EXECUTION COPY
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AMENDED AND RESTATED MANAGEMENT SERVICES AGREEMENT
BETWEEN
BONE, MUSCLE AND JOINT, INC.
AND
LEHIGH VALLEY BONE, MUSCLE AND JOINT GROUP, L.L.C.
Effective as of July 1, 1997
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ATTACHMENTS
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SCHEDULES
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SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation
SCHEDULE IV -- Draw Date and Draw Percentage
SCHEDULE V -- Management Fee -- Applicable Percentage
SCHEDULE VI -- Professional Practice Cost Savings
SCHEDULE VII -- Computation Example
SCHEDULE VIII -- Non-Competition
SCHEDULE 6.2 -- Equity Investments
SCHEDULE 6.3 -- Consent
SCHEDULE 6.4 -- Financial Information
SCHEDULE 6.5 -- Absence of Undisclosed Liabilities
SCHEDULE 6.6 -- Absence of Changes
SCHEDULE 6.7 -- Tax Matters
SCHEDULE 6.8 -- Litigation, Etc.
SCHEDULE 6.10 -- Accounts Receivable; Accounts Payable
SCHEDULE 6.11 -- Labor Relations; Employees
SCHEDULE 6.12 -- Employee Benefit Plans
SCHEDULE 6.13 -- Insurance
SCHEDULE 6.14 -- Real Property
SCHEDULE 6.15 -- Burdensome Restrictions
SCHEDULE 6.16 -- Disclosure
SCHEDULE 7.2 -- Consents
SCHEDULE 7.4 -- Financial Information
SCHEDULE 7.5 -- Absence of Undisclosed Liabilities
SCHEDULE 7.6 -- Absence of Changes
SCHEDULE 7.7 -- Litigation, Etc.
SCHEDULE 7.9 -- Employees
SCHEDULE 7.11 -- Burdensome Restrictions
EXHIBITS
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EXHIBIT A -- Asset Purchase Agreement
EXHIBIT B -- Office Sublease
EXHIBIT C -- Medical Equipment Master Lease Agreement
EXHIBIT D -- Restricted Stock Agreement
THIS AMENDED AND RESTATED
MANAGEMENT SERVICES AGREEMENT (the
"Agreement") is entered into on September 9,
1997 (the "Signature Date"), and effective
as of July 1, 1997, by and between LEHIGH
VALLEY BONE, MUSCLE AND JOINT GROUP, L.L.C.,
a Pennsylvania limited liability company
(the "Medical Group"), and BONE, MUSCLE AND
JOINT, INC., a Delaware corporation (the
"Management Company"), with reference to the
following facts:
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.
B. The Management Company is a corporation engaged in the business (the
"Management Business") of providing non-medical management, administrative,
financial, marketing, information technology, and related services to
professional medical organizations.
C. The Management Company and the Medical Group executed a management
services agreement effective as of July 1, 1996 (the "Original Agreement"). The
parties hereto desire to amend and restate in its entirety the Original
Agreement to reflect certain modifications to their agreement.
D. Concurrently herewith, the Management Company and Orthopaedic
Associates of Bethlehem, Inc. ("OAB"), an entity controlled by the physician
owners of the Medical Group, are entering into an Asset Purchase Agreement (the
"Asset Purchase Agreement"), in the form of Exhibit A attached hereto, pursuant
to which the Management Company is acquiring substantially all of the assets of
OAB, which assets are used by the Medical Group in its delivery of medical
services.
E. 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, intending
to be legally bound, hereby agree as follows:
SECTION 1. Retention of the Management Company.
SECTION 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
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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.
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. The Management Company shall
provide prior written notice to the Medical Group before entering into any
arrangement on behalf, or for the benefit, of the Medical Group with a medical
facility or laboratory controlled, managed or operated by the Management
Company.
SECTION 2. Term.
Provided that the Closing under the Asset Purchase Agreement shall have
occurred as provided therein, the performance of services under this Agreement
shall commence as of July 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
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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 otherwise provided in
this Agreement, including without limitation the services described in Sections
3.2 through 3.17 hereof.
(b) Without limiting the generality of the provisions of
Section 3.1(a), and subject to the further provisions of this Agreement, the
Management Services shall include such management and administrative services as
may be reasonably required in connection with (i) all of the offices (including
New Medical Offices, as hereinafter defined) of the Medical Group, and (ii) all
professional services and all ancillary services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as
described in this Agreement shall be applicable with respect to the items
identified as Medical Group Costs in Section 5.7 hereof, except that such
Medical Group Costs shall be paid by the Medical Group rather than by the
Management Company. Accordingly, the Management Company shall provide
accounting, bookkeeping, and related services with respect to all such costs.
(d) The Management Company may enter into such contracts and
agreements with outside services and suppliers as the Management Company shall
reasonably deem necessary in
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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 local laws,
regulations, and ordinances in connection with the provision of the Management
Services hereunder.
3.2. Premises.
(a) The Medical Group, as of the Commencement Date, provides
Medical Services at the following location:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
(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 5
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 a sublease in the form
of Exhibit B attached hereto (each, an "Office Sublease"), in consideration of
the payments to be made by the Medical Group under such sublease. Each lease
entered into between the Management Company and a landlord is referred to herein
as an "Office Lease." Notwithstanding anything to the contrary contained in this
Agreement, the Management Company may, in its sole discretion,
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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,
communication with the landlords of the respective premises, identification of
potential new locations for Medical Group offices, financial analysis relating
to the opening, closing, and relocation of any offices, arrangement of necessary
repairs, maintenance and improvements, procurement of property insurance,
arrangement of telephone and other utility services, and hazardous waste
disposal, and all other reasonably necessary or appropriate services related to
all of the offices of the Medical Group.
(e) The Management Company also shall provide all necessary or
appropriate leasehold improvements to each of the premises, subject to prior
approval as provided in Section 8.2 hereof.
(f) The Medical Group acknowledges that the Management Company
makes no warranties or representations, expressed or implied, regarding the
condition of any of the leased premises.
3.3. Equipment.
(a) During the Term, the Management Company shall provide to
the Medical Group the diagnostic and therapeutic medical equipment reasonably
required by the Medical Group in
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connection with the provision of Medical Group Services (collectively, the
"Medical Equipment"). The Management Company shall acquire (or lease) and
replace (as necessary), 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 to the Medical
Group all furniture, furnishings, trade fixtures, and office equipment
reasonably required by the Medical Group 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. The Management Fee payable to the
Management Company under this Agreement is intended to compensate the Management
Company for the provision of FF&E for use by the Medical Group. As used herein,
the term FF&E does not include furniture, furnishings, trade fixtures, and
office equipment used in connection with a New Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred
to collectively as the "Equipment." The acquisition, replacement, relocation, or
other disposition of any Equipment shall require prior approval as provided in
Section 8.2 hereof.
(d) The Medical Group's right to use the Equipment shall be
subordinate to the rights of any unaffiliated third
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party lessor or lender 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 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
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SPECIFICATIONS OF ANY PURCHASE ORDER RELATING THERETO, OR THE FITNESS OF THE
EQUIPMENT FOR ANY PARTICULAR PURPOSE. The Management Company shall use its best
efforts to ensure that the information systems technology recommended by the
Management Company for use by, and implemented at the offices of, the Medical
Group is suitable for use by the Medical Group to accomplish the intended
administrative functions. 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
(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
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(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 5.8 of this Agreement, except as may
otherwise be agreed upon by the parties.
3.5. Administration, Finance and Accounting.
The Management Company shall provide or arrange for the provision of
all administrative, financial, and accounting functions necessary for the
operation of the Medical Group, including, without limitation, the following (if
applicable):
(a) Creation and maintenance of bank accounts.
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(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 Operating Agreement (the "Operating
Agreement") 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
Operating Agreement.
(e) Disbursement of payables, including payables of the
Medical Group; provided, however, that payables of
the Medical Group shall be paid from an account of
the Medical Group and not from any of the Management
Company's bank accounts, and all checks drawn on any
Medical Group account shall be signed by an equity
member in the Medical Group or another 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.
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(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)
monthly draws 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 Operating
Agreement; provided, further, that all checks drawn
on any Medical Group bank account shall be signed by
an equity member in the Medical Group or other
authorized representative of the Medical Group.
(l) Calculating physicians' and limited liability
company's annual earnings based on the Medical
Group's profit and loss distribution formulas.
(m) Ongoing day-to-day communication with the managing
member (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 full time equivalent
analysis.
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(r) Sponsoring employee benefit plans and providing
administrative services relating thereto for the
Medical Personnel (as hereinafter defined), provided
that if the Medical Group elects not to participate
in the employee benefit plans established by the
Management Company, the Management Company shall not
be required to perform the services set forth in this
clause (r).
(s) Coordinating recruitment, interviewing, and hiring of
new physicians.
(t) Implementing Medical Group fee schedule increases
and/or decreases.
