylvania
professional corporation (the
"Medical Group"), and VALLEY SPORTS
SURGEONS, INC., a Pennsylvania
corporation (the "Management
Company"), with reference to the
facts set forth below.
A. The Medical Group is engaged in the business (the "Medical Business") of
providing orthopedic medical and surgical services and related medical and
ancillary services to the general public. Prior to the Signature Date, the
Medical Business was conducted by the Management Company, as a professional
corporation (the "Former PC"). As referred to herein, the Medical Business shall
include such business as it was conducted by the Former PC prior to the
Signature Date.
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. 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 Management Company is hereby engaged solely to provide management
and administrative services to the Medical Group and shall not interfere with,
control, direct, or supervise the Medical Group or any medical professional
employed by the Medical Group in connection with the provision of professional
medical services.
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1.4. No Referral Obligation.
The parties agree that the benefits to the Medical Group hereunder do not
require, are not payment for, and are not in any way contingent upon the
admission, referral, purchase, or any other arrangement for the provision of any
item or service to or for any of the Medical Group's patients in or from any
medical facility or laboratory or from any other entity owned, operated,
controlled, or managed by the Management Company.
SECTION 2. Term.
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
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.
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
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otherwise provided in this Agreement, including without limitation the
services described in Sections 3.2 through 3.18 hereof.
(b) Without limiting the generality of the provisions of Section
3.1(a), 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 4.7 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 agreements shall, except as otherwise expressly provided in
this Agreement, be in the name of the Management Company. The Management
Company shall have no authority, directly or indirectly, to perform, and
shall not perform or enter into any agreement to perform, 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
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local laws, regulation, and ordinances in connection with the provision of
the Management Services hereunder.
3.2. Premises.
(a) The Medical Group, as of the Commencement Date, leases premises
and provides Medical Group Services (as hereinafter defined) at the
following locations:
0000 Xxxxx Xxxxx Xxxxx Xxxxxxxxx
Suites 101, 103, 303 and 304
Xxxxxxxxx, Xxxxxxxxxxxx 00000
000 Xxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Xxxx Xxx Xxxxxx
Xxxxxxxxxxxx Xxxx
Xxxxxxxxx, Xxxxxxxxxxxx
During the Term, the Management Company shall provide, or arrange for the
provision of, offices for the Medical Group. The Management Company shall
sublease each of such premises to the Medical Group pursuant to a sublease
(each, an "Office Sublease"), substantially in the form attached hereto as
Exhibit A, in consideration of the payments to be made by the Medical Group
under such Office Sublease. 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, and the parties
shall amend the applicable Office Sublease or enter into a new sublease
relating to such new lease; provided, however, that the approval of the
Medical Group, which shall not be unreasonably withheld, shall be required
in the event of any substantial changes in the terms of 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."
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(b) A New Medical Office (as hereinafter defined) may be opened only
upon the agreement of the Medical Group and the Management Company. The
capital costs and start-up costs reasonably required in connection with the
opening of any New Medical Office shall be borne as set forth in Section 4
hereof. The premises of any New Medical Office shall be leased by the
Management Company, in the Management Company's name, and the Management
Company shall sublease such premises to the Medical Group pursuant to an
Office Sublease, in consideration of the payments to be made by the Medical
Group under such sublease. Notwithstanding anything to the contrary
contained in this Agreement, the Management Company may, in its sole
discretion, determine to permanently close any New Medical Office if such
office is not, after 12 months of operation, profitable (as 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.
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(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 7.2 hereof.
(f) The Medical Group acknowledges that the Management Company makes
no warranties or representations, expressed or implied, regarding the
condition of any of the leased premises.
3.3. Equipment.
(a) During the Term, the Management Company shall provide to the
Medical Group, or arrange for the provision of, the diagnostic and
therapeutic medical equipment reasonably required by the Medical Group in
connection with the provision of Medical Group Services (collectively, the
"Medical Equipment"). The Management Company shall acquire (or lease), at
its cost, all Medical Equipment, and the Management Company shall retain
ownership of (or the leasehold interest with respect to) all Medical
Equipment. The Management Company shall lease the Medical Equipment to the
Medical Group pursuant to an equipment lease (a "Medical Equipment Master
Lease Agreement"), substantially in the form attached hereto as Exhibit C,
and in consideration thereof, the Medical Group shall make the rental
payments set forth in the Medical Equipment Master Lease Agreement. As used
herein, the term Medical Equipment shall not include medical equipment used
in connection with a New Ancillary Service (as hereinafter defined).
(b) The Management Company also shall provide or arrange for the
provision of all furniture, furnishings, trade fixtures, and office
equipment 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; provided, however, that fifty
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percent (50%) of the costs of such FF&E shall be charged back to the
Medical Group on a depreciated basis. 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 7.2 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 other encumbrance in or on the Equipment. The
Medical Group shall use the Equipment only in connection with its provision
of the Medical Group Services, and the Medical Group shall not alter,
repair, augment, or remove the Equipment from the premises of the Medical
Group without the prior written consent of the Management Company and any
lessor thereof, which approval may be granted or withheld in the Management
Company's or such lessor's sole discretion. To the extent the Equipment is
utilized by the Medical Group in the provision of Medical Group Services,
the Medical Group shall have the right to exercise reasonable control over
the use of such Equipment.
(e) From time to time, and as reasonably requested by the Medical
Group, the Management Company shall use reasonable efforts to cause the
Equipment manufacturer or its authorized agent to provide service and
maintenance for the Equipment as needed to maintain the Equipment in an
operable condition, so that all such Equipment shall function continuously
(subject to interruptions not reasonably avoidable) in accordance with the
manufacturer's specifications and so that all conditions imposed
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by the manufacturer to maintaining the continued effectiveness of any
warranty on such Equipment shall be satisfied. The Management Company shall
take all reasonable steps to provide that all necessary service and
maintenance is obtained in a prompt and timely manner, so as to minimize
the amount of time that any of the Equipment is not available for usage by
or for patients of the Medical Group.
(f) THE MEDICAL GROUP ACKNOWLEDGES THAT THE MANAGEMENT COMPANY MAKES
NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER RELATING TO THE EQUIPMENT PROVIDED TO THE MEDICAL GROUP PURSUANT
TO THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DESIGN CONDITION OF
THE EQUIPMENT, THE CONFORMANCE THEREOF TO THE PROVISIONS AND SPECIFICATIONS
OF ANY PURCHASE ORDER RELATING THERETO, OR THE FITNESS OF THE EQUIPMENT FOR
ANY PARTICULAR PURPOSE. Nothing in this Agreement shall be construed to
affect or limit in any way the professional discretion of the Medical Group
to select and use any Equipment acquired by the Management Company in
accordance with the terms of this Agreement insofar as such selection or
use constitutes or might constitute the practice of medicine.
3.4. New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Physical therapy;
(ii) Magnetic resonance imaging and/or other imaging services
(except diagnostic radiology);
(iii) Outpatient surgery;
(iv) Densitometry; and
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(v) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Any services provided on a regular basis by the Medical
Group immediately prior to the Commencement Date,
including without limitation (1) plain film and other
diagnostic radiology (if any) and (2) ultrasound for
pediatric patients; and
(B) Any service performed in connection with new Medical
Equipment acquired to replace existing Medical
Equipment so long as the new Medical Equipment performs
substantially the same functions as the replaced
Medical Equipment.
New Ancillary Services do not include the sale or provision of (or
services rendered in connection with) prosthetics, prosthetic devices,
orthotics, braces, splints, appliances, crutches, casts, or any other
supplies or similar items which are billable to patients or payors,
all of which are to be included in the scope of Medical Group
Services.
