TERM SHEET
1. As soon as reasonably practical, there will be a division of
Reconstructive Orthopaedic Associates II, P.C. ("ROAII"). The surviving
entities shall be ROAII and an entity to be formed by Xxxxxx X. Xxxxx,
Xx., M.D. and Xxxxxx X. Xxxxxxxxxx, M.D. ("BB One").
2. BB One and its physician owners, individually, will enter into a Service
Agreement ("BB One Service Agreement") with Specialty Care Network, Inc.
("SCN"). Except as described below, or otherwise mutually agreed, the BB
One Service Agreement will contain the same terms and conditions as the
existing Service Agreement between Reconstructive Orthopaedic Associates
II, P.C. ("ROAII") and SCN dated November 12, 1996. The BB One Service
Agreement will provide as follows:
(a) BB One's Base Service Fee will equal $XXXXXXX. BB One's percentage
based Service Fee will equal XX% of Practice Net Revenue
("Percentage Service Fee").
(b) In the event that either ROAII's or BB One's (but not both)
Percentage Service Fee does not equal or exceed its respective Base
Service Fee ("Base Fee Deficit") and the other party's Percentage
Service Fee exceeds its Base Service Fee ("Base Fee Surplus"), then
the deficit will be satisfied as follows:
(i) the Base Fee Surplus of the one party will be applied to
offset the amount of any Base Fee Deficit of the other party
("Net Base Fee Deficit") and;
(ii) SCN will forgive one-third of the Net Base Fee Deficit up to
$120,000, the party having the Base Fee Surplus will pay
one-third of the Net Base Fee Deficit up to $120,000, and the
Party having the Base Fee Deficit will pay the remaining
balance of the Net Base Fee Deficit.
(c) In the event that both ROAII and BB One have a Base Fee Deficit,
then the deficit will be satisfied as follows:
(i) SCN will forgive one-third of ROAII's Base Fee Deficit up to
$120,000, BB One will pay to SCN one-third of ROAII's Base Fee
Deficit up to $120,000 and ROAII will pay the remaining
balance of its Base Fee Deficit; and
(ii) BB One will be responsible for paying 100% of its Base Fee
Deficit to SCN.
3. ROAII's existing Service Agreement will be amended as follows:
(a) ROAII's Base Service Fee will equal $XXXXXXX. ROAII's Percentage
Service Fee will equal XX% of Practice Net Revenue.
(b) In the event either ROAII's or BB One's (but not both) Percentage
Service Fee does not equal or exceed its Base Service Fee and the
other party's Percentage Service Fee exceeds its Base Service Fee,
then the deficit will be satisfied as follows:
(i) the Base Fee Surplus of the one party will be applied to
offset the amount of the other party's Base Fee Deficit;
(ii) SCN will forgive one-third of the Net Base Fee Deficit up to
$120,000, the party having the Base Fee Surplus will pay
one-third of the deficit up to $120,000, and the party having
the Base Fee Deficit will pay the remaining balance of its Net
Base Fee Deficit.
(c) In the event that both ROAII and BB One have a Base Fee Deficit,
then the deficit will be satisfied as follows:
(i) SCN will forgive one-third of ROAII's Base Fee Deficit up to
$120,000, BB One will pay to SCN one-third of ROAII's Base Fee
Deficit up to $120,000 and ROAII will pay the remaining
balance of its Base Fee Deficit; and
(ii) BB One would be responsible for paying 100% of its Base Fee
Deficit.
4. Service Fee Adjustment. Until July 15, 1997, BB One shall have the right,
at its election, to cause an amendment to the BB One Service Agreement,
which shall provide the following:
(a) BB One's Base Service Fee will be increased by $XXXXX ("Incremental
Base Service Fee") to equal $XXXXXX.
(b) BB One's Percentage Service Fee will equal XX% of Practice Net
Revenue.
(c) In the event ROAII has a Base Fee Surplus and BB One has a Base Fee
Deficit, then ROAII's Base Fee Surplus shall off-set BB One's Base
Fee Deficit. BB One shall be responsible for paying to SCN any
remaining Net Base Fee Deficit.
(d) In the event BB One has a Base Fee Surplus and ROAII has a Base Fee
Deficit, then BB One's Base Fee Surplus shall off-set ROAII's Base
Fee Deficit. For purposes of determining BB One's Base Fee Surplus
(solely for purposes of calculating this off-set amount), BB One's
Base Service Fee shall be deemed to equal $XXXXXX. ROAII shall be
responsible for paying to SCN any remaining Net Base Fee Deficit.