(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 5.1 of this Agreement. In order to facilitate the collection
of the Accounts, the Management Company shall (i) ▇▇▇▇ 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.
(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 equity members or other authorized signatories (the "Authorized
Partners") of the Medical Group to sign any letters, checks, instruments or
other documents (the "Documents") on behalf of the Medical Group that are
necessary for the Management Company to take the actions specified in this
Section 3.6 and to perform its duties under this Agreement. If the Management
Company notifies the Medical Group that an Authorized Partner 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 take the actions
specified herein or to perform the Management
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Services to the extent caused by the failure of an Authorized Partner 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 ▇▇▇▇ patients, ▇▇▇▇ and submit claims to third party
payors, perform appropriate coding for each ▇▇▇▇, 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
shall obtain all appropriate insurance and other information
required.
(ii) Submit claims utilizing electronic billing
submission, whenever appropriate.
(iii) Perform delinquent account collection calls and
other appropriate follow-up mechanics for delinquent accounts
of all insurance classifications, all in a timely fashion as
determined by the Operations Committee.
(iv) Turn over to outside collection agencies all
delinquent accounts satisfying the criteria established by the
Operations Committee. The Management Company shall also
follow-up on the performance of the outside collection
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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) ▇▇▇▇ workers' compensation medical services at
rates equal to the most recently approved Pennsylvania
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), the Management
Company shall determine that payments received from PPOs and
HMOs are in compliance with their respective contracts with
the Medical Group.
(x) With respect to capitation fee contracts with
HMOs, the Management Company shall:
(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 Medical Group is being
compensated for the proper number
of lives enrolled.
(xi) With respect to lien accounts, the Management
Company shall:
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(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, the Management Company shall follow-up on a timely
basis to ensure that withheld amounts are returned to the
Medical Group, if warranted, and to ensure that amounts not
returned are verified and audited for appropriateness.
(xiv) Coordinate the timely payment of refunds to
patients and third party payors when appropriate.
(xv) Ensure that revenues related to depositions,
record review and court appearances are accounted for,
monitored, followed-up, and ultimately collected.
3.7. Administrative Personnel.
(a) The Management Company shall retain and provide or arrange
for the retention and provision of all non-medical personnel necessary for the
conduct of the Medical Group's business operations (collectively,
"Administrative
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Personnel"), which shall include but not be limited to the following:
(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 the
salaries and fringe benefits of the Administrative Personnel, and shall provide
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 educational and employment experience, licensure, and insurability.
(d) The Administrative Personnel's principal function (the
"Primary Duties") shall be to provide non-medical administrative services to the
Medical Group. Notwithstanding the foregoing, the Medical Group and the
Management Company acknowledge and agree that the Management Company may, from
time
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to time, assign tasks ("Other Tasks") to the Administrative Personnel that
are not directly related to the Primary Duties. The Management Company shall use
its best efforts to insure that the performance of the Other Tasks does not
materially interfere with the performance by any Administrative Personnel of his
or her Primary Duties. In the event that the Management Company during any
calendar year assigns Other Tasks to any Administrative Personnel, (i) the
salary or wages attributable to such Administrative Personnel's time spent on
such Other Tasks shall be excluded from the Authorized Management Company
Operating Costs for such year, and (ii) if so requested in writing by the
Medical Group at any time, the Management Company shall relieve such
Administrative Personnel of his or her responsibility for such Other Tasks.
(e) 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
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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;
(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.
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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).
(b) With respect to each of the Medical Personnel, the
Management Company shall verify 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
sanctioned commissions.
(c) In addition to the foregoing, in connection with the
employment by the Medical Group of any New Physician, the Management Company
will grant to such New Physician an option to purchase that number of shares of
the Management Company's common stock as the Management Company shall, in its
sole discretion, determine to be appropriate; provided, that, in order to
receive the option, such New Physician must execute and deliver to the
Management Company an option agreement and a noncompetition agreement, each in a
form satisfactory to the Management Company.
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3.10. Inventory and Supplies.
The Management Company shall order and purchase inventory and supplies
on behalf of the Medical Group, and such other ordinary or appropriate materials
as the Management Company and the Medical Group may mutually agree is 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 stationary 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:
(a) The payment of the Medical Group's taxes; or
(b) The preparation of any limited liability company
income tax returns.
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
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improvement of the information systems used by the Medical Group in connection
with the provision of the following services and such other services as may be
reasonably determined by the Operations Committee to be necessary for the
operation of the Medical Business:
(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.
(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.
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3.13. Use of New Technologies in the Practice of Medicine.
The Management Company shall utilize reasonable efforts to promote the
integration of new technologies into the professional practice of the Medical
Group, including, without limitation, the use of satellite and other
telecommunications services that permit the provision of remote consultations,
virtual operations, and other professional services; provided, however, that the
foregoing shall be subject to the terms of Section 8.2(e) hereof.
3.14. Public Relations; Marketing and Advertising.
The Management Company shall develop and implement community outreach
programs and public relations programs designed to educate the patient
population regarding the Medical Group, the availability of its medical
services, and the availability in terms of any managed care programs in which
the Medical Group participates. The Management Company also shall develop and
implement marketing and advertising programs as reasonably required to promote
and expand the Medical Business, subject to any approved budgets; provided that
during the period beginning April 1, 1997 and ending March 31, 1998, the
Management Company shall pay the reasonable expenses for such marketing and
advertising and shall not charge the Medical Group for any of such costs. 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. The Management
Company shall initially engage a professional marketing and advertising firm to
assist with the development of such marketing and advertising programs.
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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 12.1, and may obtain
the insurance described in Section 12.2 of this Agreement.
3.16. Files and Records.
(a) To the extent permitted by applicable law, the Management
Company shall supervise and maintain custody of all files and records relating
to the operation of the business of the Medical Group, including, without
limitation, accounting, billing, collection, or patient medical records. The
management of all files and records shall be in compliance with applicable state
and Federal statutes and regulations. 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 ▇▇▇▇▇▇▇▇, Collections, Medical Group Costs, and
Management Company Operating Costs (all as hereinafter defined); provided,
however, that the Medical Group shall provide the Management Company with a
proposed Budget covering the initial three-month period under this Agreement.
The initial Budget, which shall be applicable to the period commencing on the
Commencement Date and ending three (3) months thereafter, is attached hereto as
Schedule II. 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 any Budget is applicable.
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3.17. 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. Consideration.
In consideration of the Medical Group's entering into this Agreement,
the Management Company shall provide to each person identified on Schedule III
attached hereto (the "Eligible Parties") the consideration set forth opposite
such person's name on Schedule III.
SECTION 5. Costs, Compensation, and Other Payments.
5.1. Ownership of Accounts; Security.
The Medical Group hereby transfers to the Management Company ownership
of all accounts receivable and other rights to payment arising from the
provision by the Medical Group of orthopedic medical and surgical services and
related medical 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 first priority 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 for the
benefit of the Management Company evidencing the foregoing transfer of
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the Accounts. The Medical Group acknowledges that the Lender is a third party
beneficiary of the benefits granted to the Management Company under this Section
5.1. The Medical Group shall cooperate with the Lender as reasonably requested
in the event the Lender seeks to enforce its rights and remedies under its
agreement with the Management Company, including granting the Lender access, to
the extent permitted by law, to all books and records associated with the
Collateral. Neither the Management Company nor the Lender shall be required to
give the Medical Group any notice in connection with any loan or related
financing arrangements affecting the Accounts or other Collateral.
5.2. Bank Accounts.
The Medical Group shall instruct the Medical Group Bank to transfer, on
a daily basis, all funds in the Medical Group Collections Account (less the
amount necessary to avoid the payment of bank charges or fees relating to the
failure to maintain a minimum balance in the Medical Group Collections Account)
to a bank (the "Management Company Bank") designated by the Management Company,
for credit to an account in the Management Company's name (the "Operating
Account").
5.3. Medical Group Compensation.
(a) Monthly Draw.
(i) On each Draw Date (as hereinafter defined) during
the Term hereof, the Management Company shall distribute to
the Medical Group an amount equal to a percentage (the "Draw
Percentage") of the Medical Group's total ▇▇▇▇▇▇▇▇ (as
hereinafter defined) for Medical Group Services provided
during the previous month (the "Monthly Draw"). The Draw Date
and the initial Draw Percentage are as set forth on Schedule
IV, and the Draw Percentage shall be adjusted as provided in
Section 5.3(a)(ii).
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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 ▇▇▇▇▇▇▇▇ for the previous year.
(b) Annual Settlement.
(i) On or before April 30 of each year beginning
1998, the Management Company shall determine 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 calculation:
(A) The total Collections for all
Medical Group Services rendered
during such year, minus
(B) the sum of the following:
(1) the Management Fee earned
by the Management Company
for the previous calendar
year; and
(2) the Authorized Management
Company Operating Costs
(as hereinafter defined)
incurred by the Management
Company during such year.