(b) New Ancillary Services may be established only upon agreement
of the Medical Group and the Management Company. Such agreement shall
be memorialized in a written agreement executed by the parties (or in
a written amendment to this Agreement) under which the Management
Company agrees to provide all of the Management Services described in
this Section 3 in connection with such New Ancillary Service, and for
which the Management Company shall be compensated as described in
Section
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4.8 of this Agreement, except as may otherwise be agreed upon by the
parties.
3.5. Administration, Finance and Accounting.
The Management Company shall provide or arrange for the provision of all
administrative, financial, and accounting functions necessary for the operation
of the Medical Group, including, without limitation, the following (if
applicable):
(A) Creation and maintenance of bank accounts.
(B) Deposits of receipts.
(C) Preparing accounts receivable summary reports,
including various analyses of delinquent accounts.
(D) Receiving appropriate approvals as required by the
Medical Group's articles of incorporation and its
bylaws (collectively, the "Governance Documents") prior
to distribution of payments to outside parties;
provided, however, that the Management Company shall
not be responsible for or liable with respect to
interpretations of the Governance Documents.
(E) Disbursement of payables, including payables of the
Medical Group; provided, however, that payables of the
Medical Group shall be paid from an account of the
Medical Group and not from any of the Management
Company's bank accounts, and all
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checks drawn on any Medical Group account shall be
signed by an authorized representative of the Medical
Group.
(F) Negotiation of vendor contracts.
(G) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and
preparation of financial statements.
(H) Analyzing financial data as reasonably requested by
physicians.
(I) Analyzing potential New Medical Office locations, and
coordinating all functions associated with opening New
Medical Office locations.
(J) Preparing monthly financial and medical practice
statistics reports by satellite office and by
physician.
(K) 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 Governance Documents;
provided, further, that all checks drawn on any Medical
Group bank
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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.
(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
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perform the services set forth in this clause (r).
(S) Coordinating recruitment, interviewing, and hiring of
new physicians.
(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.
(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
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detail in Section 4.1 of this Agreement. In order to facilitate the
collection of the Accounts, the Management Company shall (i) xxxx patients
and third party payors in the Medical Group's name; (ii) collect accounts
receivable resulting from such billing; (iii) receive payments and
prepayments from the Medical Group's patients, Blue Cross and Blue Shield
organizations, insurance companies, health care plans, Medicare, Medicaid,
HMOs, and any and all other third party payors; (iv) take possession of and
deposit into such bank (the "Medical Group Bank") as the Medical Group
designates, in an account established by the Medical Group in the name of
the Medical Group (the "Medical Group Collections Account"), any and all
checks, insurance payments, cash, cash equivalents and other instruments
received for Medical Group Services; and (v) initiate with the consent of
the Medical Group, which consent may be withheld by the Medical Group in
its sole and absolute discretion, legal proceedings in the name of the
Medical Group to collect any Accounts and monies owed to the Medical Group,
to enforce the rights of the Medical Group as a creditor under any contract
or in connection with the rendering of any service, and to contest
adjustments and denials by governmental agencies (or their fiscal
intermediaries) as third-party payors. 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
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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
parameters and criteria established by the Operations Committee (as
hereinafter defined). Additionally, the Management Company shall provide
the following services which are currently being provided by or on behalf
of the Medical Group:
(i) Receive and collect from patients at the time of visit all
appropriate payments and pre-payments, including co-pays, deductibles,
payments for non-covered medical services, and deposits for surgeries
(if applicable), and 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.
-16-
(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 state workers' compensation fee
schedule.
(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), determine that payments from 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
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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.
(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, 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
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following non-medical personnel necessary for the conduct of the Medical
Group's business operations (collectively, "Administrative Personnel"):
(i) Administration;
(ii) Accounting;
(iii) Billing and Collection;
(iv) Secretarial;
(v) Transcription;
(vi) Appointments;
(vii) Switchboard;
(viii) Medical Records;
(ix) Chart Preparation;
(x) Historians;
(xi) Clinic Support; and
(xii) Marketing.
(b) The Management Company shall determine and pay or arrange for the
payment of the salaries and fringe benefits of the Administrative
Personnel, and shall provide or arrange for other personnel services
related to the Administrative Personnel, including, but not limited to,
scheduling, 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.
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(d) All of the personnel services shall be performed by the Management
Company in compliance with all applicable labor laws.
3.8. Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.8, the
Management Company shall employ or contract with, or shall arrange for, and
shall provide to the Medical Group as leased employees, such Technical
Personnel (as defined below) as may 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;
(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. "Medical
Personnel" means:
(i) Physicians (including fellows and residents, if any)
providing professional medical services who are employees or
independent contractors of the Medical Group; and
(ii) Physician assistants, nurse practitioners, and other health
care professionals who provide services that are billable to patients
or third party payors under the name of such health care professional
(as distinguished from services that are billable under the name of
the supervising physician).
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(b) With respect to each of the Medical Personnel, the Management
Company shall verify or arrange for the verification of educational and
employment experience, licensure and insurability, and shall review and
provide the Medical Group with copies of any complaints contained in public
files with applicable state and Federal commissions.
3.10. Inventory and Supplies.
The Management Company shall order and purchase, or arrange for the order
and purchase of, inventory and supplies on behalf of the Medical Group, and such
other ordinary or appropriate materials as the Medical Group reasonably deems to
be necessary for 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.
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:
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(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;
(xii) Paperless medical records; and
(xiii) Bar code chart tracking system.
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(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 7.2(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 developed in such manner as the Management Company deems practical, and
shall be conducted in compliance with applicable laws and regulations governing
advertising by the medical profession.
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3.15. Insurance.
The Management Company shall, to the extent permitted by applicable law,
provide the insurance coverage described in Section 11.1, and may obtain the
insurance described in Section 11.2 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.
(b) The Management Company shall provide all off-site storage of files
and records as required and in conjunction with policies established by the
Operations Committee. The Management Company shall provide the Medical
Group with all requested off-site files and records on a timely basis,
consistent with the policies of the Medical Group in effect immediately
prior to the Commencement Date. Any change in such policies shall be
subject to the approval of the Operations Committee.
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(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.
3.17. Managed Care Contracts.
The Management Company shall solicit, negotiate and administer all managed
care contracts on behalf of the Medical Group based on parameters and criteria
established by the Operations Committee. Such services shall be performed by the
Management Company as agent of the Medical Group, and all managed care contracts
shall be subject to the Medical Group's prior approval of any such contract. The
Management Company shall prepare cost forecasts and other analyses as reasonably
requested by the Medical Group in order to allow the Medical Group to make an
informed decision with respect to each proposed contract.
3.18. Budgets.
The Management Company shall prepare, for the review and approval of the
Operations Committee, annual operating budgets (the "Budgets") reflecting in
reasonable detail projected Xxxxxxxx, Collections, Medical Group Costs, and
Management Company Operating Costs (all as hereinafter defined); provided,
however, that the Medical Group and the Management Company hereby agree that the
budget(s) attached hereto as Schedule II is (are) the Budget(s) for the Medical
Group with respect to the time period(s) set forth thereon. 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.
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3.19. Force Majeure.
The Management Company shall not be liable to the Medical Group for failure
to perform any of the services required herein in the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies, changes in
applicable law or regulations or other events over which the Management Company
has no control for so long as such events continue and for a reasonable time
thereafter.
SECTION 4. Costs, Compensation, and Other Payments.