(e) In the event that both ROAII and BB One have a Base Fee Deficit,
then the respective parties shall be solely responsible for paying
to SCN the entire amount of its Base Fee Deficit.
(f) In the event that BB One elects the provisions of this paragraph 4,
then the ROAII Service Agreement shall be amended to reflect the
provisions of this paragraph 4, as the provisions impact ROAII's
obligations.
5. SCN Stock Xxxxxxx.Xx the event that on or before July 15, 1997, BB One
exercises the election set forth in paragraph 4 above, then SCN will issue
to Xxxxxx X. Xxxxx, Xx., M.D. options to purchase common stock of SCN as
follows:
(a) The number of options shall equal (i) the Incremental Base Service
Fee, multiplied by the Applicable Multiple (hereinafter defined),
(ii) divided by the Applicable Strike Price (hereinafter defined).
In the event BB One elects the provisions of paragraph 4 above prior
to the pricing in SCN's initial public offering ("IPO"), then the
Applicable Multiple will equal five (5). In the event BB One elects
the provisions of paragraph 4 above after the pricing in SCN's IPO,
then the Applicable Multiple will equal eight (8). In the event that
BB One elects the provisions of paragraph 4 above prior to the
pricing in SCN's IPO, the Applicable Strike Price shall equal the
IPO price for SCN's shares. In the event that BB One elects the
provisions of paragraph 4 above after the pricing in of SCN's IPO,
then the Applicable Strike Price will equal the closing bid price of
SCN's Common Stock as reported on the Nasdaq on the date BB One
exercises its election, but not less than $10.00.
(b) The Strike Price for the options will equal Applicable Strike Price.
6. Further Agreements. This Term Sheet and the above described terms are
based upon the assumption that Xx. Xxxxx and Xx. Xxxxxxxxxx will create BB
One and enter into certain agreements. In the event that Xx. Xxxxxxxxxx
does not join with Xx. Xxxxx in forming BB One, then ROAII and SCN will
enter into the above described arrangements with Xx. Xxxxx and an entity
formed by Xx. Xxxxx on terms proportionately consistent with the economic
principles underlying the above described terms. The parties acknowledge
and agree that in the event Xx. Xxxxxxxxxx does not join in BB One with
Xx. Xxxxx (or leaves BB One), then until such time as BB One makes its
elections under paragraph 4 above, BB One's Base Service Fee will equal
$XXXXX and the Percentage Service Fee will equal XX% of Practice Net
Revenue. In the event that Xx. Xxxxxxxxxx does not join in BB One with Xx.
Xxxxx (or leaves BB One), then upon making the election to have the
provisions of paragraph 4 apply, BB One's Incremental Base Service Fee
will equal $XXXXX and the Percentage Service Fee will equal XX%of Practice
Net Revenue.
7. Binding Nature/Binding Arbitration. The parties acknowledge and agree that
this Term Sheet shall be binding on the parties in accordance with its
terms. The parties further agree that in the event additional issues arise
in the process of completing definitive agreements or amendments to
existing agreements, the parties will negotiate in good faith to resolve
such issues. In the event that the respective parties have not resolved
all issues by February 15, 1997, then the parties agree to submit to
binding arbitration before a single arbitrator for the purpose of
resolving such issues. The arbitration will be conducted in Philadelphia,
Pennsylvania, in accordance with the CPR rules for nonbusiness
arbitration. Any such arbitration shall be concluded no later than May 15,
1997.
8. Interim Operations. Until such time as BB One is formed and definitive
agreements or amendments to existing arguments have been finalized, the
parties shall be governed by the existing Service Agreement between ROAII,
the Physician Owners and SCN dated November 12, 1996.
Accepted and Agreed:
Reconstructive Orthopaedic Associates, II, P.C.
By: _________________________________________
Xxxxxxx X. Xxxxxxx, M.D., President
Speciality Care Network, Inc.
By: _________________________________________
Xxxxxxx X. Xxxxxxx, Secretary and
Executive Vice-President of Finance and
Development
_________________________________________
Xxxxxx X. Xxxxx, Xx., M.D.
_________________________________________
Xxxxxx X. Xxxxxxxxxx, M.D.