(ii) If the Annual Medical Group Compensation Amount
thus determined exceeds (the "Annual Shortfall") the total of
the twelve (12) Monthly Draws paid by the Management Company
to the Medical Group during the previous calendar year (the
"Annual Draw Amount"), the Management
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Company shall pay to the Medical Group on or before May 15, an
amount equal to the Annual Shortfall. If the Annual Medical
Group Compensation is less (the "Annual Overpayment") than the
Annual Draw Amount, the Management Company shall withhold from
the Monthly Draw otherwise payable to the Medical Group,
during each of the following six (6) months, an amount equal
to one-sixth (1/6) of such Annual Overpayment.
(iii) With respect to this Section 5.3(b), for
purposes of determining the total Collections for all Medical
Group Services provided during any calendar year (or portion
thereof) during the Term, all Collections during January,
February, and March of such year (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 5.3(b).
(iv) Notwithstanding anything to the contrary set
forth herein, the first period for which the annual settlement
described in this Section 5.3(b) shall be applicable is the
period commencing on the Commencement Date and ending on
December 31, 1997.
(c) For purposes of this
Agreement:
(i) "▇▇▇▇▇▇▇▇" means, for any applicable period, the
gross charges of the Medical Group for all Medical Group
Services furnished during such period.
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(ii) "Collections" means, for any applicable period,
all cash or cash equivalents received during such period, net
of refunds paid during such period, for Medical Group
Services.
(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 ▇▇▇▇▇▇▇▇,
Collections, and Medical Group Services not include any of the
following:
(A) New Ancillary Services (excluding
professional services rendered by
Medical Personnel in connection
therewith, which professional
services are included under Section
5.3(c)(iii) above);
(B) interest income;
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(C) royalties payable to any Medical
Group physician for medical
inventions;
(D) fees payable under consulting
agreements entered into by Medical
Group physicians;
(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 clause (E) above, shall be included in ▇▇▇▇▇▇▇▇, 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 activity.
(v) For illustrative purposes only, an example of the
computation of the Annual Settlement is set forth on Schedule
VII attached hereto.
5.4. Management Fee.
(a) The compensation payable to the Management Company for the
provision of Management Services under this Agreement (the "Management Fee"),
which the Management Company may disburse from time to time at its discretion,
shall be equal to the sum of (i) an amount equal to the Applicable Percentage
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(as hereinafter defined) of Collections, and (ii) an amount equal to sixty-six
and two-thirds percent (66-2/3%) of the Professional Management Cost Savings (as
hereinafter defined). For illustrative purposes only, an example of the
computation of the Management Fee is set forth on Schedule VII attached hereto.
(b) For purposes of this Section 5.4, the following terms have
the meanings set forth below:
(i) "Applicable Percentage" has the meaning set forth
on Schedule V;
(ii) "Professional Management Cost Savings" means the
Professional Practice Cost Savings described in Section A.1 of
Schedule VI; provided, however, that if (A) any Professional
Management Cost Savings are directly derived from any vendor
relationships initiated prior to the Commencement Date and
maintained thereafter by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, and (B) the savings
derived therefrom are not a result of any volume discounts or
other benefits obtained by the Management Company through its
relationship or negotiations with such vendor, then such
savings shall not be deemed Professional Management Cost
Savings for purposes of this Section 5.4.; and
(iii) "Professional Practice Cost Savings" means the
cost savings determined in the manner described on Schedule
VI.
5.5. Management Company Costs.
(a) The Management Company shall pay all Management Company
Operating Costs and all Excluded Costs (collectively, the "Management Company
Costs"). All Management Company Costs shall be incurred in the name of the
Management Company, and not in the name of the Medical Group, except as
specifically approved by the Medical Group. Management Company
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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 operating 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 5.7 hereof, and any Excluded
Costs (as hereinafter defined) shall not be deemed Management Company Operating
Costs. To the extent that the Medical Group and the Management Company mutually
determine that an expenditure not included in the Budget needs to be incurred in
connection with the provision of Management Services 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) the cost of any Medical Equipment owned or
acquired by the Management Company for the
use by the Medical Group;
(iv) the cost of any FF&E provided by the
Management Company to the Medical Group;
(v) depreciation, amortization, and interest;
and
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(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;
(ii) any costs with respect to which the Medical
Group has reasonably requested supporting
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documentation or other backup detail which has not been
furnished by the Management Company or which does not
reasonably establish the appropriateness of such costs; and
(iii) any costs that have been determined pursuant to
an audit under Section 5.9 not to have been reasonably
incurred in connection with the Management Services required
to be provided under of this Agreement.
5.6. New Medical Office Start-Up Costs.
(a) The Management Company shall pay, to the extent provided
herein, all New Medical Office Start-Up Costs incurred in connection with the
establishment of any New Medical Office. The Management Company shall create a
separate division (the "New Office Division") for purposes of accounting for the
income, costs, profits, and losses of any New Medical Office. The Management
Company shall utilize generally accepted accounting principles in determining
and accounting for the profits and losses related to the operations of each New
Medical Office. Notwithstanding anything to the contrary contained herein,
Corporate Overhead shall not be included in determining the costs and expenses
associated with any New Medical Office. At the end of the New Medical Office
Start-Up Period (as hereinafter defined), (i) the Management Company shall be
reimbursed for all of the Management Company Operating Costs incurred by the
Management Company for such New Medical Office, (ii) the Management Company
shall be entitled to receive the aggregate Management Fee as described in
Section 5.4 and (iii) the Medical Group shall be entitled to receive the Annual
Medical Group Compensation Amount for such new Medical Office, in each case, as
if such New Medical Office had been any other office of the Medical Group during
the New Medical Office Start-Up Period; provided, however, that notwithstanding
the foregoing, if the aggregate Collections for such New Medical Office during
the New Medical Office Start-Up Period is equal to or less than the New
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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 any reimbursement for Management
Company Operating Costs, the Management Fee or the Annual Medical Group
Compensation Amount, as applicable, and (B) the Management Company shall be
responsible for the deficit, if any, associated with such New Medical Office.
(b) Except to the extent provided in Section 5.6(a) above, the
▇▇▇▇▇▇▇▇, collections, costs and expenses relating to any New Medical Office
shall not, during the New Medical Office Start-Up Period, be included in the
computations of Medical Group Compensation, the Management Fee, Management
Company Costs, Ancillary Services, or Medical Group Costs as described in
Sections 5.3, 5.4, 5.5, 5.8, or 5.7, respectively.
(c) All Medical Equipment utilized at any New Medical Office
shall be acquired by the Management Company and 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 located in the premises
identified in Section 3.2(a) hereof.
(e) For purposes of this Agreement, "New Medical Office
Start-Up Costs" means the following costs incurred in connection with the
establishment of a New Medical Office during the New Medical Office Start-Up
Period: all Management Company Operating Costs and all costs associated with the
development of such New Medical Office other than Medical Group Costs.
(f) For purposes of this Agreement, "New Medical Office
Start-Up Period" means the period commencing on the date that any costs are
incurred in connection with the establishment
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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.
5.7. Medical Group Costs.
Except as otherwise provided in this Agreement, the Medical Group shall
pay all of the costs specified in this Section 5.7 (the "Medical Group Costs").
All Medical Group Costs shall be incurred in the name of the Medical Group, and
not in the name of the Management Company, and shall be paid from an account of
the Medical Group and not from any bank account of the Management Company. The
Medical Group Costs are as follows:
(a) compensation of all Medical Personnel that (i) are
authorized to directly ▇▇▇▇ patients, Medicare,
Medicaid and third party payors and (ii) are employed
directly by the Medical Group (such persons being
referred to herein as the "Billable Medical
Personnel");
(b) any applicable fringe benefits for all Medical
Personnel, including, but not limited to, payroll
taxes, workers' compensation, health insurance
(including drug coverage), dental insurance,
disability insurance, life insurance, 401(k)
retirement plan, business buy-out disability
insurance and continuing education;
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(c) the cost of prosthetics, prosthetic devices,
orthotics, braces, splints, appliances, allografts,
x-ray films;
(d) other items and supplies that are billable to
patients or to third party payors;
(e) all amounts payable for all Medical Equipment under
the Medical Equipment Master Lease Agreement;
(f) any lease payments for New Ancillary Service Medical
Equipment;
(g) all lease amounts payable under all of the Office
Subleases; and
(h) 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.
5.8.. New Ancillary Services Costs.
(a) Any agreement by the parties to establish a New Ancillary
Service as described in Section 3.4 of this Agreement shall (unless otherwise
agreed by the parties) incorporate the following:
(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
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operations of each New Ancillary Service. Notwithstanding
anything to the contrary contained herein, Corporate Overhead
shall not be included in determining the costs and expenses
associated with any New Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division
shall be divided equally between the Medical Group and the
Management Company, and all distributions to the Medical Group
and to the Management Company shall be made in equal amounts
to each from available cash (after payment of all currently
due obligations incurred in connection with such New Ancillary
Division, including, without limitation, any principal and
interest amounts then due and payable under Section 5.8(a)(iv)
below, and after retention of reasonable reserves) derived
from the operation of such Ancillary Division.