4.1. Ownership of Accounts; Security.
The Medical Group hereby transfers to the Management Company ownership of
all accounts receivable (other than those accrued as of the Signature Date) and
other rights to payment arising from the provision by the Medical Group of
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 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 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
4.1. The Medical Group shall cooperate with the Lender as reasonably requested
by the Lender in the event that the Lender seeks to enforce its rights and
remedies under
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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.
4.2. 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").
Concurrently herewith, the Medical Group is entering into a provider account
agreement with the Medical Group Bank, the Management Company, and the
Management Company's lender (the "Provider Account Agreement"), in order to
satisfy the foregoing obligation.
4.3. 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
III, and the Draw Percentage shall be adjusted as provided in Section
4.3(a)(ii).
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(ii) Commencing May 15, 1998, and effective May 15 of each year
thereafter, the Draw Percentage shall be adjusted to equal a fraction,
the numerator of which is the Annual Medical Group Compensation Amount
(as hereinafter defined) for the previous year, and the denominator of
which is the total amount of Xxxxxxxx for the previous year.
Additionally, the Management Company may adjust the Draw Percentage
from time to time 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 4.3(b).
(b) Annual Settlement.
(i) On or before April 30, 1998, and on or before each April 30
of each year occurring thereafter, 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.
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(ii) If the Annual Medical Group Compensation Amount thus
determined exceeds (the "Annual Shortfall") the total of the twelve
(12) Monthly Draws paid by the Management Company to the Medical Group
during the previous calendar year (the "Annual Draw Amount"), the
Management Company shall pay to the Medical Group on or before May 15,
an amount equal to the Annual Shortfall. If the Annual Medical Group
Compensation is less (the "Annual Overpayment") than the Annual Draw
Amount, the Management Company shall withhold from the Monthly Draw
otherwise payable to the Medical Group, during each of the following
six (6) months, an amount equal to one-sixth (1/6) of such Annual
Overpayment.
(iii) With respect to this Section 4.3(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
(or portion thereof) shall be deemed to be for Medical Group Services
rendered during the previous calendar year, and all Collections during
April through December shall be deemed to be for Medical Group
Services rendered during the calendar year (or portion thereof) during
the Term in which such Collections were received. The foregoing shall
also apply with respect to determining the Management Fee earned by
the Management Company for the previous calendar year, for purposes of
this Section 4.3(b).
(iv) Notwithstanding anything to the contrary set forth herein,
the first period for which the annual settlement described in this
Section 4.3(b) shall be applicable is the period commencing on the
Commencement Date and ending on December 31, 1997.
(c) For purposes of this Agreement:
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(i) "Xxxxxxxx" means, for any applicable period, the gross
charges of the Medical Group for all Medical Group Services furnished
during such period.
(ii) "Collections" means, for any applicable period, all cash or
cash equivalents received during such period for Medical Group
Services, including any capitation payments, less any refunds paid
during such period.
(iii) "Medical Group Services" means the following services
rendered by, through, or on behalf of the Medical Group: all
professional services rendered by or under the supervision of any of
the Medical Personnel (including professional services rendered in
connection with New Ancillary Services); all plain film and other
diagnostic radiology services rendered by or under the supervision of
any of the Medical Personnel; all other ancillary services (other than
New Ancillary Services); all ultrasound for pediatric patients; all
prosthetics, prosthetic devices, orthotics, braces, splints,
appliances, and other items and supplies that are billable to patients
or to third party payors; depositions, record review services, court
appearances, and independent medical exams; and all other services
provided on a regular basis by the Medical Group immediately prior to
the Commencement Date (except as set forth below).
(iv) It is the intent of the parties that Xxxxxxxx, Collections,
and Medical Group Services not include any of the following:
(A) New Ancillary Services (excluding professional services
rendered by Medical Personnel in connection therewith,
which professional services
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are included under Section 4.3(c)(iii) above);
(B) interest income;
(C) royalties payable to any Medical Group physician for
medical inventions;
(D) fees payable under consulting agreements entered into
by Medical Group physicians;
(E) revenues from presentations, publications, medical
directorships, service as the head of a hospital
department, and endorsements;
(F) proceeds from the sale of any capital assets of the
Medical Group; and
(G) any income from investments.
Notwithstanding anything to the contrary contained 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 VI attached hereto.
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4.4. Management Fee.
(a) The compensation payable to the Management Company for the
provision of Management Services under this Agreement (the "Management
Fee"), which the Management Company may retain from funds received by the
Management Company from time to time at its discretion, shall be equal to
the sum of (i) an amount equal to the Applicable Percentage (as hereinafter
defined) of Collections (excluding PT Collections (as hereinafter
defined)), (ii) an amount equal to fifty percent (50%) of PT Net Income (as
hereinafter defined), (iii) an amount equal to sixty six and two-thirds
percent (66-2/3%) of the Professional Management Cost Savings (as
hereinafter defined) and (iv) any amounts owed to the Management Company
pursuant to Section 4.11 hereof; provided, however, that in the event the
sum of the Applicable Percentage of Collections and 50% of the PT Net
Income shall equal an amount that is less than $466,650 for any calendar
year ending on or before December 31, 2002, the Management Fee for such
period shall, notwithstanding anything to the contrary contained herein,
equal $416,500 (the "Guaranteed Minimum Fee") plus the amounts described in
clauses (iii) and (iv) above; provided further, however, that if the
general rates of reimbursement under Medicare or Medicaid for Medical Group
Services are reduced during the period in which the Guaranteed Minimum Fee
is applicable, the Guaranteed Minimum Fee shall be reduced in accordance
with the following formula: (MB X R) X GF, where:
MB = percentage of Collections from the preceding 12-month period
generated from xxxxxxxx to Medicare or Medicaid, as applicable;
R = percentage reduction implemented by Medicare or Medicaid, as
applicable; and
GF = the Guaranteed Minimum Fee, or $416,500.
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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 VI attached
hereto.
(b) For purposes of this Section 4.4, the following terms have the
meanings set forth below:
(i) "Applicable Percentage" has the meaning set forth on Schedule
IV;
(ii) "Professional Management Cost Savings" means the
Professional Practice Cost Savings described in Section A.1 of
Schedule V;
(iii) "Professional Medical Cost Savings" means the Professional
Practice Cost Savings described in Section A.2 of Schedule V;
(iv) "Professional Practice Cost Savings" means the cost savings
determined in the manner described on Schedule V;
(v) "PT Collections" means those Collections generated by or on
behalf of the Medical Group from the provision of physical therapy
services; and
(vi) "PT Net Income" means an amount equal to the remainder of PT
Collections less the Management Company Operating Costs associated
with such PT Collections.
4.5. 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
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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, 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 4.7 hereof, and any
Excluded Costs (as hereinafter defined) shall not be deemed Management
Company Operating Costs. To the extent that the Medical Group and the
Management Company mutually determine that an expenditure not included in
the Budget needs to be incurred in connection with the provision of
Management Services hereunder, such expenditure shall be included in
Management Company Operating Costs for purposes of this Agreement.
"Excluded Costs" means all of the following costs and expenses incurred in
connection with the provision of the Management Services hereunder:
(i) New Medical Office Start-Up Costs;
(ii) the rent and any other payments due under any of the Office
Leases;
(iii) fifty percent (50%) of the cost of any Medical Equipment
owned or acquired by the Management Company for the use by the Medical
Group;
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(iv) the cost of any FF&E provided by the Management Company to
the Medical Group;
(v) depreciation, amortization, and interest; and
(vi) corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following conditions
are satisfied:
(A) The Corporate Overhead is incurred in lieu of a pre-existing
Management Company Operating Cost;
(B) The amount of such Corporate Overhead does not exceed the
amount of the Management Company Operating Costs being
eliminated; and
(C) The Corporate Overhead is allocated to the Medical Group and
to all other medical groups utilizing such Corporate
Overhead on a pro rata basis.