(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 following the expiration of the
Ancillary Service Start-Up Period (as hereinafter defined),
the Management Company shall be entitled to recoup all of the
Ancillary Service Start-Up Costs previously paid by the
Management Company in sixty (60) equal monthly installments of
principal, plus interest on the unrecouped portion of such
costs at the 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.
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(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 ▇▇▇▇▇▇▇▇, collections, costs and expenses
relating to any New Ancillary Service shall not be included in
the computations of Medical Group Compensation, the Management
Fee, Management Company Costs, New Medical Office Start-Up
Costs, or Medical Group Costs as described in Sections 5.3,
5.4, 5.5, 5.6, or 5.7, respectively.
(b) For purposes of this Section 5.8, "Ancillary Service
Start-Up Period" means the period commencing on the date that any costs are
incurred in connection with the establishment of the New Ancillary Service,
which date shall not be prior to the date of the agreement establishing such 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 5.8, "Ancillary Service
Start-Up Costs" means the total of all of the following costs incurred in
connection with the establishment of a New Ancillary Service during the
Ancillary Service Start-Up Period (whether such costs would otherwise be
considered Management Company Costs or Medical Group Costs):
(i) Any lease payments for New Ancillary Service
Medical Equipment;
(ii) All costs of acquiring furniture, fixtures, and
office equipment;
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(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.
5.9. Review and Audit of Books and Records.
Each of the parties shall have the right, during ordinary business
hours and upon reasonable notice, to review and make copies of, or to audit
through a qualified certified public accountant approved by the other party
(which approval shall not be unreasonably withheld), the books and records of
the other party relating to the billing, collection, and disbursement of fees,
and the determination of costs, under this Agreement. Any such review or audit
shall be performed at the cost of the requesting party; provided, however, that
in the event that such review or audit requested by the Medical Group discloses
a discrepancy indicating that the Medical Group has actually been underpaid by
an amount in excess of 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 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.
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5.10. Start-Up Period.
Consistent with the provisions of Section 2 of this Agreement, the
parties acknowledge and agree that, in order to facilitate the transition of
responsibilities hereunder, certain requirements and procedures agreed to under
this Agreement may be implemented, in whole or in part and at any time during
the period commencing on the Commencement Date and ending 90 days thereafter
(subject to extension by agreement of the Medical Group and the Management
Company), rather than being fully implemented immediately on the Commencement
Date. Accordingly, the parties further agree that the Management Fee and Monthly
Draw payable in respect of the Management Services and the Medical Group
Services applicable to such period of time shall be computed, and any
appropriate adjustments shall be made, such that no material financial advantage
or disadvantage shall accrue to either party as a result of implementing such
requirements and procedures over the course of such start-up period rather than
immediately on the Commencement Date.
5.11. New Physician Compensation Costs.
Notwithstanding anything contained herein to the contrary, during the
period beginning on the New Physician Start Date (as hereinafter defined) and
ending on the earlier to occur (such earlier date being referred to herein as,
the "Release Date") of (i) the date that is 180 days after the New Physician
Start Date or (ii) the New Physician Breakeven Date (as hereinafter defined),
the Management Company shall be responsible for the payment of all New Physician
Compensation (as hereinafter defined). In the event that the New Physician
Breakeven Date has not occurred by the Release Date, the Medical Group may
request that the Management Company extend the Release Date until the earlier to
occur of (x) the date that is 180 days after the Release Date or (y) the New
Physician Breakeven Date (such period being referred to herein as, the "Extended
Payment Period"). The
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Management Company will grant such request and continue paying the New Physician
Compensation through the Extended Payment Period; provided that the Medical
Group shall reimburse the Management Company the aggregate amount paid during
the Extended Payment Period to or for the benefit of the New Physician. The
Medical Group shall reimburse such amount in six equal monthly installments, the
first of such installments being due on the first day of the month immediately
following the end of the Extended Payment Period. The ▇▇▇▇▇▇▇▇ and Collections
generated by such New Physician for those Medical Group Services performed by
such New Physician shall in all instances be included in determining ▇▇▇▇▇▇▇▇
and Collections for purposes of this Agreement. As of the Release Date or the
last day of the Extended Payment Period, as the case may be, the New Physician
Compensation shall be payable by, and become the responsibility of, the Medical
Group in accordance with Section 5.7 hereof.
(a) "New Physician" means, any physician who, at any time
after the Commencement Date, becomes affiliated with or employed by the Medical
Group; provided that if such physician becomes affiliated with or employed by
the Medical Group pursuant to a transaction between the Management Company and
such physician or a medical group with which such physician is affiliated in
which the Management Company acquires any assets or accounts receivable from
such physician or such medical group or pays any other consideration to such
physician or such medical group in connection with such physician's affiliation
or employment with the Medical Group and/or the Management Company, then such
physician shall not be deemed to be a New Physician for purposes of this
Agreement.
(b) "Physician Breakeven Date" means, with respect to any New
Physician, the date on which the Collections generated by such New Physician
during 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
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Compensation paid to such New Physician for the foregoing period plus (ii) that
portion of the Medical Group Costs and Management Company Costs associated with
such New Physician and/or the Medical Group Services provided by such New
Physician.
(c) "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.
(d) "Physician Start Date" means, with respect to any New
Physician, the date such New Physician becomes affiliated with or employed by
the Medical Group.
SECTION 6. Representations and Warranties of the Medical Group
The Medical Group hereby represents and warrants to the Management
Company, as of the Signature Date, as follows:
6.1. Organization; Good Standing; Qualification and Power.
The Medical Group is a limited liability company duly organized,
validly existing, and in good standing under the laws of the State 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 Medical Equipment
Master Lease, the Office Subleases, and the Stockholder Non-Competition
Agreements (as hereinafter defined) (collectively, the "Medical Group
Transaction Documents"), to perform its obligations hereunder and thereunder,
and to consummate the transactions contemplated hereby and thereby. The Medical
Group has delivered to the Management Company a true and correct copy of its
Operating Agreement, in effect on the date hereof.
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6.2. Equity Investments.
Except as set forth on Schedule 6.2, the Medical Group currently has no
subsidiaries, nor does the Medical Group currently own any capital stock or
other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
6.3. Authority.
The execution, delivery and performance of this Agreement and the other
Medical Group Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Medical Group. This Agreement and the other
Medical Group Transaction Documents have been duly and validly executed and
delivered by the Medical Group and constitute the legal, valid and binding
obligations of the Medical Group enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable 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
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have been obtained at or prior to the date hereof) or violate any law, statute,
rule or regulation or order, writ, judgment, injunction or decree of any court,
administrative agency or governmental body applicable to the Medical Group or
any of its properties or assets or the Medical Business. Except as provided on
Schedule 6.3, to the best of the Medical Group's knowledge, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required in connection with the
execution, delivery or performance by the Medical Group of this Agreement or any
other Medical Group Transaction Document or the consummation of the transactions
contemplated hereby and thereby.
6.4. Financial Information.
Schedule 6.4 contains the Medical Group's internal statements of
assets, liabilities and members' equity of the Medical Business at June 30, 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 six-month period then ended (including the notes thereto and other financial
information included therein) (collectively, the "Internal Financial
Statements"), and (b) the compiled financial statements of the Medical Business
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, (iii) have been prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods covered thereby, and (iv) are true, correct and complete in all
material respects as of the dates thereof.
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6.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 6.5, 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 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.
6.6. Absence of Changes.
Except as set forth on Schedule 6.6, 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;
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(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);
(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
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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 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.
6.7. Tax Matters.
(a) Except as set forth on Schedule 6.7, (i) all Taxes (as
hereinafter defined) relating to the Medical Business required to be paid by the
Medical Group through the date hereof have been paid and all returns,
declarations of estimated Tax, Tax reports, information returns and statements
required to be filed by the Medical Group in connection with the Medical
Business prior to the date hereof (other than those for which extensions shall
have been granted prior to the date hereof) relating to any Taxes with respect
to any income, properties or operations of the Medical Group 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
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and status of the Medical Business and any other information required to be
shown therein; (iii) all Taxes relating to the operations of the Medical
Business that have been shown as due and payable by the Medical Group on the
Returns have been timely paid and filed or adequate provisions made to the books
and records of the Medical Business; (iv) in connection with the Medical
Business (x) the Medical Group has made provision on the Balance Sheet for all
Taxes payable by the Medical Group for any periods that end on or before the
Balance Sheet Date for which no Returns have yet been filed and for any periods
that begin on or before the Balance Sheet Date and end 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 a foreign person within the
meaning of ss.1.1445-2(b) of the Regulations under Section 1445 of the Code.
(c) The Medical Group has provided the Management Company with
true and complete copies of all Federal, state and
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foreign Returns of the Medical Group for the calendar years ending December 31,
1996 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the
Taxes and "Taxes" means, with respect to any person or entity, (i) all Federal,
state, local and foreign income taxes (including any tax on or based upon net
income, or gross income, or income as specially defined, or earnings, or
profits, or selected items of income, earnings or profits) and all Federal,
state, local and foreign gross receipts, sales, use, ad valorem, transfer,
franchise, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, property or windfall profits taxes, alternative or add-on
minimum taxes, customs duties or other Federal, state, local and foreign taxes,
fees, assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign) on such person or entity and (ii) any liability
for the payment of any amount of the type described in the immediately preceding
clause (i) as a result of being a "transferee" (within the meaning of Section
6901 of the Code or any other applicable law) of another person or entity or a
member of an affiliated or combined group.
6.8. Litigation, Etc.
Except as set forth on Schedule 6.8, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Medical Group, threatened against the
Medical Group 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, its
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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 6.8.
6.9. Compliance; Governmental Authorizations.
The Medical Group 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 nor any of the Medical Personnel employed by the Medical Group is now or
in the last four years has been the subject of or involved in any investigation
by any Federal, state or local regulatory agency related to its or his Medicare,
Medicaid or other third party payor billing practices.
6.10. Accounts Receivable; Accounts Payable.
(a) Except as set forth on Schedule 6.10, all of the accounts
receivable owing to the Medical Group 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
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actually due and owing, and as of the date hereof, to the best
knowledge of the Medical Group, there are no claims, refusals to pay or other
rights of set-off against any thereof. Except as set forth on Schedule 6.10, as
of the date hereof, there is no account receivable or note receivable of the
Medical Business pledged to any third party. The Medical Group has provided the
Management 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 6.10, there is no account payable or note payable past
due or delinquent in its payment.
6.11. Labor Relations; Employees.
Schedule 6.11 contains a true and complete list of the persons employed
by the Medical Group as of the date hereof (the "Employees"). Except as set
forth on Schedule 6.11, (a) the Medical Group and the Medical Business are not
delinquent in payments to any of the Employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them to
the date hereof or amounts required to be reimbursed to the Employees; (b) 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,
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slowdown or stoppage actually pending or, to the best knowledge of the Medical
Group, threatened against or involving the Medical Group or Medical Business;
(e) there is no collective bargaining agreement covering any of the Employees;
and (f) to the best knowledge of the Medical Group, no Employee or consultant is
in violation of any (i) employment agreement, arrangement or policy between such
person and any previous employer (private or governmental) or (ii) agreement
restricting or prohibiting the use of any information or materials used or being
used by such person in connection with such person's employment by or
association with the Medical Group or the Medical Business.
6.12. Employee Benefit Plans.
(a) Schedule 6.12 identifies each 'employee benefit plan', as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and all other written or oral plans, programs, policies or
agreements involving direct or indirect compensation (including any employment
agreements entered into between the Medical Group or the Medical Business and
any Employee 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 age, salary, service and related data
for Employees of the Medical Group and in connection with the Medical Business.
(b) Schedule 6.12 lists each employment, severance or other
similar contract, arrangement or policy and each plan or
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arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation or 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 6.12, (i) each Employee
Plan has been operated and administered in compliance with ERISA, the Code and
in accordance with the provisions of all other applicable Federal and state
laws; (ii) all reporting and disclosure obligations imposed under ERISA and the
Code have been satisfied with respect to each Employee Plan; (iii) to the best
knowledge of the Medical Group, no breaches of fiduciary duty or prohibited
transactions have occurred with respect to any Employee Plan; and (iv) all
reporting, disclosure and bonding obligations have been satisfied with respect
to each Employee Plan.
(d) The Medical Group has made available to the Management
Company a true and complete copy of each Employee Plan and a true and complete
copy of each of the following documents, prepared in connection with such
Employee Plan; (i) each trust or other funding arrangement, (ii) the two most
recently filed Annual Reports (Form 5500), including attachments, for each
Employee Plan, and (iii) the most recently received IRS determination letter.
6.13. Insurance.
Schedule 6.13 contains a list of all policies of professional liability
(medical malpractice), general liability, theft, fidelity, fire, product
liability, errors and omissions, health and other property and casualty forms of
insurance held by the Medical Group covering the assets, properties or
operations
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of the Medical Group and the Medical Business (specifying the
insurer, amount of coverage, type of insurance, policy number and any pending
claims thereunder). All such policies of insurance are valid and enforceable
policies and are outstanding and duly in force and all premiums with respect
thereto are currently paid. Neither the Medical Group nor its predecessor in
interest has, during the last five fiscal years, been denied or had revoked or
rescinded any policy of insurance relating to the assets, properties or
operations of the Medical Group or the Medical Business.
6.14. Real Property.
Schedule 6.14 sets forth an accurate and complete legal description of
the entire right, title and interest of the Medical Group in and to all real
property, together with all buildings, facilities, fixtures and improvements
located on such real property, owned or leased by the Medical Group (the "Real
Property"), together with an accurate description of the title insurance policy
or other evidence of title issued with respect thereto, the most current survey
of such real property and a description of the use thereof. Other than the Real
Property, the Medical Group has no other interest (leasehold or otherwise) in
real property used, held for use or intended to be used in the Medical Business.
The Medical Group has a valid leasehold interest in all Real Property leased by
the Medical Group. True and complete copies of all leases to which the Medical
Group is a party or by which the Medical Group leases space have been delivered
to the Management Company.
6.15. Burdensome Restrictions.
Except as set forth on Schedule 6.15, neither the Medical Group nor the
Medical Business is bound by any oral or written agreement or contract which by
its terms prohibits or
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restricts it from conducting the Medical Group or the Medical Business (or any
material part thereof).
6.16. Disclosure.
Neither the Medical Group Transaction Documents (including the Exhibits
and Schedules attached thereto) nor any other document, certificate or written
statement furnished to the Management Company by or on behalf of the Medical
Group in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein and therein not misleading.
Except as set forth on Schedule 6.16, there have been no events or transactions,
or information which has come to the attention of the Medical Group, which, as
they relate directly to the Medical Group or the Medical Business, could
reasonably be expected to have a material adverse effect on the business,
operations, affairs, prospects or condition of the Medical Group and the Medical
Business.
SECTION 7. Representations and Warranties of the Management Company.
The Management Company represents and warrants to the Medical Group, as
of the Signature Date, as follows:
7.1. Organization, Good Standing and Power.
The Management Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (b)
has all requisite corporate power and authority to own, lease and operate its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and each of the Asset Purchase Agreement, the Restricted
Stock Agreements (as hereinafter defined), the Assignments of Lease, the Office
Subleases, the Medical Equipment Master Lease Agreement and the Stockholder
Non-Competition
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Agreements (collectively, the "Management Company Transaction Documents"), to
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The Management Company has
delivered to the Medical Group a true and correct copy of its amended and
restated certificate of incorporation (the "Amended and Restated Certificate of
Incorporation") and its bylaws (the "Bylaws"), each as in effect on the date
hereof.
7.2. Authority.
The execution, delivery and performance of this Agreement and the other
Management Company Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Management
Company. This Agreement and each Management Company Transaction Document has
been duly and validly executed and delivered by the Management Company, and this
Agreement and each such Management Company Transaction Document is the valid and
binding obligation of the Management Company, enforceable in accordance with its
respective terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance of this
Agreement or any other Management Company Transaction Document, nor the
consummation by the Management Company of the transactions contemplated hereby
or thereby, nor compliance by the Management Company with any provision hereof
or thereof, will (a) conflict with or result in a breach of any provisions of
the Amended and Restated Certificate of Incorporation or the Bylaws of the
Management Company, (b) cause a default (with due notice, lapse of time or
both), or give rise to any right of termination, cancellation or acceleration,
under any of the terms, conditions or provisions of any material note, bond,
lease, mortgage, indenture, license or other instrument, obligation or agreement
to which the Management
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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 7.2, to the best of the Management Company's knowledge,
no permit, authorization, consent or approval of or by, or any notification of
or filing with, any person (governmental or private) is required in connection
with the execution, delivery or performance by the Management Company of this
Agreement or any other Management Transaction Document or the consummation by
the Management Company of the transactions contemplated hereby or thereby.
7.3. Capitalization.
(a) The total authorized capital of the Management Company
consists of 20,000,000 shares of common stock, of which 8,057,059 shares are
issued and outstanding, and 8,633,049 shares of preferred stock, of which (i)
999,999 shares of Series A Convertible Preferred Stock, (ii) 2,000,001 shares of
Series B Convertible Preferred Stock, (iii) 254,999 shares of Series C
Convertible Preferred Stock, (iv) 188,072 shares of Series D Convertible
Preferred Stock and (v) 533,335 shares of Series E Convertible Preferred Stock,
are all issued and outstanding. Each of the outstanding shares of capital stock
has been duly and validly authorized and issued, is fully paid for and
non-assessable, and was issued in compliance with all applicable Federal and
state securities laws.