Any Corporate Overhead with respect to which all of the above
conditions are satisfied shall be considered Management Company
Operating Costs.
(d) For purposes of this Agreement, "Authorized Management Company
Operating Costs" means all Management Company Operating Costs incurred in
any year reduced by any or all of the following, as applicable:
(i) any costs that exceed the applicable Management Company
Operating Costs Budget which are not approved by the Operations
Committee;
-36-
(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 4.9 not to have been reasonably incurred in connection
with the Management Services required to be provided under this
Agreement.
4.6. 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 4.4 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
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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, the
Annual Medical Group Compensation Amount, as applicable, or any
reimbursement for Management Company Operating Costs, and (B) the
Management Company shall be responsible for the deficit, if any, associated
with such New Medical Office.
(b) Except to the extent provided in Section 4.6(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 4.3, 4.4, 4.5, 4.8, or 4.7, respectively.
(c) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and leased to the Medical Group in
accordance with 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 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.
(f) For purposes of this Agreement, "New Medical Office Start-Up
Period" means the period commencing on the date
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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 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.
4.7. Medical Group Costs.
Except as otherwise provided in this Agreement, the Medical Group shall pay
all of the costs specified in this Section 4.7 (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,
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business buy-out disability insurance and continuing
education;
(C) the cost of prosthetics, prosthetic devices, orthotics,
braces, splints, appliances, allografts, x-ray films,
and other items and supplies that are billable to
patients or to third party payors (the "Billable
Items");
(D) all amounts payable for all Medical Equipment under the
Medical Equipment Master Lease Agreement;
(E) any lease payments for New Ancillary Service Medical
Equipment;
(F) all rent amounts payable under the Office Subleases;
and
(G) the cost of any items which are not required to be
provided by the Management Company under this Agreement
and/or which were ordered, purchased, or incurred by
the Medical Group directly, including but not limited
to the cost of accounting, legal, consulting, or other
professional or advisory services, business meetings,
and business taxes.
4.8. 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:
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(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
4.8(a)(iv) below, and after retention of reasonable reserves) derived
from the operation of such Ancillary Division.
(iii) All diagnostic and therapeutic equipment utilized in
connection with any New Ancillary Service ("New Ancillary Service
Medical Equipment") shall be acquired by the Management Company and
leased to the Medical Group pursuant to a Medical Equipment Master
Lease Agreement.
(iv) The Management Company shall pay all of the Ancillary
Service Start-Up Costs (as hereinafter defined). 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
-41-
(60) equal monthly installments of principal, plus interest on the
unrecouped portion of such costs at the prevailing prime rate as set
forth in the Wall Street Journal or at the actual rate paid by the
Management Company with respect to any part of such costs that have
been financed by the Management Company, if applicable.
(v) The Management Company shall provide, in connection with any
New Ancillary Service, the full range of management services described
in this Agreement.
(vi) The xxxxxxxx, collections, costs and expenses relating to
any New Ancillary Service shall not be included in the computations of
Medical Group Compensation, the Management Fee, Management Company
Costs, New Medical Office Start-Up Costs, or Medical Group Costs as
described in Sections 4.3, 4.4, 4.5, 4.6, or 4.7, respectively.
(b) For purposes of this Section 4.8, "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 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 4.8, "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;
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(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.
4.9. 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 five percent (5%) of the total amount of Medical Group
Compensation otherwise payable to the Medical Group for the period covered by
the audit, the cost
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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.
4.10. 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 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.
4.11. 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
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such New Physician for those Medical Group Services performed by such New
Physician, 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, 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 4.7 hereof, and all of the
Xxxxxxxx and Collections generated by such New Physician thereafter shall
be considered Xxxxxxxx and Collections for purposes of this Agreement.
(b) "New Physician" means, any physician who, at any time after the
Commencement Date, becomes affiliated with or employed by the Medical
Group; provided that if such physician becomes affiliated with or employed
by the Medical Group pursuant to a transaction between the Management
Company, or any affiliate of the Management Company, and such physician or
a medical group with which such physician is affiliated in which the
Management Company, or such affiliate, 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 or an affiliate of 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 Medical Group Costs and Management Company
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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 5. 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:
5.1. Organization; Good Standing; Qualification and Power.
The Medical Group is a professional corporation duly organized, validly
existing, and in good standing under the laws of the Commonwealth of
Pennsylvania 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 Assignments of
Lease, the Medical Equipment Master Lease, the Office Subleases,] the Provider
Account Agreement and the Financing Statement (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 Governance Documents, in
effect on the date hereof.
5.2. Equity Investments.
Except as set forth on Schedule 5.2, the Medical Group currently has no
subsidiaries, nor does the Medical Group
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currently own any capital stock or other proprietary interest, directly or
indirectly, in any corporation, association, trust, partnership, joint venture,
or other entity.
5.3. Authority.
The execution, delivery and performance of this Agreement and the other
Medical Group Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Medical Group. This Agreement and the other
Medical Group Transaction Documents have been duly and validly executed and
delivered by the Medical Group and constitute the legal, valid and binding
obligations of the Medical Group enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance of this
Agreement or any other Medical Group Transaction Document by the Medical Group
nor the consummation by the Medical Group of the transactions contemplated
hereby or thereby, nor compliance by the Medical Group with any provision hereof
or thereof will conflict with or result in a breach of any provision of the
formation documents of the Medical Group, cause a default (with due notice,
lapse of 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
-47-
properties or assets or the Medical Business. Except as provided on Schedule
5.3, 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.
5.4. Financial Information.
Schedule 5.4 contains the Former PC's internal statement of assets,
liabilities and stockholders' equity of the Medical Business at August 31, 1997
(the "Balance Sheet"; and the date thereof being referred to as the "Balance
Sheet Date"), and the related internal statements of revenue and expenses for
the 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 Former PC for the
periods ended December 31, 1996, December 31, 1995, and December 31, 1994 (the
"Review Financial Statements"). The Internal Financial Statements and the Review
Financial Statements (i) are in accordance with the books and records of the
Medical Business, (ii) fairly present the financial position of the Medical
Business as of the dates thereof and (iii) have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods covered thereby.
5.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 5.5, as of the Balance Sheet Date, the
Medical Business did not have any material liability of any nature (matured or
unmatured, fixed or contingent, known or unknown) which was not provided for or
disclosed on the Balance Sheet, all liability reserves
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established by the Medical Business on the Balance Sheet were adequate and there
were no loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975) which were not adequately provided for or disclosed on the Balance
Sheet.
5.6. Absence of Changes.
Except as set forth on Schedule 5.6, since the Balance Sheet Date, the
Medical Business has been operated in the ordinary course and consistent with
past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets (including, without limitation, levels of working
capital and the components thereof), liabilities, operations, results of
operations, earnings, business or prospects of the Medical Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Medical Business;
(c) any obligation or liability (whether absolute, accrued, contingent
or otherwise and whether due or to become due) created or incurred, or any
transaction, contract or commitment entered into, by the Medical Business
other than such items created or incurred in the ordinary course of the
Medical Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Medical Business outside the
ordinary course of the Medical Business (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
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(e) any license, sale, transfer, pledge, mortgage or other disposition
of any tangible or intangible asset of the Medical Business except in the
ordinary course of the Medical Business and consistent with past practice;
(f) any write-off as uncollectible of any accounts receivable in
connection with the Medical Business or any portion thereof in excess of
$5,000 in the aggregate exclusive of all normal contractual adjustments
from third party payors;
(g) except for all normal contractual adjustments from third party
payors, any account receivable in connection with the Medical Business in
an amount greater than $10,000 which (i) has become delinquent in its
payment by more than 90 days, (ii) has had asserted against it any claim,
refusal to pay or right of set-off, (iii) an account debtor has refused to
pay for any reason or with respect to which such account debtor has become
insolvent or bankrupt or (iv) has been pledged to any third party;
(h) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Medical
Business;
(i) any general uniform increase in the compensation of employees of
the Medical Group or the Medical Business (including, without limitation,
any increase pursuant to any bonus, pension, profit-sharing, deferred
compensation arrangement or other plan or commitment) or any increase in
compensation payable to any 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
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change in depreciation or amortization policies or rates theretofore
adopted;
(k) any agreement or commitment relating to the sale of any material
fixed assets of the Medical Business;
(l) any other transaction relating to the Medical Business other than
in the ordinary course of the Medical Business and consistent with past
practice; or
(m) any agreement or understanding, whether in writing or otherwise,
for the Medical Business to take any of the actions specified in items (a)
through (l) above.