(b) The Management Company has taken all action necessary or
appropriate to duly authorize the creation, issuance and sale of the common
stock to be issued hereunder. Such shares
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of common stock, when issued, sold and delivered, as provided for herein and in
the Restricted Stock Agreements, will be validly issued, fully paid and
nonassessable, with no personal liability attaching to the ownership of the
shares. The issuance of such shares of common stock will not violate any
preemptive or similar right of any person.
74. Financial Information.
Schedule 7.4 contains (a) the unaudited statements of assets,
liabilities and stockholders' equity of the Management Business at March 31,
1997 (the "Management Company Balance Sheet"; and the date thereof being
referred to as the "Management Company Balance Sheet Date"), and the related
unaudited statements of revenue and expenses for the periods then ended
(including the notes thereto and other financial information included therein)
(collectively, the "Unaudited Financial Statements"). The Unaudited Financial
Statements (i) were prepared in accordance with the books and records of the
Management Business, (ii) fairly present the financial position of the
Management Business as of the dates thereof, and (iii) are true, correct and
complete in all material respects as of the date thereof.
7.. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 7.5, as of the Management Company
Balance Sheet Date, (a) the Management Business did not have any material
liability of any nature required to be disclosed on a balance sheet (matured or
unmatured, fixed or contingent, known or unknown) which was not provided for or
disclosed on the Management Company Balance Sheet, (b) all liability reserves
established by the Management Business on the Management Company Balance Sheet
were adequate and (c) there were no loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5 issued by the
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Financial Accounting Standards Board in March 1975) which were not adequately
provided for or disclosed on the Management Company Balance Sheet.
7.6. Absence of Changes.
Except as set forth on Schedule 7.6, since the Management Company
Balance Sheet Date, the Management Business has been operated in the ordinary
course and consistent with past practice and there has not been:
(a) any material adverse change in the condition (financial or
otherwise), assets, liabilities, operations, results of operations, earnings,
business or prospects of the Management Business;
(b) any damage, destruction or loss (whether or not covered by
insurance) in an aggregate amount exceeding $25,000 affecting any asset or
property of the Management Business;
(c) any obligation or liability (whether absolute, accrued,
contingent or otherwise and whether due or to become due) created or incurred,
or any transaction, contract or commitment entered into, by the Management
Business other than such items created or incurred in the ordinary course of the
Management Business and consistent with past practice;
(d) any payment, discharge or satisfaction of any claim, lien,
encumbrance, liability or obligation by the Management Business outside the
ordinary course of the Management Business (whether absolute, accrued,
contingent or otherwise and whether due or to become due);
(e) any license, sale, transfer, pledge, mortgage or other
disposition of any material tangible or intangible asset of the Management
Business except in the ordinary course of the Management Business and consistent
with past practice;
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(f) any cancellation of any debts or claims of, or any
amendment, termination or waiver of any rights of material value to, the
Management Business;
(g) any change in the accounting methods or practices followed
in connection with the Management Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(h) any other transaction relating to the Management Business
other than in the ordinary course of the Management Business and consistent with
past practice; or
(i) any agreement or understanding, whether in writing or
otherwise, for the Management Business to take any of the actions specified in
items (a) through (h) above.
7.7. Litigation, Etc.
Except as set forth on Schedule 7.7, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Management Company, threatened against
the Management Company or in connection with the Management Business, whether at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
which, if adversely determined, could have a material adverse effect on the
Management Company or (b) judgments, decrees, injunctions or orders of any
court, governmental department, commission, agency, instrumentality or
arbitrator against the Management Company its assets or affecting the Management
Business.
7.8. Compliance; Governmental Authorizations.
The Management Company and the Management Business shall have complied
in all material respects with all applicable
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material Federal, state, local or foreign laws, ordinances, regulations and
orders. The Management Company has all Federal, state, local and foreign
governmental licenses and permits necessary in the conduct of the Management
Business, the lack of which would have a material adverse effect on the
Management Company's ability to operate the Management Business after the date
hereof on substantially the same basis as presently operated, such licenses and
permits are in full force and effect, the Management Company has not received
any notice indicating that any violations are or have been recorded in respect
of any thereof, and no proceeding is pending or, to the best knowledge of the
Management Company, threatened to revoke or limit any thereof. To the best
knowledge of the Management Company, none of such licenses and permits shall be
affected in any material respect by the transactions contemplated hereby.
7.9. Employees.
Except as set forth on Schedule 7.9, the Management Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other compensation for any services performed by them
through the date hereof.
7.10. Insurance.
The Management Company has obtained such policies of insurance as are
usual and customary for businesses of the type conducted by the Management
Company. All such policies of insurance are valid and enforceable policies, and
all premiums with respect thereto are currently paid.
7.11. Burdensome Restrictions.
Except as set forth on Schedule 7.11, neither the Management Company
nor the Management Business is bound by any oral or written agreement or
contract which by its terms
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prohibits it from conducting the Management Company or the Management Business
(or any material part thereof).
7.12. Disclosure.
Neither the Management Company Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document, certificate or
written statement furnished to the Medical Group by or on behalf of the
Management Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein not
misleading.
SECTION 8. Operations Committee.
8.1. Formation and Operation of the Operations Committee.
The Management Company and the Medical Group shall establish a
committee (the "Operations Committee") responsible for directing the Management
Company in connection with the development of certain specific management and
administrative policies for the overall operation of the Medical Group. The
Operations Committee shall consist of six (6) members. The Medical Group shall
designate three (3) members of the Operations Committee, each of whom shall be a
physician in the Medical Group, and the Management Company shall designate three
(3) members of the Operations Committee. The business of the Operations
Committee shall be conducted in accordance with the policies and procedures
described in Section 8.4 hereof.
8.2. Authoritative Functions of the Operations Committee.
The Operations Committee shall perform the following functions, and the
decisions of the Operations Committee with
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respect to such functions shall be binding on the Management Company and the
Medical Group:
(a) Approve the annual budgets for:
(i) ▇▇▇▇▇▇▇▇ and Collections;
(ii) Medical Group Costs;
(iii) Capital expenditures to be made by the
Management Company in fulfillment of its
obligations hereunder; and
(iv) Management Company Operating Costs.
(b) Approve costs and expenses that exceed the Management
Company Operating Costs Budget.
(c) 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).
(d) Establish parameters and criteria with respect to:
(i) ▇▇▇▇▇▇▇▇;
(ii) Claims submission;
(iii) Collections of fees;
(iv) Delinquent account collection policies;
(v) Turnover of delinquent accounts to outside
collection agencies;
(vi) Write-offs of account balances;
(vii) Claim review requests;
(viii) "Insurance only" and other courtesy
write-off policies;
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(ix) Lien account collection policies; and
(x) Student Athlete account policies.
(e) Approve the acquisition, replacement, relocation, or
other disposition of Medical Equipment and FF&E,
approve the integration of new technologies into the
professional practice of the Medical Group as
contemplated by Section 3.11 hereof, and approve the
renovation and expansion of any offices of the
Medical Group ("Tenant Improvements"); provided,
however, that the approval of the Management Company
also shall be required prior to (i) the acquisition
of any Equipment (including any Medical Equipment,
FF&E or other items relating to or necessary in
connection with the integration of new technologies
into the professional practice of the Medical Group)
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.
(f) Establish parameters and criteria for off-site
storage of files and records of the Medical Group.
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8.3. 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.
(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.
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The recommendations of the Operations Committee with respect to the matters
described in this Section 8.3 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 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.
8.4. 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 8.4.
(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
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of the Operations Committee also may be called by at least two (2) members of
the Operations Committee or by the Chairman or Vice Chairman thereof upon at
least three (3) days' written notice to the other members of the Operations
Committee. Such notice requirement shall be deemed waived with respect to any
member of the Operations Committee who attends such meeting. Meetings may be
held in person or by telephone. The Operations Committee also may act by written
consent as provided in Section 8.4(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 four (4) or more members of the Operations
Committee present or represented by proxy at the applicable meeting. A quorum of
the Operations Committee shall be four (4) members, 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 six (6) members (in person or by proxy) must sign any written
consent.
SECTION 9. Obligations of the Medical Group.
The Medical Group shall have the following obligations during the Term:
9.1. Compliance with Laws.
The Medical Group shall provide professional services to patients in
compliance at all times with those ethical standards, laws and regulations to
which they are subject, including, without limitation, Medicare and Medicaid
regulations. The Medical Group shall verify, with the assistance of the
Management Company, that each physician and other Medical Personnel associated
with the Medical Group for the purpose of providing medical care to patients of
the Medical Group is
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licensed by the State of Pennsylvania. 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 disciplinary actions or
medical malpractice actions are initiated against any such physician by any
payor, patient, state or Federal regulatory agency or any other person or
entity, the Medical Group shall immediately inform the Management Company of
such action and its underlying facts and circumstances.
9.2. Use of Facility.
The Medical Group shall use and occupy any Facility (as defined below)
exclusively for the practice of medicine, and 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.
9.3. Choice of Braces, Splints, Appliances, Medical Supplies, and
Allografts.
The Medical Group shall have the exclusive control over the choice of
vendors and products utilized with respect to all prosthetics, prosthetic
devices, orthotics, braces, splints, appliances, medical supplies and
allografts.
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9.4. Choice of Radiologists, Anesthesiologists, Hospitals,
Physical Therapy, MRI, and Other Medical Professionals and Facilities.
The Medical Group shall have exclusive control over the choice of
specific physicians and facilities to be utilized by the Medical Group with
respect to radiology, anesthesiology, hospitals, physical therapy, MRI, and
other medical professionals and facilities; provided, however, that the
foregoing shall not be considered New Ancillary Services or New Medical Offices,
as the case may be, unless the parties have agreed thereto in accordance with
Section 3.4(b) or 3.2(b), as the case may be.
9.5. Insurability.
The Medical Group shall cooperate with the Management Company in (i)
ensuring that its Medical Personnel are insurable under commercially available
malpractice insurance policies or (ii) instituting proceedings to terminate
within 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.
9.6. Medicare.
The Medical Group shall cause all physicians to be participating
providers and accept assignment under Medicare.
9.7. Accounts Receivable; Billing.
From the Commencement Date, the Medical Group acknowledges and agrees
that all Accounts of the Medical Group or its Medical Personnel shall be the
property of the Management
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Company hereunder and the Medical Group and the Medical Personnel hereby
transfer and assign all of their right, title and interest to such Accounts to
the Management Company; provided, however, that the right to payment of Medicaid
and Medicare receivables shall remain with the Medical Group in accordance with
applicable Federal law. The Medical Group's Medical Personnel shall be
responsible for providing the appropriate current CPT4 coding with respect to
the fee tickets prepared by such Medical Personnel.
9.8. Medical Personnel Hiring.
The Medical Group shall have the ultimate control over and
responsibility for the hiring, compensation, supervision, evaluation and
termination of its Medical Personnel; provided, however, that at the request of
the Medical Group, the Management Company shall consult with the Medical Group
regarding such matters.
9.9. Continuing Education.
The Medical Group and its Medical Personnel shall be solely responsible
for ongoing membership in professional associations and continuing professional
education. The Medical Group shall ensure that its Medical Personnel participate
in such continuing professional education as is necessary for such physician or
professional to remain current in his or her field of medical practice.
9.10. Clinical Research.
The Medical Group shall have the ultimate control over and
responsibility for any clinical research program pertaining to patients of the
Medical Group. This shall include but not be limited to research personnel
interviewing, hiring, termination, compensation, day-to-day supervision, and
assignment of responsibilities and projects. However, the Medical Group will
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cooperate with and take direction from the Management Company in its nationwide
efforts to provide an effective disease management information system and
outcome studies programs.
SECTION 10. Certain Covenants.
10.1. Change of Control.
During the Term of this Agreement, the Medical Group shall not enter
into any single transaction (or group of related transactions undertaken
pursuant to a common plan) involving the admission of new members, transfer of
limited liability company interests, or reorganization or restructuring of the
Medical Group, if in any such case the effect would be to transfer a majority of
the ownership interest in the Medical Group, without the prior written consent
of the Management Company, which consent shall not be unreasonably withheld or
delayed.
10.2. Legend on Securities.
During the Term of this Agreement, any certificate or similar evidence
representing an equity interest in the Medical Group issued by the Medical Group
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY"
LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
ADDITIONALLY, THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE RESTRICTIONS ON TRANSFER CONTAINED IN THE AMENDED AND
RESTATED MANAGEMENT SERVICES AGREEMENT EFFECTIVE AS OF JULY 1, ▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ AND JOINT GROUP, L.L.C., A
PENNSYLVANIA LIMITED LIABILITY COMPANY, AND BONE, MUSCLE AND JOINT,
INC., A DELAWARE CORPORATION."
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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.
SECTION 11. Records.
11.1. Medical Records.
Upon termination of this Agreement, the Medical Group shall retain all
patient medical records maintained by the Medical Group or the Management
Company in the name of the Medical Group.
11.2. Management Business Records.
All books and records relating in any way to the operation of the
Management Business which are not patient medical records shall at all times be
the property of the Management Company. The Management Company shall maintain
custody of such records, and the Medical Group shall, upon its written request,
be entitled to copies of any such records relating to the Management Services
performed by the Management Company.
11.3. Access to Records Following Termination.
Following the termination of this Agreement, the Medical Group shall
grant (to the extent permitted by law) to the Management Company, for the
purpose of preparing for any actual or anticipated legal proceeding or for any
other reasonable purpose, reasonable access (which shall include making
photocopies) to the patient medical records described in Section 11.1 hereof and
any other pertinent information regarding the Medical Group during the Term.
Prior to accessing such patient
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medical records, the Management Company shall
obtain any required patient authorization.
Following the termination of this Agreement, the Management Company
shall provide to the Medical Group, promptly upon the Medical Group's written
request, photocopies of the Management Business records described in Section
11.2 hereof, and shall grant to the Medical Group, for the purpose of preparing
for any actual or anticipated legal proceeding or for any other reasonable
purpose, any other pertinent information regarding the Management Company during
the Term.
SECTION 12. Insurance and Indemnity.
12.1. Professional Liability Insurance.
During the Term, the Management Company shall, to the extent permitted
by applicable law, 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 $300,000 per claim and with aggregate policy limits of not less
than $900,000 covering the Medical Group and each of the Medical Personnel of
the Medical Group (or such higher amounts and additional coverage (including
state mandated catastrophic coverage) 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), 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
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malpractice liability coverage, and the Management Company shall be designated
as a co-beneficiary under such insurance policies.
12.2. Life Insurance.
The Management Company may, at its option, obtain a $500,000 life
insurance policy for each duly licensed physician equity member of the Medical
Group. The Management Company shall be designated as the beneficiary under any
such policies. The premiums for such policies shall be paid by the Management
Company and shall not be included as Management Company Operating Costs or
otherwise charged to the Medical Group.
12.3. Indemnification by Medical Group.
The Medical Group shall indemnify, hold harmless and defend the
Management Company, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of (i) the
performance of Medical Group Services, including without limitation the
performance of such services prior to the Commencement Date, (ii) any other acts
or omissions of the Medical Group and its Medical Personnel (to the extent that
such acts or omissions of the Medical Personnel are within the scope of their
employment with the Medical Group), including without limitation any such acts
or omissions that occurred prior to the Commencement Date, or (iii) any breach
of or failure to perform any obligation under this Agreement or the Medical
Group Transaction Documents (which, for purposes hereof, shall be deemed to
include the Restricted Stock Agreement to be signed by the Management Company
and each equity member or employee of the Medical Group receiving stock of the
Management Company, in the form of Exhibit D attached hereto (the "Restricted
Stock
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Agreement") 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.
12.4. Indemnification by Management Company.
The Management Company shall indemnify, hold harmless and defend the
Medical Group, its members, employees, agents and independent contractors from
and against any and all liabilities, losses, damages, claims, causes of action
and expenses (including reasonable attorneys' fees and expenses), whether or not
covered by insurance, caused or asserted to have been caused, directly or
indirectly, by or as a result of (i) the performance of Management Services,
(ii) any other acts or omissions of the Management Company and its employees or
(iii) any breach of or failure to perform any obligation under this Agreement or
the Management Company Transaction Documents by the Management Company and/or
its agents, employees and/or subcontractors (other than the Medical Group)
during the Term.
SECTION 13. Termination.
13.1. Termination by Medical Group.
The Medical Group may terminate this Agreement effective immediately by
giving written notice of termination to the Management Company (a) in the event
of the filing of a petition in voluntary bankruptcy or an assignment for the
benefit of creditors by the Management Company or upon other action taken or
suffered, voluntarily or involuntarily, under any Federal or state law for the
benefit of debtors by the Management Company, except for the filing of a
petition in involuntary bankruptcy against the Management Company which is
dismissed within ninety (90) days thereafter (a "Bankruptcy Event"), (b) in the
event the Management Company shall default in any material respect in the
performance of any duty or obligation imposed upon it by this Agreement and the
Management Company shall not have taken
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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 7 is untrue or
misleading in any material respect, provided that the Medical Group shall have
previously given written notice to the Management Company describing in
reasonable detail the nature of the item in question and the Management Company
shall not have cured such matter within thirty (30) days of such notice.