5.7. Tax Matters.
(a) Except as set forth on Schedule 5.7, (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
Former PC or the Medical Group prior to the date hereof (collectively,
"Returns") have been duly filed; (ii) as of the time of filing, the Returns
correctly reflected in all material respects (and, as to any Returns not
filed as of the date hereof, will correctly reflect in all material
respects) the facts regarding the income, business, assets, operations,
activities and status of the Medical Business and any other information
required to be shown therein; (iii) all Taxes relating to the operations of
the Medical Business that have been shown as due and payable by the Medical
Group on the Returns have been timely paid and filed or adequate provisions
made to the books and records of the Medical Business; (iv) in connection
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with the Medical Business (x) the Medical Group has made provision on the
Balance Sheet for all Taxes payable by the Medical Group for any periods
that end on or before the Balance Sheet Date for which no Returns have yet
been filed and for any periods that begin on or before the Balance Sheet
Date and end after the Balance Sheet Date to the extent such Taxes are
attributable to the portion of any such period ending on the Balance Sheet
Date and (y) provision has been made for all Taxes payable by the Medical
Group for any periods that end on or before the date hereof for which no
Returns have then been filed and for any periods that begin on or before
the date hereof and end after such date to the extent such Taxes are
attributable to the portion of any such period ending on such date; (v) no
tax liens have been filed with respect to any of the assets of the Medical
Business, and there are no pending tax audits of any Returns relating to
the Medical Business; and (vi) no deficiency or addition to Taxes, interest
or penalties applicable to the Medical Group for any Taxes relating to the
operation of the Medical Business has been proposed, asserted or assessed
in writing (or any member of any affiliated or combined group of which the
Medical Group or any previous operator of the Medical Business was a member
for which the Medical Group could be liable).
(b) The Medical Group is not, and the Former PC was not, a foreign
person within the meaning of ss.1.1445-2(b) of the Regulations under
Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code").
(c) The Medical Group has provided the Management Company with true
and complete copies of all Federal, state and foreign Returns of the Former
PC 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
-52-
entity, (i) all Federal, state, local and foreign income taxes (including
any tax on or based upon net income, or gross income, or income as
specially defined, or earnings, or profits, or selected items of income,
earnings or profits) and all Federal, state, local and foreign gross
receipts, sales, use, ad valorem, transfer, franchise, license,
withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property or windfall profits taxes, alternative or add-on minimum
taxes, customs duties or other Federal, state, local and foreign taxes,
fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed
by any taxing authority (domestic or foreign) on such person or entity and
(ii) any liability for the payment of any amount of the type described in
the immediately preceding clause (i) as a result of being a `transferee'
(within the meaning of Section 6901 of the Code or any other applicable
law) of another person or entity or a member of an affiliated or combined
group.
5.8. Litigation, Etc.
Except as set forth on Schedule 5.8, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Medical Group, threatened against the
Medical Group or the Former PC, or any equity owner of the Medical Group or the
Former PC, or in connection with the Medical Business, whether at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality or (b)
judgments, decrees, injunctions or orders of any court, governmental department,
commission, agency, instrumentality or arbitrator against the Medical Group, the
Former PC, their respective assets or affecting the Medical Business. The
Medical Group has delivered to the Management Company all documents and
correspondence relating to matters referred to in said Schedule 5.8.
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5.9. Compliance; Governmental Authorizations.
The Medical Group, the Former PC and the Medical Business have complied in
all material respects with all applicable material Federal, state, local or
foreign laws, ordinances, regulations and orders. The Medical Group has all
Federal, state, local and foreign governmental licenses and permits necessary in
the conduct of the Medical Business, the lack of which would have a material
adverse effect on the Medical Group's ability to operate the Medical Business
after the date hereof on substantially the same basis as presently operated,
such licenses and permits are in full force and effect, the Medical Group has
not received any notice indicating that any violations are or have been recorded
in respect of any thereof, and no proceeding is pending or, to the best
knowledge of the Medical Group, threatened to revoke or limit any thereof. To
the best knowledge of the Medical Group, none of such licenses and permits shall
be affected in any material respect by the transactions contemplated hereby.
Neither the Medical Group, the Former PC 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.
5.10. Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 5.10, all of the accounts
receivable owing to the Medical Group or the Former PC 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 5.10, as of the date
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hereof, there is (i) no account debtor or note debtor of the Medical Group
who or which has refused to pay his, her or its obligations for any reason
or is the subject of a bankruptcy proceeding and (ii) no account receivable
or note receivable of the Medical Business pledged to any third party. The
Medical Group has provided the Management Company with an accounts
receivable aging report dated as of July 31, 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 5.10, there is no account payable or note payable past
due or delinquent in its payment.
5.11. Labor Relations; Employees.
Schedule 5.11 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 5.11, (a) the Medical Group and the Medical Business are not
delinquent in payments to any of the Employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them to
the date hereof or amounts required to be reimbursed to the Employees; (b) upon
termination of the employment of any of the Employees, neither the Medical
Group, the Medical Business nor the Management Company will by reason of
anything done prior to the date hereof, or by reason of the consummation of the
transactions contemplated hereby, be liable for any excise taxes pursuant to
Section 4980B of the Code or to any of the Employees for severance pay or any
other payments; (c) there is no unfair labor practice complaint against the
Medical Group or in connection with the Medical Business pending before the
National Labor Relations Board or any comparable state, local or foreign agency;
(d) there is no labor strike, dispute, slowdown or stoppage actually pending or,
to the best knowledge
-55-
of the Medical Group, threatened against or involving the Medical Group or
Medical Business; (e) there is no collective bargaining agreement covering any
of the Employees; and (f) to the best knowledge of the Medical Group, no
Employee or consultant is in violation of any (i) employment agreement,
arrangement or policy between such person and any previous employer (private or
governmental) or (ii) agreement restricting or prohibiting the use of any
information or materials used or being used by such person in connection with
such person's employment by or association with the Medical Group or the Medical
Business.
5.12. Employee Benefit Plans.
(a) Schedule 5.12 identifies each 'employee benefit plan', as defined
in Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and all other written or oral plans, programs, policies
or agreements involving direct or indirect compensation (including any
employment agreements entered into between the Medical Group or the Medical
Business and any Employee or former employee of the Medical Group or in
connection with the Medical Business, but excluding workers' compensation,
unemployment compensation and other government-mandated programs) currently
or previously maintained or entered into by the Medical Group or in
connection with the Medical Business for the benefit of any Employee or
former employee of the Medical Group or in connection with the Medical
Business under which the Medical Group, any affiliate thereof or the
Medical Business has any present or future obligation or liability (the
"Employee Plans"). The Medical 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 5.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage
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(including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits currently maintained by
the Medical Group or in connection with the Medical Business.
(c) Except as set forth on Schedule 5.12, (i) each Employee Plan has
been operated and administered in compliance with ERISA, the Code and in
accordance with the provisions of all other applicable Federal and state
laws; (ii) all reporting and disclosure obligations imposed under ERISA and
the Code have been satisfied with respect to each Employee Plan; (iii) no
breaches of fiduciary duty or prohibited transactions have occurred with
respect to any Employee Plan; and (iv) all reporting, disclosure and
bonding obligations have been satisfied with respect to each Employee Plan.
(d) The Medical Group has made available to the Management Company a
true and complete copy of each Employee Plan and a true and complete copy
of each of the following documents, prepared in connection with such
Employee Plan; (i) each trust or other funding arrangement, (ii) the two
most recently filed Annual Reports (Form 5500), including attachments, for
each Employee Plan, and (iii) the most recently received IRS determination
letter.
5.13. Insurance.
Schedule 5.13 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 or the Former PC covering the assets,
properties or operations of the Medical Group, the Former PC and the Medical
Business (specifying the insurer, amount of coverage,
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type of insurance, policy number and any pending claims thereunder). All such
policies of insurance are valid and enforceable policies and are outstanding and
duly in force and all premiums with respect thereto are currently paid. Neither
the Medical Group, the Former PC 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,
the Former PC or the Medical Business.
5.14. Real Property.
Schedule 5.14 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.
5.15. Burdensome Restrictions.
Except as set forth on Schedule 5.15, 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).
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5.16. Transfer of Medical Practice.
The Medical Business includes the complete medical practices of Xxxxxx
Xxxxxxx, M.D., Xxxxxx XxXxxxxxxxx, M.D., Xxxx Xxxxxxxxx, M.D., Xxxxx Xxxxxxx,
M.D., and Xxxxxxxxx Xxxxxxxxx, M.D., and such Medical Business, together with
all records associated therewith, has been transferred from the Former PC to the
Medical Group as of the Signature Date. Other than those Medical Group Services
performed by Xx. Xxxxxxx for the Veteran's Administration, the Collection's for
which are payable directly to Xx. Xxxxxxx, none of the foregoing physicians
maintains any medical practice or performs Medical Group Services independently
of the Medical Group.
5.17. Disclosure.
Neither the Medical Group Transaction Documents (including the Exhibits and
Schedules attached thereto) nor any other document, certificate or written
statement furnished to the Management Company by or on behalf of the Medical
Group in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
Except as set forth on Schedule 5.17, there have been no events or transactions,
or information which has come to the attention of the Medical Group, which, as
they relate directly to the Medical Group or the Medical Business, could
reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Medical Group and the Medical
Business.
SECTION 6. Representations and Warranties of the Management Company.
The Management Company represents and warrants to the Medical Group, as of
the Signature Date, as follows:
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6.1. 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 Assignments of Lease, the Office
Subleases, and the Medical Equipment Master Lease Agreement] (collectively, the
"Management Company Transaction Documents"), to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby.
6.2. 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 Certificate of Incorporation or the Bylaws of the Management Company, (b)
cause a default (with
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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 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 6.2, 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.
SECTION 7. Operations Committee.
7.1. 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 up to six (6) members. The Medical Group
shall designate up to three (3) members of the Operations Committee, each of
whom shall be a physician in the Medical Group, and the Management Company shall
designate an equal number of members of the Operations Committee, not to exceed
three (3). The business of the Operations Committee shall
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be conducted in accordance with the policies and procedures described in Section
7.4 hereof.
7.2. Authoritative Functions of the Operations Committee.
The Operations Committee shall perform the following functions, and the
decisions of the Operations Committee with respect to such functions shall be
binding on the Management Company and the Medical Group:
(A) Approve the annual budgets for:
(i) Xxxxxxxx and Collections;
(ii) Medical Group Costs;
(iii) Capital expenditures to be made by the Management Company
in fulfillment of its obligations hereunder;
(iv) Management Company Operating Costs (which, in the absence of
approval by the Operations Committee, shall be increased by
five percent (5.0%) over the total amount approved for the
preceding period)
(A) Approve costs and expenses that exceed the Management
Company Operating Costs Budget.
(B) Establish parameters and criteria with respect to the
establishment and maintenance of relationships with
institutional providers and payors and managed care
contracts (except with respect to the establishment of
professional fees).
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(C) Establish parameters and criteria with respect to:
(v) Xxxxxxxx
(vi) Claims submission
(vii) Collections of fees
(viii) Delinquent account collection policies
(ix) Turnover of delinquent accounts to outside collection
agencies
(x) Write-offs of account balances
(xi) Claim review requests
(xii) "Insurance only" and other courtesy write-off policies
(xiii) Lien account collection policies
(xiv) Student Athlete account policies
(A) Approve the acquisition, replacement, relocation, or
other disposition of Medical Equipment and FF&E,
approve the integration of new technologies into the
professional practice of the Medical Group as
contemplated by Section 3.13 hereof, and approve the
renovation and expansion of any offices of the Medical
Group ("Tenant Improvements"); provided, however, that
the approval of the Management Company also 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
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technologies into the professional practice of the
Medical Group) if and to the extent that the aggregate
cost of such items in any calendar year exceeds five
percent (5%) of the Management Fee for the prior year
(or, with respect to the first year of the Term, the
projected Management Fee for such year), (ii) the
undertaking of any Tenant Improvements relating to
patient care facilities that cost more than $10,000 in
the aggregate at any one of the Medical Group's office
locations in any calendar year, or (iii) the
undertaking of any other Tenant Improvements.
(B) Establish parameters and criteria for off-site storage
of files and records of the Medical Group.
7.3. Advisory Functions of the Operations Committee.
The Operations Committee shall review, evaluate and make recommendations to
the Medical Group and the Management Company with respect to the following
matters:
(A) Identification of physician subspecialties required for
the efficient operation of the Medical Group; advice
regarding all Medical Personnel employment and
recruitment contracts to be utilized by the Medical
Group.
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(B) Development of long-term strategic planning objectives
for the Medical Group.
(C) Public relations, advertising, and other marketing of
Medical Group Services, including design of exterior
signs.
(D) The establishment of fees for professional services and
ancillary services rendered by the Medical Group.
(E) Access and quality issues pertaining to ancillary
services.
(F) Insurance limits and insurance coverage of the Medical
Group and the Management Company, as such coverage may
relate to Medical Group operations and activities.
(G) Any matters arising in connection with the operations
of the Medical Group that are not specifically
addressed in this Agreement and as to which the
Management Company or the Medical Group requests
consideration by the Operations Committee.
The recommendations of the Operations Committee with respect to the matters
described in this Section 7.3 are intended for the advice and guidance of the
Management Company and the Medical Group, and except as provided herein, the
Operations Committee does not have the power to bind the Management Company or
the Medical Group. Where discretion with respect to any matters is
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vested in the Management Company or the Medical Group under the terms of this
Agreement, the Management Company or the Medical Group, as the case may be,
shall have ultimate responsibility for the exercise of such discretion,
notwithstanding any recommendation of the Operations Committee. The Management
Company and the Medical Group shall, however, take such recommendations of the
Operations Committee into account in good faith in the exercise of such
discretion.
7.4. Committee Policies and Procedures.
(a) The Medical Group shall designate one of its members to act as
Chairman of the Committee, and the Management Company shall designate one
of its members to act as Vice Chairman. Each party may substitute or change
its designated Operations Committee members at any time upon notice to the
other party, and any Operations Committee member may designate his or her
own substitute at any meeting without notice. Each member shall have one
vote and shall have the right to grant his or her proxy to another member
of the Operations Committee. The Chairman, if present, shall preside at all
meetings of the Operations Committee. In the absence of the designated
Chairman, 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 7.4.
(b) The Operations Committee may hold meetings without call or formal
notice at such times and places as a quorum of its members may from time to
time determine. A meeting of the Operations Committee also may be called by
at least two (2) members of the Operations Committee or by the Chairman or
Vice Chairman thereof upon at least three (3) days' written notice to the
other members of the Operations Committee. Such notice requirement shall be
deemed waived with respect to any member of the Operations Committee who
attends such meeting. Meetings may be held in person or by telephone. The
Operations
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Committee also may act by written consent as provided in Section 7.4(c).
Minutes shall be kept of all formal actions taken by the Operations
Committee.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of a majority of the members of the Operations
Committee present or represented by proxy at the applicable meeting. A
quorum of the Operations Committee shall be a majority of the 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 all of the members (in person or by proxy) must sign any written
consent.
SECTION 8. Obligations of the Medical Group.
The Medical Group shall perform the following obligations during the Term:
8.1. Compliance with Laws.
The Medical Group shall provide professional services to patients in
compliance at all times with those ethical standards, laws and regulations to
which they are subject, including, without limitation, Medicaid and Medicare
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
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other person or entity, the Medical Group shall immediately inform the
Management Company of such action and its underlying facts and circumstances.
8.2. Use of Facility.
The Medical Group shall use and occupy any Facility (as defined below)
exclusively for the practice of medicine, and shall comply with all applicable
Federal, state and local rules, ordinances and standards of medical care. The
medical practice or practices conducted at any Facility described in clause (i)
of the definition of the term "Facility" shall be conducted solely by Medical
Personnel associated with the Medical Group, and no other physician or medical
practitioner shall be permitted to use or occupy any Facility described in
clause (i) below without the prior written consent of the Management Company,
which consent shall not be unreasonably withheld or delayed. The term "Facility"
shall mean (i) any medical 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.
8.3. 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.
8.4. 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,
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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.
8.5. 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 two business days any Medical Personnel who is not insurable or who loses
his or her malpractice insurance eligibility. The Medical Group shall notify the
Management Company in writing of any change in the insurance status of any
Medical Personnel within two days after the Medical Group receives notice of any
such change. The Medical Group shall require all Medical Personnel to
participate in an on-going risk management program.
8.6. Medicare.
The Medical Group shall cause all physicians to be participating providers
and accept assignment under Medicare.
8.7. 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
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with respect to the fee tickets prepared by such Medical Personnel.
8.8. 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.
8.9. 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.
8.10. 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.
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SECTION 9. Certain Covenants.
9.1. Change of Control.
During the Term of this Agreement, the Medical Group shall not enter into
any single transaction (or group of related transactions undertaken pursuant to
a common plan) involving the admission of new partners or 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.
9.2. 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
VALLEY SPORTS & ARTHRITIS SURGEONS, P.C., A PENNSYLVANIA
PROFESSIONAL CORPORATION, AND VALLEY SPORTS SURGEONS, INC., A
PENNSYLVANIA 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 10. Records.
10.1. 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.
10.2. 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.
10.3. 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 10.1 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 10.2 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 11. Insurance and Indemnity.
11.1. Professional Liability Insurance.
During the Term, the Management Company shall, to the extent permitted by
applicable law, procure and maintain for the benefit of itself and the Medical
Group comprehensive professional liability insurance providing for (a) general
liability coverage and (b) medical malpractice coverage with limits of not less
than $250,000 per claim and with aggregate policy limits of not less than
$750,000 (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 after the Commencement Date relating to events or occurrences at any
time prior thereto. The parties hereto acknowledge that the Management Company
is procuring the malpractice insurance referenced herein to ensure that the
Management Company has protection in the event it is sued as a result of an act
or omission of an employee of the Medical Group. The Management Company shall
pay the premiums for such general and medical malpractice liability coverage,
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.
11.2. Life Insurance.
The Management Company may, at its option, obtain a $500,000 life insurance
policy for each duly licensed physician
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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.
11.3. 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 any Medical Group Transaction Document by the Medical Group and/or
the Medical Personnel and/or their respective agents and/or subcontractors
(other than the Management Company) during the Term.
11.4. Indemnification by Management Company.
The Management Company shall indemnify, hold harmless and defend the
Medical Group, its partners, members, officers, directors, stockholders,
employees, agents and independent contractors from and against any and all
liabilities, losses, damages, claims, causes of action and expenses (including
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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, employees
and/or subcontractors (other than the Medical Group) during the Term.
SECTION 12. Termination.
12.1. Termination by Medical Group.
The Medical Group may terminate this Agreement effective immediately by
giving written notice of termination to the Management Company (a) in the event
of the filing of a petition in voluntary bankruptcy or an assignment for the
benefit of creditors by the Management Company or upon other action taken or
suffered, voluntarily or involuntarily, under any Federal or state law for the
benefit of debtors by the Management Company, except for the filing of a
petition in involuntary bankruptcy against the Management Company which is
dismissed within ninety (90) days thereafter (a "Bankruptcy Event"), (b) in the
event the Management Company shall default in any material respect in the
performance of any duty or obligation imposed upon it by this Agreement and the
Management Company shall not have taken reasonable action commencing curing of
such default within thirty (30) days after written notice thereof has been given
to the Management Company by the Medical Group or the Management Company does
not thereafter diligently prosecute such action to completion; or (c) in the
event that any of the representations and warranties made by the Management
Company in Section 6 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
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the item in question and the Management Company shall not have cured such matter
within thirty (30) days of such notice.
12.2. Termination by Management Company.
The Management Company may terminate this Agreement effective immediately
by giving written notice of termination to the Medical Group (a) in the event of
a Bankruptcy Event relating to the Medical Group, (b) in the event the Medical
Group shall default in any material respect in the performance of any duty or
obligation imposed upon it by this Agreement and the Medical Group shall not
have taken reasonable action commencing curing of such default within thirty
(30) days after written notice thereof has been given to the Medical Group by
the Management Company or the Medical Group does not thereafter diligently
prosecute such action to completion, (c) in the event that any of the
representations and warranties made by the Medical Group in Section 5 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.
12.3. Termination by Medical Group or Management Company.
The Medical Group and the Management Company shall each have the right to
terminate this Agreement effective immediately by giving written notice of
termination to the other party pursuant to Section 28 of this Agreement.
12.4. 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,
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except as provided in Sections 3.16(c), 4.3(b) (as modified by Section
12.4(b) below), 12.5, 26 and this Section 12.4, 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 4.3(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 4.3(b), and the
computation made under such Section shall be made with respect to the
portion of the year ending on the termination date (if the termination date
is other than December 31). In making such computation, all Collections
during January, February, and March of such year shall be excluded, and all
Collections during the three-month period following termination shall be
included. All Collections during the three-month period following
termination shall 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 4.3(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.
(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 in which the principal place of
business of the Medical Group is located, excluding from the collateral
thereunder any accounts receivable generated after the date of termination
of this Agreement.
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12.5. Repurchase of Assets.
Promptly following termination of this Agreement for any reason, the
Management Company shall sell, transfer, convey, and assign to the Medical
Group, and the Medical Group shall purchase, assume, and accept from the
Management Company, at such price and upon such terms as may be agreed upon by
the parties (or, if the parties are unable to agree, at fair market value,
determined in the manner set forth below) all of the following items which are
used in connection with the professional practice and related activities of the
Medical Group and which, in the case of items (a), (b), (c) and (d), 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 and any lease
agreement and lien granted thereunder:
(A) the Medical Equipment owned by the Management Company;
(B) the furniture, furnishings, trade fixtures, and office
equipment owned by the Management Company;
(C) the Management Company's rights and interests in any
equipment leased by the Management Company, subject to
the Medical Group's assumption of the obligations
accruing thereunder after the date of termination of
this Agreement;
(D) the supplies owned by the Management Company;
(E) the Management Company's rights and interests under all
of the Office Leases, subject to the Medical Group's
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assumption of the obligations accruing thereunder after
the date of termination of this Agreement; and
(F) the deposits of the Management Company relating to the
Medical Group.
Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected shall
select a third appraiser. All of the appraisers shall appraise the assets, and
for purposes of determining the purchase price, the highest and lowest
appraisals shall be disregarded, and the remaining appraisal shall be used.
SECTION 13. Rescission
13.1. Medical Group's Rescission Option.
The Medical Group may, in its sole discretion at any time during the period
beginning September 1, 2004 and ending November 30, 2004 (the "Rescission
Period"), rescind (the "Rescission Option") this Agreement and disengage from
its obligations hereunder in accordance with the provisions set forth in this
Section 13. In order to exercise the Rescission Option the Medical Group must
deliver to the Management Company at any time during the Rescission Period
written notice (the "Rescission Notice") of its intent to so exercise. The
effective date of such rescission (the "Rescission Effective Date") shall be the
date that is 30 days following delivery 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 applicable provisions set forth in
this Section 13 in order to effectively exercise its Rescission Option.
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(a) Effect of Rescission. In the event that the Medical Group
exercises its Rescission Option pursuant to this Section 13, the procedures
set forth in Section 12.4 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
12.5 above according to the provisions set forth in such Section.
(c) Rescission Fee. In the event that the Medical Group exercises the
Rescission Option, the Medical Group shall be required to pay the
Management Company a fee (the "Rescission Fee") in an amount equal to
$1,239,828.00. The Rescission Fee shall be payable to the Management
Company on or before the Rescission Effective Date in cash, by cashier's or
certified check or by wire transfer of funds delivered to a depository
institution designated by the Management Company.
(d) 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.
(e) Discontinuation of Management Fees. The parties hereto acknowledge
that in the event this Agreement is rescinded pursuant to this Section 13,
the Management Company shall not be entitled to any Management Fees
otherwise payable hereunder for Medical Group Services provided by the
Medical Group after the Rescission Effective Date.
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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 to have (a) become
publicly known without breach of this Agreement by it or them, (b) to have
been given to such party by a third party who is not obligated to maintain
the confidentiality of such information, or (c) is disclosed to a third
party with the prior written consent of the other party hereto.
(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, 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.
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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 VII and (b) agrees to require each of the physicians affiliated with
the Medical Group to covenant not to compete with the Management Company, which
covenant shall be substantially similar to those covenants of the Medical Group
set forth on Schedule VII.
SECTION 16. Obligations of the Management Company.
16.1. No Practice of Medicine.
The Medical Group and the Management Company acknowledge that certain
Federal and state statutes severely restrict or prohibit the Management Company
from providing medical services. Accordingly, during the Term, the Management
Company shall not provide or otherwise engage in services or activities which
constitute the practice of medicine, as defined in applicable state or Federal
law, except in compliance therewith.
16.2. No Interference with Professional Judgment.
Without in any way limiting Section 16.1 hereof, during the Term, the
Management Company shall not interfere with the exercise of professional
judgment by any physician or other licensed health care professional who is a
partner, 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
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of professional protocols and monitoring compliance with policies and procedures
that have been instituted in accordance with this Agreement.
16.3. Surgery Center.
The Management Company, or an affiliate of the Management Company, shall
offer the equity owners of the Medical Group an opportunity to participate in
the development of an ambulatory surgical center (the "Surgery Center") in
Lehigh County, Pennsylvania. Upon the establishment of the Surgery Center, and
in accordance with the governing documents thereof, the Management Company, or
such affiliate of the Management Company, shall cause a representative of the
Medical Group to be appointed to the executive committee of the Surgery Center.
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; 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.
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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 Medical Group, to:
Valley Sports & Arthritis Surgeons, P.C.
0000 Xxxxx Xxxxx Xxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxx, M.D.
Telecopier: (000) 000-0000;
with a copy to:
Xxxxxxxx, Kluger & Xxxxx
700 Mellon Bank Center
0 Xxxx Xxxxxx Xxxxxx
Xxxxxx-Xxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxxx, Esq.
Telecopier: (000) 000-0000; and
If to the Management Company, to:
Valley Sports Surgeons, Inc.
0000 Xxxxx Xxxxx Xxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: 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;
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
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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 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 Commonwealth of Pennsylvania without giving
effect to the laws and principles
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thereof, or of any other jurisdiction, which would direct the application of the
laws of another jurisdiction.
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 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.
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SECTION 27. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections 3.3(f),
10, 11.3, 11.4, 12, 13, 14, 15, 18, 19, 20, 21, 23, 24 and this Section 27 shall
survive any expiration or termination of this Agreement.
SECTION 28. Contract Modification for Prospective Legal Events.
In the event any state or Federal laws or regulations, now existing or
enacted or promulgated after the date hereof, are interpreted by judicial
decision, a regulatory agency or legal counsel of both parties in such a manner
as to indicate that the structure of this Agreement may be in violation of such
laws or regulations, the Medical Group and the Management Company shall amend
this Agreement as necessary to avoid such violation. To the maximum extent
possible, any such amendment shall preserve the underlying economic and
financial arrangements between the Medical Group and the Management Company. If
an amendment is not possible, either party shall have the right to terminate
this Agreement. Any dispute between the parties hereto arising under this
Section 28 with respect to whether this Agreement violates any state or Federal
laws or regulations shall be jointly submitted by the parties and finally
settled by binding arbitration in Pennsylvania, pursuant to the arbitration
rules of the National Health Lawyers Association Alternative Dispute Resolution
Service. Arbitration shall take place before one arbitrator appointed in
accordance with such rules. The governing law of the arbitration shall be the
law set forth in Section 21. Any decision rendered by the arbitrator shall
clearly set forth the factual and legal basis for such decision. The decision
rendered by the arbitrator shall be non-appealable and enforceable in any court
having jurisdiction thereof. The
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administrative costs of the arbitration and the arbitrator fees shall be equally
borne by the parties. Each party shall pay its own legal costs and fees in
connection with such arbitration.
* * * * *
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IN WITNESS WHEREOF, the parties have duly executed this Management Services
Agreement as of the date first above written.
VALLEY SPORTS & ARTHRITIS
SURGEONS, P.C.
By:
--------------------------
Name:
Title:
VALLEY SPORTS SURGEONS, INC.
By:
--------------------------
Name:
Title:
Acknowledged and Agreed to
(as to Sections 8.7, 11.2, 13,
14 and 15):
/s/ Xxxxxx Xxxxxxx, M.D.
------------------------------
Xxxxxx Xxxxxxx, M.D.
/s/ Xxxxxx XxXxxxxxxxx, M.D.
------------------------------
Xxxxxx XxXxxxxxxxx, M.D.
/s/ Xxxx Xxxxxxxxx, M.D.
------------------------------
Xxxx Xxxxxxxxx, M.D.
/s/ Xxxxx Xxxxxxx, M.D.
------------------------------
Xxxxx Xxxxxxx, M.D.
/s/ Xxxxxxxxx Xxxxxxxxx, M.D.
------------------------------
Xxxxxxxxx Xxxxxxxxx, M.D.