13.2. Termination by Management Company.
The Management Company may terminate this Agreement effective
immediately by giving written notice of termination to the Medical Group (a) in
the event of a Bankruptcy Event relating to the Medical Group, (b) in the event
the Medical Group shall default in any material respect in the performance of
any duty or obligation imposed upon it by this Agreement and 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 6 is untrue
or misleading in any material respect, provided that the Management Company
shall have previously given written notice to the Medical Group describing in
reasonable detail the nature of the item in question and the Medical Group shall
not have cured such matter within thirty (30) days of such notice, or (d) in the
event that the Medical Group is excluded from the Medicaid or Medicare program
as a result of disciplinary action taken against any medical professional
affiliated with the Medical Group by the state or Federal agency responsible for
the operation and supervision of such program, and such agency
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delivers a notice of such exclusion to the Medical Group (a copy of which the
Medical Group will promptly deliver to the Management Company).
13.3. Termination by Medical Group or Management Company.
The Medical Group and the Management Company shall each have the right
to terminate this Agreement effective immediately by giving written notice of
termination to the other party pursuant to Section 27 of this Agreement.
13.4. Effect of Termination.
(a) Upon the termination of this Agreement in accordance with
the terms hereof, neither party hereto shall have any further obligation or
liability to the other party hereunder, except as provided in Sections 3.15(c),
5.3(b) (as modified by Section 13.4(b) below), 13.5 and 26 hereof, and except to
pay in full and satisfy any and all outstanding obligations of the parties
accruing through the effective date of termination.
(b) Upon the termination of this Agreement, the Annual Medical
Group Compensation Amount described in Section 5.3(b) shall be calculated on or
before the end of the fourth month following the termination date, rather than
on or before April 30 as specified in Section 5.3(b), and the computation made
under such Section shall be made with respect to the portion of the year ending
on the termination date (if the termination date is other than December 31). 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
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Collections thereafter shall be owned by the Medical Group. Any payment required
under the terms of Section 5.3(b)(ii) shall be made within fifteen (15) days
after the date by which the foregoing calculation is to be made, rather than on
May 15.
13.5. Repurchase of Assets.
Promptly following termination of this Agreement for any reason, the
Management Company shall sell, transfer, convey, and assign to the Medical
Group, and the Medical Group shall purchase, assume, and accept from the
Management Company, at such price and upon such terms as may be agreed upon by
the parties -- or, if the parties are unable to agree, at fair market value,
determined in the manner set forth below -- all of the following items which are
used in connection with the professional practice and related activities of the
Medical Group and which, in the 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:
(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
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Medical Group's assumption of the obligations
accruing thereunder after the date of termination of
this Agreement; and
(f) the deposits of the Management Company relating to
the Medical Group.
Fair market value of the above described assets shall be determined by an
independent appraiser mutually agreed upon by the Medical Group and the
Management Company; provided, however, that if the Medical Group and the
Management Company are unable to agree upon such an appraiser, each of the
parties shall select an appraiser and the two appraisers thus selected shall
select a third appraiser. All of the appraisers shall appraise the assets, and
for purposes of determining the purchase price, the highest and lowest
appraisals shall be disregarded, and the remaining appraisal shall be used.
Notwithstanding anything contained herein to the contrary, the consideration
payable by the Medical Group to the Management Company under this Section 13.5
shall be reduced by the aggregate amount, if any, payable by the Management
Company to the Stockholders (as such term is defined in the Restricted Stock
Agreements).
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
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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.
SECTION 15. Non-Competition.
In consideration of the premises contained herein and the consideration
to be received hereunder, and in consideration of and as an inducement to the
Management Company to consummate the transactions contemplated hereby, the
Medical Group hereby (a) agrees to the Non-Competition covenants attached hereto
as Schedule VIII and (b) agrees to require each of the physicians receiving
capital stock of the Management Company as of the date hereof, and each person
who after the date hereof becomes entitled to receive stock (or options to
receive stock) in the Management Company in connection with his or her
performance of services for the Medical Group, to execute a Stockholder
Non-Competition Agreement substantially in the form attached hereto as Exhibit
E.
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SECTION 16. Obligations of the Management Company.
16.1. No Practice of Medicine.
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 an
equity member, employee, or contractor of the Medical Group, nor shall the
Management Company interfere with, control, direct, or supervise any physician
or other licensed health care professional in connection with the provision of
Medical Group Services. The foregoing shall not preclude the Management Company
from assisting in the development of professional protocols and monitoring
compliance with policies and procedures that have been instituted in accordance
with this Agreement.
SECTION 17. Assignment.
The Management Company shall have the right to assign its rights and
delegate its obligations hereunder to any affiliate and to assign its rights
hereunder to any lending institution from which the Management Company or any
affiliate obtains financing for security purposes or as collateral. 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
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Medical Group's consent shall not be required in connection with any assignment
by the Management Company arising out of or in connection with a sale of all or
substantially all of the stock or assets of the Management Company or the
merger, consolidation, or reorganization of the Management Company.
SECTION 18. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed sufficient if personally delivered,
telecopied (with original sent by mail), sent by nationally-recognized overnight
courier, or by registered or certified mail, return receipt requested and
postage prepaid, addressed as follows:
If to the Management Company:
Bone, Muscle and Joint, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D., President
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇;
with a copy to:
▇'▇▇▇▇▇▇▇▇ Graev & Karabell, LLP
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. Held, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇; and
If to the Medical Group:
Lehigh Valley Bone, Muscle and
Joint Group, L.L.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, M.D.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇;
with a copy to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇;
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or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such notice
or communication shall be deemed to have been received (a) in the case of
personal delivery and telecopier, on the date of such delivery, (b) in the case
of nationally-recognized overnight courier, on the next business day after the
date when sent, and (c) in the case of mailing, on the third business day
following the day on which the piece of mail containing such communication is
posted.
SECTION 19. Benefits of Agreement.
This Agreement shall bind and inure to the benefit of any successors to
or permitted assigns of the Management Company and the Medical Group.
SECTION 20. Governing Law; Jurisdiction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Pennsylvania, without giving effect to
the laws and principles thereof, or of any other jurisdiction, which would
direct the application of the laws of another jurisdiction. The parties to this
Agreement agree that jurisdiction and venue in any action brought by any party
hereto pursuant to this Agreement shall lie in any Federal or state court
located in the Commonwealth of Pennsylvania. By execution and delivery of this
Agreement, the parties hereto irrevocably submit to the jurisdiction of such
courts for themselves and in respect of their property with respect to such
action. The parties hereto irrevocably agree that venue would be proper in such
court, and hereby waive any objection that such court is an improper or
inconvenient forum for the resolution of such action. Nothing in this Agreement
shall affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement in the courts of any other jurisdiction.
The parties hereto shall act in
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good faith and shall refrain from taking any actions to circumvent or frustrate
the provisions of this Agreement.
SECTION 21. Headings.
Section headings are used for convenience only and shall in no way
affect the construction of this Agreement.
SECTION 22. Entire Agreement; Amendments.
This Agreement, the exhibits and schedules hereto, and the Restricted
Stock Agreements and Stockholder Non-Competition Agreements each dated as of
July 1, 1996, between the Management Company and each of the Medical Group and
each member thereof 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. This Agreement supersedes and replaces in its entirety the Original
Agreement. The parties hereto hereby acknowledge that (i) the Stock Purchase
Agreement dated as of July 1, 1996, among the Management Company, OAB and the
other parties thereto and (ii) the Termination Agreement dated as of July 1,
1996, among the Management Company, the Medical Group and the other parties
thereto, are each hereby terminated and of no further force or effect.
SECTION 23. 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 24. Severability.
The provisions of this Agreement shall be deemed severable and if any
portion shall be held invalid, illegal or
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unenforceable for any reason, the remainder of this Agreement shall be effective
and binding upon the parties.
SECTION 25. Counterparts.
This Agreement may be executed in counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
SECTION 26. Waivers.
Any party to this Agreement may, by written notice to the other party,
waive any provision of this Agreement. The waiver by any party of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
SECTION 27. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections
3.3(f), 11, 12.3, 12.4, 13, 14, 15, 18, 19, 20, 22, 23 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
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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 20. 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 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.
* * * * *
IN WITNESS WHEREOF, the parties have duly executed this
Amended and Restated Management Services Agreement as of the date first above
written.
LEHIGH VALLEY BONE, MUSCLE AND JOINT GROUP, L.L.C.
By:______________________________
Name:
Title:
BONE, MUSCLE AND JOINT, INC.
By:______________________________
Name:
Title
Acknowledged and Agreed to
(as to Sections 4, 9.7, 12.2,
14 and 15):
_______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
_______________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, M.D.
_______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
_______________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, M.D.
_______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
Acknowledged and Agreed to
(as to Section 3.2(a)):
Orthopaedic Associates of Bethlehem, Inc.
By:_____________________________________
Name:
Title: