[ELEVENTH DRAFT 11/3/97]
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MANAGEMENT SERVICES AGREEMENT
BETWEEN
BMJ MEDICAL MANAGEMENT, INC.
AND
BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.
Effective as of September 1, 1997
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TABLE OF CONTENTS
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SECTION 1 Retention of the Management Company ......................... 2
1.1. Retention ................................................. 2
1.2. Exclusivity ............................................... 2
1.3. Relationship of Parties ................................... 2
1.4. No Referral Obligation .................................... 3
SECTION 2 TERM ........................................................ 3
SECTION 3 MANAGEMENT SERVICES ......................................... 3
3.1. Management Services Generally ............................. 3
3.2. Premises .................................................. 5
3.3. Equipment ................................................. 7
3.4. New Ancillary Services .................................... 9
3.5. Administration, Finance and Accounting .................... 11
3.6. Billing and Collection .................................... 14
3.7. Administrative Personnel .................................. 19
3.8. Technical Personnel; Leased Employees ..................... 20
3.9. Medical Personnel Recruiting .............................. 22
3.10. Inventory and Supplies .................................... 23
3.11. Taxes ..................................................... 23
3.12. Information Systems Management ............................ 23
3.13. Use of New Technologies in the Practice of Medicine ....... 24
3.14. Public Relations; Marketing and Advertising ............... 25
3.15. Insurance ................................................. 25
3.16. Files and Records ......................................... 25
3.17. Managed Care Contracts .................................... 27
3.18. Budgets ................................................... 28
3.19. Force Majeure ............................................. 29
SECTION 4 CONSIDERATION ............................................... 29
SECTION 5 COSTS, COMPENSATION, AND OTHER PAYMENTS ..................... 29
5.1. Ownership of Accounts; Security ........................... 29
5.2. Bank Accounts ............................................. 30
5.3. Medical Group Compensation ................................ 31
5.4. Management Fee ............................................ 35
5.5. Management Company Costs .................................. 37
5.6. New Medical Office Start-Up Costs ......................... 40
5.7. Medical Group Costs ....................................... 46
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5.8. New Ancillary Services Costs .............................. 47
5.9. Review and Audit of Books and Records ..................... 51
5.10. Start-Up Period ........................................... 51
5.11. New Physician Compensation Costs .......................... 52
SECTION 6 REPRESENTATIONS AND WARRANTIES OF THE MEDICAL GROUP ......... 54
6.1. Organization; Good Standing; Qualification and Power ...... 54
6.2. Equity Investments ........................................ 55
6.3. Authority ................................................. 55
6.4. Financial Information ..................................... 56
6.5. Absence of Undisclosed Liabilities ........................ 57
6.6. Absence of Changes ........................................ 57
6.7. Tax Matters ............................................... 59
6.8. Litigation, Etc ........................................... 61
6.9. Compliance; Governmental Authorizations ................... 62
6.10. Accounts Receivable; Accounts Payable ..................... 62
6.11. Labor Relations; Employees ................................ 63
6.12. Employee Benefit Plans .................................... 64
6.13. Insurance ................................................. 65
6.14. Real Property ............................................. 66
6.15. Burdensome Restrictions ................................... 66
6.16. Disclosure ................................................ 66
SECTION 7 REPRESENTATIONS AND WARRANTIES OF THE MANAGEMENT COMPANY .... 67
7.1. Organization, Good Standing and Power ..................... 67
7.2. Authority ................................................. 67
7.3. Capitalization ............................................ 68
7.4. Financial Information ..................................... 69
7.5. Absence of Undisclosed Liabilities ........................ 69
7.6. Absence of Changes ........................................ 70
7.7. Litigation, Etc ........................................... 71
7.8. Compliance; Governmental Authorizations ................... 71
7.9. Employees ................................................. 72
7.10. Insurance ................................................. 72
7.11. Burdensome Restrictions ................................... 72
7.12. Disclosure ................................................ 73
SECTION 8 OPERATIONS COMMITTEE ........................................ 73
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8.1. Formation and Operation of the Operations Committee ........ 73
8.2. Authoritative Functions of the Operations Committee ........ 73
8.3. Advisory Functions of the Operations Committee ............. 77
8.4. Committee Policies and Procedures .......................... 78
SECTION 9 OBLIGATIONS OF THE MEDICAL GROUP ............................. 79
9.1. Compliance with Laws ....................................... 79
9.2. Use of Facility ............................................ 80
9.3. Choice of Braces, Splints, Appliances,
Medical Supplies, and Allografts ........................... 80
9.4. Choice of Radiologists, Anesthesiologists,
Hospitals, Physical Therapy, MRI, and Other
Medical Professionals and Facilities ....................... 81
9.5. Insurability ............................................... 81
9.6. Medicare ................................................... 81
9.7. Accounts Receivable; Billing ............................... 81
9.8. Medical Personnel Hiring ................................... 82
9.9. Continuing Education ....................................... 82
9.10. Clinical Research .......................................... 82
SECTION 10 CERTAIN COVENANTS ............................................ 83
10.1. Change of Control .......................................... 83
10.2. Legend on Securities ....................................... 83
SECTION 11 RECORDS ...................................................... 84
11.1. Medical Records ............................................ 84
11.2. Management Business Records ................................ 84
11.3. Access to Records Following Termination .................... 84
SECTION 12 INSURANCE AND INDEMNITY ...................................... 85
12.1. Professional Liability Insurance ........................... 85
12.2. Life Insurance ............................................. 85
12.3. Indemnification by Medical Group ........................... 86
12.4. Indemnification by Management Company ...................... 86
SECTION 13 TERMINATION .................................................. 87
13.1. Termination by Medical Group ............................... 87
13.2. Termination by Management Company .......................... 88
13.3. Termination by Medical Group or Management Company ......... 89
13.4. Effect of Termination ...................................... 89
13.5. Repurchase of Assets ....................................... 91
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SECTION 14 RESCISSION ................................................... 92
14.1. Rescission By Medical Group ................................ 92
14.2. Disengagement of Individual Member ......................... 96
SECTION 15 NON-DISCLOSURE OF CONFIDENTIAL INFORMATION ................... 97
15.1. Non-Disclosure ............................................. 97
SECTION 16 NON-COMPETITION .............................................. 98
SECTION 17 OBLIGATIONS OF THE MANAGEMENT COMPANY ........................ 98
17.1. No Practice of Medicine .................................... 98
17.2. No Interference with Professional Judgment ................. 98
17.3. Operational Evaluations .................................... 99
17.4. Physician Advisory Board ................................... 100
SECTION 18 ASSIGNMENT ................................................... 100
SECTION 19 NOTICES ...................................................... 101
SECTION 20 BENEFITS OF AGREEMENT ........................................ 102
SECTION 21 SEVERABILITY ................................................. 102
SECTION 22 GOVERNING LAW ................................................ 103
SECTION 23 HEADINGS ..................................................... 104
SECTION 24 ENTIRE AGREEMENT; AMENDMENTS ................................. 104
SECTION 25 ATTORNEYS' FEES .............................................. 104
SECTION 26 COUNTERPARTS ................................................. 104
SECTION 27 WAIVERS ...................................................... 104
SECTION 29 SURVIVAL OF TERMINATION ...................................... 104
SECTION 29 CONTRACT MODIFICATION FOR PROSPECTIVE LEGAL EVENTS ........... 105
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INDEX OF DEFINED TERMS
Term Page
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Accounts.................................................................... 29
Addbacks.................................................................... 36
Additional Term............................................................. 3
Adjusted Operating Expenses................................................. 36
Administrative Personnel.................................................... 19
Ancillary Division.......................................................... 47
Ancillary Service Reimbursement Payment..................................... 49
Ancillary Service Start-Up Costs............................................ 50
Ancillary Service Start-Up Period........................................... 49
Annual CPI Adjustment....................................................... 74
Annual Draw Amount.......................................................... 32
Annual Medical Group Compensation Amount.................................... 32
Annual Overpayment.......................................................... 32
Annual Shortfall............................................................ 32
Applicable Percentage....................................................... 36
Articles of Incorporation................................................... 11
Asset Purchase Agreement.................................................... 1
Assignment of Lease......................................................... 5
Audit Compensation Amount................................................... 51
Authorized Management Company Operating Costs............................... 40
Authorized Signatories...................................................... 15
Average Profit.............................................................. 50
Balance Sheet............................................................... 56
Balance Sheet Date.......................................................... 56
Bankruptcy Event............................................................ 87
Base Collections Amount..................................................... 101
Base Compensation Amount.................................................... 101
Base Term................................................................... 3
Billable Medical Personnel.................................................. 47
▇▇▇▇▇▇▇▇.................................................................... 33
Budgets..................................................................... 28
Bylaws...................................................................... 11
Closing Notice.............................................................. 42
Code........................................................................ 60
Collateral.................................................................. 30
Collections................................................................. 33
Commencement Date........................................................... 3
Comparison Year............................................................. 101
Confidential or Proprietary Information..................................... 97
Continuation Right.......................................................... 42
(i)
Term Page
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Corporate Acquisition....................................................... 100
Corporate Overhead.......................................................... 39
CPIC........................................................................ 74
CPIP........................................................................ 74
Determination Period........................................................ 44
Disengaging Member.......................................................... 96
Documents................................................................... 15
Draw Percentage............................................................. 31
Eligible Parties............................................................ 29
Employee Plans.............................................................. 64
Employees................................................................... 63
Equipment................................................................... 8
ERISA....................................................................... 64
Estimated Expenses.......................................................... 52
Excluded Ancillary Employees................................................ 28
Excluded Ancillary Services................................................. 28
Excluded Costs.............................................................. 38
Facility.................................................................... 80
Fair Market Value........................................................... 94
FF&E........................................................................ 8
Financing Statement......................................................... 30
Internal Financial Statements............................................... 56
Lender...................................................................... 30
Management Business......................................................... 1
Management Company.......................................................... 1
Management Company Balance Sheet............................................ 69
Management Company Balance Sheet Date....................................... 69
Management Company Bank..................................................... 30
Management Company Costs.................................................... 37
Management Company Operating Costs.......................................... 38
Management Company Transaction Documents.................................... 67
Management Fee.............................................................. 35
Management Services......................................................... 2
Medical Business............................................................ 1
Medical Equipment........................................................... 7
Medical Group............................................................... 1
Medical Group Bank.......................................................... 15
Medical Group Collections Account........................................... 15
Medical Group Costs......................................................... 46
Medical Group Services...................................................... 33
(ii)
Term Page
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Medical Group Transaction Documents......................................... 55
Medical Personnel........................................................... 22
Monthly Draw................................................................ 31
Nasdaq...................................................................... 94
Net Operating Income........................................................ 37
New Ancillary Employee Budget............................................... 28
New Ancillary Service Medical Equipment..................................... 48
New Ancillary Services...................................................... 9
New Medical Office.......................................................... 46
New Medical Office Start-Up Costs........................................... 46
New Medical Office Start-Up Period.......................................... 46
New Office Division......................................................... 40
New Office Net Profit Date.................................................. 45
New Office Payment.......................................................... 44
New Physician............................................................... 53
New Physician Compensation.................................................. 54
New Physician Net Collections............................................... 53
New Physician Personnel Expense............................................. 54
Note No. 1.................................................................. 1
Note No. 2.................................................................. 1
Note No. 3.................................................................. 52
Office Lease................................................................ 6
Opening Right............................................................... 43
Operating Account........................................................... 30
Operations Committee........................................................ 73
Physician Advisory Board.................................................... 100
Physician Breakeven Date.................................................... 54
Physician Start Date........................................................ 54
Prepaid Expenses............................................................ 52
Professional Management Cost Savings........................................ 37
Professional Medical Cost Savings........................................... 37
Professional Practice Cost Savings.......................................... 37
Provider Account Agreement.................................................. 31
Rescission Effective Date................................................... 93
Rescission Notice........................................................... 93
Rescission Option........................................................... 92
Rescission Period........................................................... 92
Restricted Stock Agreement.................................................. 86
Retained Accounts Receivable................................................ 29
Returns..................................................................... 59
(iii)
Term Page
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Review Financial Statements................................................. 56
Secondary Period............................................................ 42
Signature Date.............................................................. 1
Special New Medical Office Start-Up Period.................................. 44
Specialty Care Network Profit............................................... 37
Tax......................................................................... 60
Taxes....................................................................... 60
Technical Personnel......................................................... 20
Tenant Improvements......................................................... 75
Term........................................................................ 3
Unaudited Financial Statements.............................................. 69
(iv)
THIS MANAGEMENT SERVICES AGREEMENT (the
"Agreement") is entered into on October
31, 1997, (the "Signature Date"),
effective as of September 1, 1997, by
and between BROWARD INSTITUTE OF
ORTHOPAEDIC SPECIALTIES, P.A., a Florida
professional association (the "Medical
Group"), and BMJ MEDICAL MANAGEMENT,
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 management, administrative, financial,
marketing, information technology, and related services to professional medical
organizations.
C. Concurrently herewith, the Management Company and 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 the Medical Group. In connection
with the Asset Purchase Agreement, the Management Company is issuing two (2)
promissory notes to the Medical Group, one of which is in the aggregate
principal amount of $1,334,041.76 and is due on January 2, 1998 ("Note No. 1")
and the other of which is in the aggregate principal amount of $1,262,209.94 and
is due on the earlier of (i) the consummation of the Management Company's
initial public offering of its common stock or (ii) twelve (12) months from the
date thereof (but in no event earlier than January 2, 1998) ("Note No. 2").
D. The Management Company and the Medical Group desire to enter into this
Agreement, pursuant to which, among other
things, the Management Company will render certain management and administrative
services to the Medical Group.
NOW, THEREFORE, the Medical Group and the Management Company hereby agree
as follows:
SECTION 1. Retention of the Management Company.
1.1. Retention.
The Medical Group hereby retains the Management Company to provide all of
the management and related services identified or referenced in Section 3 hereof
and as otherwise required by this Agreement (collectively, the "Management
Services"), and the Management Company hereby accepts such retention and agrees
to provide such services, upon the terms and subject to the conditions set forth
herein.
1.2. Exclusivity.
During the term of this Agreement, the Management Company shall be the
exclusive provider of all management and administrative services utilized by the
Medical Group; provided, however, that the Medical Group may contract directly
with or otherwise engage individuals or companies for the provision of
accounting, legal, consulting, or other professional or advisory services
(provided that such services shall be in addition to, and not in replacement of,
the services to be provided by the Management Company hereunder), all in the
sole discretion of the Medical Group and at the sole cost of the Medical Group.
1.3. Relationship of Parties.
Notwithstanding anything contained herein to the contrary, (a) the
Management Company and the Medical Group intend to act and perform as
independent contractors, and the provisions hereof are not intended to create
any partnership, joint venture, or employment relationship between the parties,
and (b) the 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
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or any medical professional employed by the Medical Group in connection with the
provision of professional medical services.
1.4. No Referral Obligation.
The parties agree that the benefits to the Medical Group hereunder do not
require, are not payment for, and are not in any way contingent upon the
admission, referral, purchase, or any other arrangement for the provision of any
item or service to or for any of the Medical Group's patients in or from any
medical facility or laboratory or from any other entity owned, operated,
controlled, or managed by the Management Company.
SECTION 2. Term.
Provided that the Closing under the Asset Purchase Agreement shall have
occurred as provided therein, and subject to such start-up procedures as the
parties may agree upon for purposes of facilitating the transition of
responsibilities required by this Agreement, the performance of services under
this Agreement shall commence as of September 1, 1997 (the "Commencement Date")
and shall expire on the fortieth anniversary of the Commencement Date unless
terminated earlier pursuant to the terms hereof (the "Base Term"). The Base Term
of this Agreement shall be automatically extended for successive terms (each, an
"Additional Term," and together with the Base Term, the "Term") of five years
each, unless either party delivers to the other party, not less than six (6)
months nor more than nine (9) months prior to the expiration of the then-current
Term, written notice of such party's intention not to so extend the Term of this
Agreement.
SECTION 3. Management Services.
3.1. Management Services Generally.
(a) The Management Company shall be the sole and exclusive manager and
administrator of all day-to-day business functions for the Medical Group,
subject to the provisions of Section 1.2 hereof. The Management Company shall
provide all of the management and administrative services reasonably required by
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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 New Ancillary Services furnished by the Medical Group.
(c) Additionally, the full range of Management Services as described in
this Agreement shall be applicable with respect to the items identified as
Medical Group Costs in Section 5.7 hereof, except that such Medical Group Costs
shall be paid by the Medical Group rather than by the Management Company.
Accordingly, the Management Company shall provide accounting, bookkeeping, and
related services with respect to all such costs.
(d) The Management Company may enter into such contracts and agreements
with outside services and suppliers as the Management Company shall reasonably
deem necessary in connection with the provision of the Management Services, and,
to the extent permitted by applicable law, such contracts and agreements shall,
except as otherwise expressly provided in this Agreement, be in the name of the
Management Company; provided, however, that without the prior approval of the
Operations Committee (as hereinafter defined), the Management Company shall not
enter into any agreement pursuant to which an unaffiliated third party will
perform substantially all of the duties of the Management Company set forth in
Section 3.6(a) hereof. The Management Company shall have no authority, directly
or indirectly, to perform, and shall not perform or enter into any agreement to
perform, Medical Group Services or any other medical
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function required by law to be performed by a licensed physician or by any other
licensed health care professional.
(e) The Management Company shall comply in all material respects with all
applicable material Federal, state and local laws, regulation, and ordinances in
connection with the provision of the Management Services hereunder.
3.2. Premises.
(a) The Medical Group, as of the Commencement Date, leases premises and
provides Medical Group Services (as hereinafter defined) at the following
locations:
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇ - #▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇.
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇ - #▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Immediately prior to the Commencement Date, all of the above-identified premises
were leased to the Medical Group, in the Medical Group's name. Effective from
and after the Commencement Date, each of the leases for such premises are to be
assigned from the Medical Group to the Management Company pursuant to an
assignment (each, an "Assignment of Lease") substantially in the form attached
hereto as Exhibit B. During the Term, the Medical Group shall, subject in all
instances to the terms of such leases, have the right to use such premises
solely for the provision of Medical Group Services in accordance with the terms
of this Agreement. In connection therewith, the Medical Group agrees in all
instances to abide by all of the
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terms and provisions of all such leases. Upon the expiration of any of the
leases assigned in accordance with this Section 3.2(a), the Management Company
shall use its best efforts to enter into a new lease, in the name of the
Management Company, with the landlord of such premises; provided, however, that
the approval of the Medical Group, which shall not be unreasonably withheld,
shall be required in the event of any substantial changes in the terms of such
lease, and if the Medical Group does not give such approval, the failure to
enter into such new lease shall not constitute a default of the Management
Company. Each assigned lease and each new lease entered into between the
Management Company and the landlord is referred to herein as an "Office Lease."
(b) A New Medical Office (as hereinafter defined) may be opened only upon
the agreement of the Operations Committee. The capital costs and start-up costs
reasonably required in connection with the opening of any New Medical Office
shall be borne as set forth in Section 5 hereof. The premises of any New Medical
Office shall be leased by the Management Company, in the Management Company's
name, and the Medical Group shall, subject in each instance to the terms of any
such lease, have the right to use the premises of any such New Medical Office
solely for the provision of Medical Group Services in accordance with the terms
of this Agreement. In connection therewith, the Medical Group agrees in all
instances to abide by all of the terms and provisions of all such leases.
Notwithstanding anything to the contrary contained in this Agreement, the
Management Company may, in its sole discretion, determine to permanently close
any New Medical Office if such office is not, after 12 months of operation,
profitable (as determined in the sole discretion of the Management Company)
(subject, however, to the right of the Medical Group pursuant to Section 5.6(c)
hereof to keep such New Medical Office open).
(c) Except as set forth in Sections 3.2(a) or (b) above, the closing or
relocation of any offices of the Medical
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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 connection with the provision of Medical Group Services
(collectively, the "Medical Equipment"). The Management Company shall acquire
(or lease), at its cost, all Medical Equipment, and the Management Company shall
retain ownership of (or the leasehold interest with respect to) all Medical
Equipment. As used herein, the term Medical Equipment shall not include medical
equipment used in connection with a New Ancillary Service or Excluded Ancillary
Service (each as hereinafter defined).
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(b) The Management Company also shall provide, or arrange for the provision
of, to the Medical Group all furniture, furnishings, trade fixtures, and office
equipment reasonably required in connection with the provision of Medical Group
Services pursuant to this Agreement (collectively, "FF&E"). The Management
Company shall acquire, at its cost, all FF&E, and the Management Company shall
retain ownership of all FF&E. As used herein, the term FF&E does not include
furniture, furnishings, trade fixtures, and office equipment used in connection
with a New Ancillary Service.
(c) The Medical Equipment and the FF&E are sometimes referred to
collectively as the "Equipment." The acquisition, replacement, relocation, or
other disposition of any Equipment shall require prior approval as provided in
Section 8.2 hereof.
(d) The Medical Group's right to use the Equipment shall be subordinate to
the rights of any unaffiliated third party to which the Management Company
elects, in its sole discretion, to grant any security interest, mortgage, lien
or 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
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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) SOLELY WITH RESPECT TO THE EQUIPMENT INITIALLY PROVIDED TO THE MEDICAL
GROUP UPON THE EXECUTION OF THIS AGREEMENT, THE MEDICAL GROUP ACKNOWLEDGES THAT
THE MANAGEMENT COMPANY IS HEREIN MAKING NO WARRANTIES OR REPRESENTATIONS,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER RELATING TO THE EQUIPMENT
PROVIDED TO THE MEDICAL GROUP PURSUANT TO THIS AGREEMENT, INCLUDING, WITHOUT
LIMITATION, THE DESIGN CONDITION OF THE EQUIPMENT, THE CONFORMANCE THEREOF TO
THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE ORDER RELATING THERETO, OR THE
FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE. Nothing in this Agreement
shall be construed to affect or limit in any way the professional discretion of
the Medical Group to select and use any Equipment acquired by the Management
Company in accordance with the terms of this Agreement insofar as such selection
or use constitutes or might constitute the practice of medicine.
3.4. New Ancillary Services.
(a) For purposes of this Agreement, "New Ancillary Services" means the
technical component (but not the professional component) of the following,
except as set forth in Schedule I:
(i) Magnetic resonance imaging and/or other imaging services (except
diagnostic radiology);
(ii) Outpatient surgery; and
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(iii) Other revenue-producing services generally recognized as
ancillary services, but excluding the following:
(A) Any services provided on a regular basis by the Medical Group
immediately prior to the Commencement Date, including without
limitation (1) plain film and other diagnostic radiology (if
any), (2) ultrasound for pediatric patients, (3) physical
therapy; and (4) densitometry; 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
-10-
5.8 of this Agreement, except as may otherwise be agreed upon by the parties.
3.5. Administration, Finance and Accounting.
The Management Company shall provide or arrange for the provision of all
administrative, financial, and accounting functions necessary for the operation
of the Medical Group, including, without limitation, the following (if
applicable):
(a) Creation and maintenance of bank accounts.
(b) Deposits of receipts.
(c) Preparing accounts receivable summary reports, including various
analyses of delinquent accounts.
(d) Receiving appropriate approvals as required by the Medical Group's
articles of incorporation (the "Articles of Incorporation") and its
bylaws (the "Bylaws") prior to distribution of payments to outside
parties; provided, however, that the Management Company shall not be
responsible for or liable with respect to interpretations of the
Articles of Incorporation or Bylaws.
(e) Disbursement of payables, including payables of the Medical Group;
provided, however, that payables of the Medical Group shall be paid
from an account of the Medical Group and not from any of the
Management Company's bank accounts, and all checks drawn on any
Medical Group account shall be signed by an authorized representative
of the Medical Group; provided, further, that the accounts payable
function shall be performed by personnel located at the offices where
the Medical Group performs Medical Group Services, under the
supervision
-11-
of the Management Company personnel located at its principal offices.
(f) Negotiation of vendor contracts.
(g) Performing monthly accounting functions, including bank
reconciliations, maintenance of books and records, and preparation of
financial statements.
(h) Analyzing financial data as reasonably requested by physicians.
(i) Analyzing potential New Medical Office locations, and coordinating all
functions associated with opening New Medical Office locations.
(j) Preparing monthly financial and medical practice statistics reports by
satellite office and by physician, and the Management Company shall
use its reasonable efforts to have such reports available, with
respect to any given month, 20 days after the end of such month.
(k) Providing from the Medical Group's bank account(s) compensation
payments to physicians and professional corporations pursuant to
service agreements, monthly profit and loss distributions, and
quarterly bonus calculations; provided, however, that the Management
Company shall not be responsible for or liable with respect to
interpretations of the Articles of Incorporation or Bylaws; provided,
further, that all checks drawn on any Medical Group bank account shall
be signed by an authorized representative of the Medical Group.
-12-
(l) Calculating physicians' annual earnings based on the Medical Group's
physician compensation formulas.
(m) Ongoing day-to-day communication with the managing partner, member or
stockholder (or other manager of the Medical Group) and assisting such
person in fulfilling his responsibilities.
(n) Preparing agendas and information packages for Medical Group meetings.
(o) Developing budgets and long-term strategies for the Medical Group,
including an initial long-term plan and capital expenditures budget
and the Management Company shall use its reasonable efforts to have
such plan and budget delivered to the Medical Group within 180 days
and 90 days, respectively, after the Commencement Date.
(p) Coordinating payroll processing and payroll tax payments.
(q) Providing ongoing personnel FTE analysis.
(r) Sponsoring employee benefit plans and providing administrative
services relating thereto for the Medical Personnel (as hereinafter
defined), provided that if the Medical Group elects not to participate
in the employee benefit plans established by the Management Company,
the Management Company shall not be required to perform the services
set forth in this clause (r).
-13-
(s) Coordinating recruitment, interviewing, and hiring of new physicians
approved by the Medical Group, in its sole discretion.
(t) Implementing fee schedule increases and/or decreases established by
the Medical Group.
(u) Coordinating depositions and court appearances.
(v) Assisting in the coordination of call schedules.
(w) Assisting in the coordination of coverage of athletic team events.
(x) Acting as liaison to hospital administration, physical therapy,
surgery center, MRI, and other ancillary services entities.
(y) Cooperating with outside accountants in preparing various schedules
and providing other information.
(z) Interacting with legal counsel retained by the Management Company as
necessary in connection with matters directly impacting the Medical
Group, such as with respect to reviewing and negotiating new leases
and reviewing and negotiating managed care contracts.
3.6. Billing and Collection.
(a) The Medical Group acknowledges that ownership of all Accounts (as
hereinafter defined) is transferred by the Medical Group to the Management
Company as provided in greater detail in Section 5.1 of this Agreement. In order
to facilitate the collection of the Accounts, the Management Company shall (i)
▇▇▇▇ patients and third party payors in the Medical Group's name; (ii) collect
accounts receivable resulting from such billing;
-14-
(iii) receive payments and prepayments from the Medical Group's patients, Blue
Cross and Blue Shield organizations, insurance companies, health care plans,
Medicare, Medicaid, HMOs, and any and all other third party payors; (iv) take
possession of and deposit into such bank (the "Medical Group Bank") as the
Medical Group designates, in an account established by the Medical Group in the
name of the Medical Group (the "Medical Group Collections Account"), any and all
checks, insurance payments, cash, cash equivalents and other instruments
received for Medical Group Services; and (v) initiate with the consent of the
Medical Group, which consent may be withheld by the Medical Group in its sole
and absolute discretion, legal proceedings in the name of the Medical Group to
collect any Accounts and monies owed to the Medical Group, to enforce the rights
of the Medical Group as a creditor under any contract or in connection with the
rendering of any service, and to contest adjustments and denials by governmental
agencies (or their fiscal intermediaries) as third-party payors. The Medical
Group shall promptly turn over to the Management Company for deposit into the
Medical Group Collections Account in accordance with this Agreement all checks
and other payments received by the Medical Group or by any of its partners,
equity owners or employees from any patient or third party payor for Medical
Group Services rendered during the Term.
(b) From time to time at the Management Company's request, the Medical
Group shall make available to the Management Company one or more authorized
signatories (the "Authorized Signatories") of the Medical Group to sign any
letters, checks, instruments or other documents (the "Documents") on behalf of
the Medical Group that are necessary for the Management Company to take the
actions specified in this Section 3.6 and to perform its duties under this
Agreement. If the Management Company notifies the Medical Group that an
Authorized Signatory is not signing the Documents in a timely manner, the
Management Company shall not be liable for any failure to perform its duties
hereunder or for any failure to perform the Management Services to the extent
caused
-15-
by the failure of an Authorized Signatory to sign the Documents in a timely
manner.
(c) The Management Company shall submit all bills and manage the billing
process on a timely basis in accordance with the terms of this Agreement and
applicable law.
(d) Without limiting the generality of the foregoing, the Management
Company shall ▇▇▇▇ 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 obtain all appropriate insurance and other information
required.
(ii) Submit claims utilizing electronic billing submission, whenever
appropriate.
(iii) Perform delinquent account collection calls and other
appropriate follow-up mechanics for delinquent accounts of all insurance
classifications, all in a timely fashion as determined by the Operations
Committee.
(iv) Turn over to outside collection agencies all delinquent accounts
satisfying the criteria established by the Operations Committee. The
Management Company shall also follow-up on the performance of the outside
collection agencies and make changes, if necessary, and shall reconcile
-16-
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
those set forth in the Medical Group's then current fee schedule; provided,
however, that the Management Company may accept in payment thereof amounts
equal to those set forth on the most recently approved Florida workers'
compensation fee schedule.
(viii) Apply "insurance only" and other courtesy write-offs in
compliance with Operations Committee policy.
(ix) With respect to discounted fee-for-service contracts with
Preferred Provider Organizations (PPOs) and Health Maintenance
Organizations (HMOs), determine that payments 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:
(A) Follow-up to ensure that payments to the Medical Group are
made on a timely basis; and
(B) Review and audit enrollment data provided by the HMO to
ensure that the capitation payments are based on the proper
number of lives enrolled.
-17-
(xi) With respect to lien accounts, the Management Company shall:
(A) Ensure that appropriate documents are signed and agreed to
initially as between the Medical Group, attorney and
patient;
(B) Follow-up on a regular basis as to the status of the
account; and
(C) Apply the policies of the Operations Committee in resolving
open account balances.
(xii) With respect to student athlete accounts, the Management Company
shall coordinate insurance and other information in compliance with the
policy of the Operations Committee.
(xiii) With respect to amounts withheld by payors in compliance with
contracts between the payor and the Medical Group, the Management Company
shall follow-up on a timely basis to ensure that withheld amounts are paid
to the Medical Group, if warranted, and to ensure that amounts not paid are
verified and audited for appropriateness.
(xiv) Coordinate the timely payment of refunds to patients and third
party payors when appropriate.
(xv) Ensure that revenues related to depositions, record review and
court appearances are accounted for, monitored, followed-up, and ultimately
collected.
-18-
3.7. Administrative Personnel.
(a) The Management Company shall retain and provide or arrange for the
retention and provision of the following non-medical personnel necessary for the
conduct of the Medical Group's business operations (collectively,
"Administrative Personnel"):
(i) Administration;
(ii) Accounting;
(iii) Billing and Collection;
(iv) Secretarial;
(v) Transcription;
(vi) Appointments;
(vii) Switchboard;
(viii) Medical Records;
(ix) Chart Preparation;
(x) Historians;
(xi) Clinic Support; and
(xii) Marketing.
(b) The Management Company shall determine and pay, or arrange for the
payment of, the salaries and fringe benefits of the Administrative Personnel,
and shall provide or arrange for other personnel services related to the
Administrative Personnel, including, but not limited to, scheduling, determining
personnel policies, administering continuing education benefits, and payroll
administration; provided, that the Medical Group shall have the right to approve
the rates of pay of the Administrative Personnel and any changes therein.
(c) With respect to each applicable new employee in Administrative
Personnel, the Management Company shall, as
-19-
reasonably necessary, verify, or arrange for the verification of, educational
and employment experience, licensure, insurability and compliance with those
drug-free workplace restrictions contained in the Management Company's employee
manual.
(d) The Management Company shall attempt, consistent with sound business
practices, to honor Medical Group requests with regard to the retention or
assignment of specific Administrative Personnel to the Medical Group. In the
event that the Management Company receives a complaint from the Medical Group
that any of the Administrative Personnel is interfering with or disrupting the
provision of Medical Group Services by the Medical Group, the Management Company
will use reasonable efforts to attempt to promptly remedy any such complaint. If
any such complaint is not remedied to the reasonable satisfaction of the Medical
Group, then the Management Company shall remove such Administrative Personnel,
if requested by the Medical Group, from the Medical Group's facilities, if and
to the extent such action by the Management Company will not violate any
applicable law.
(e) All of the services provided by the Management Company under this
Section 3.7, including the obligations set forth in Section 3.7(d), shall be
performed in compliance with all applicable laws.
3.8. Technical Personnel; Leased Employees.
(a) Subject to the conditions set forth in this Section 3.8, the Management
Company shall employ or contract with, or shall arrange for, and shall provide
to the Medical Group as leased employees, such Technical Personnel (as defined
below) as may reasonably be necessary for the conduct of the Medical Business.
(b) For purposes of this Agreement, "Technical Personnel" means nurses,
medical assistants, x-ray technicians, other technicians, and other personnel
who perform diagnostic tests or other services that are covered by Medicare or
by other
-20-
third party payors when performed by an employee of a physician under the
physician's supervision.
(c) The Medical Group shall have the right to exercise, and shall exercise,
such supervision and control over the activities of the Technical Personnel and
Excluded Ancillary Employees (as hereinafter defined) as may be necessary for
the Technical Personnel and Excluded Ancillary Employees 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 and any Excluded
Ancillary Employees terminated from employment;
(ii) furnish the Technical Personnel and Excluded Ancillary Employees
with the equipment and supplies needed by the Technical Personnel for their
work;
(iii) provide the Technical Personnel and Excluded Ancillary Employees
with any necessary training;
(iv) instruct the Technical Personnel and Excluded Ancillary Employees
regarding their activities performed for the Medical Group;
(v) establish the hours of work for the Technical Personnel and
Excluded Ancillary Employees;
(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.
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(d) With respect to each of the Technical Personnel, the Management Company
shall verify or arrange for the verification of educational and employment
experience, licensure and insurability, and shall review and provide the Medical
Group with copies of any complaints contained in public files with applicable
state and Federal commissions.
3.9. Medical Personnel Recruiting.
(a) The Management Company shall, upon request by the Medical Group, assist
the Medical Group in recruiting Medical Personnel. The Medical Group shall be
solely responsible for the selection and retention of Medical Personnel,
provided that any such Medical Personnel shall possess all of the licensure
required under applicable Federal and state law for such individual to perform
his or her duties. "Medical Personnel" means:
(i) Physicians (including fellows and residents, if any) providing
professional medical services who are employees or independent contractors
of the Medical Group; and
(ii) Physician assistants, nurse practitioners, and other health care
professionals who provide services that are billable to patients or third
party payors under the name of such health care professional (as
distinguished from services that are billable under the name of the
supervising physician).
(b) With respect to each of the Medical Personnel, the Management Company
shall verify or arrange for the verification of educational and employment
experience, licensure and insurability, and shall review and provide the Medical
Group with copies of any complaints contained in public files with applicable
state and Federal commissions.
-22-
3.10. Inventory and Supplies.
The Management Company shall order and purchase, or arrange for the order
and purchase of, inventory and supplies on behalf of the Medical Group, and such
other ordinary or appropriate materials the Medical Group reasonably deems to be
necessary for the Medical Group to carry out its Medical Group Services.
Inventory and supplies shall include, but not be limited, to:
(a) Medical supplies;
(b) Office supplies;
(c) Postage;
(d) Computer forms and supplies;
(e) Printing and stationery supplies;
(f) Printer supplies; and
(g) Linen and laundry supplies.
3.11. Taxes.
The Management Company shall provide the Medical Group with access to all
information necessary for the Medical Group to prepare its tax returns. The
Management Company shall have no responsibility for:
(a) The payment of the Medical Group's taxes; or
(b) The preparation of any income tax returns for the Medical Group.
3.12. Information Systems Management.
(a) The Management Company shall provide or arrange for the provision of
management information systems services to be utilized by the Medical Group.
These services shall include, but not be limited to, ongoing maintenance and
enhancement of the existing information systems used by the
-23-
Medical Group in connection with the provision of the following services:
(i) Accounts receivable - Billing/Insurance/Collections;
(ii) On-line appointment scheduling;
(iii) Internal e-mail;
(iv) On-line transcription;
(v) Faxing subsystem;
(vi) Electronic claims submission;
(vii) Patient flow monitoring system;
(viii) Authorization module;
(ix) Prescription module;
(x) X-ray tracking system;
(xi) Voice mail;
(xii) Paperless medical records; and
(xiii) Bar code chart tracking system.
(b) The services provided by the Management Company shall protect the
confidentiality of patient medical records to the extent required by applicable
law or the Medical Group's payor agreements; provided, however, that in no event
shall a breach of such confidentiality be deemed a default under this Agreement
if the Management Company acted reasonably and in good faith to protect such
confidentiality.
3.13. Use of New Technologies in the Practice of Medicine.
The Management Company shall utilize reasonable efforts to promote the
integration of new technologies into the professional practice of the Medical
Group, including, without limitation, the use of satellite and other
telecommunications
-24-
services that permit the provision of remote consultations, virtual operations,
and other professional services; provided, however, that the foregoing shall be
subject to the terms of Section 8.2(e) hereof.
3.14. Public Relations; Marketing and Advertising.
The Management Company shall develop and implement community outreach
programs and public relations programs designed to educate the patient
population regarding the Medical Group, the availability of its medical
services, and the availability in terms of any managed care programs in which
the Medical Group participates. The Management Company also shall develop and
implement marketing and advertising programs as reasonably required to promote
and expand the Medical Business, subject to any approved budgets. These programs
shall be 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. Any promotional materials created
primarily for the purpose of marketing the services provided by the Medical
Group and the use of any individual physician's name in any promotional
materials shall require the consent of the Medical Group or such physician, as
the case may be.
3.15. Insurance.
The Management Company shall, to the extent permitted by applicable law,
provide the insurance coverage described in Section 12.1, and may obtain the
insurance described in Section 12.2 of this Agreement.
3.16. Files and Records.
(a) To the extent permitted by applicable law, the Management Company shall
supervise and maintain custody of all files and records relating to the
operation of the business of the Medical Group, including, without limitation,
accounting, billing, collection, and patient medical records. The management
-25-
of all files and records shall be in compliance with applicable state and
Federal statutes. Patient medical records shall at all times be and remain the
property of the Medical Group and shall be located at a location that is readily
accessible for patient care. The Management Company shall preserve the
confidentiality of patient medical records and use information contained in such
records only for the limited purposes necessary to perform the Management
Services set forth herein; provided, however, that in no event shall a breach of
such confidentiality be deemed a default under this Agreement if the Management
Company acted reasonably and in good faith to protect such confidentiality.
(b) The Management Company shall provide all off-site storage of files and
records as required and in conjunction with policies established by the
Operations Committee. The Management Company shall provide the Medical Group
with all requested off-site files and records on a timely basis, consistent with
the policies of the Medical Group in effect immediately prior to the
Commencement Date. Any change in such policies shall be subject to the approval
of the Operations Committee.
(c) In the event of termination of this Agreement, the Management Company
shall deliver to the Medical Group at no charge a copy of the books and records
of the Medical Group in the Management Company's possession. In the event any
physician of the Medical Group terminates his affiliation with the Medical Group
during the Term, the Management Company shall, within 30 days after receipt of
written instructions from the Medical Group, deliver to such physician a copy of
the books and records pertaining to the Medical Group Services provided by such
physician during the five years prior to such physician's departure from the
Medical Group; provided that the Management Company shall not be obligated to
return any books and records pertaining to Medical Group Services provided prior
to the Commencement Date.
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3.17. Managed Care Contracts.
(a) 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.
(b) In the event that the Management Company, or the Management Company and
its affiliated medical practices acting together, shall enter into any contracts
with third-party payors to provide any of the services included within the
Excluded Ancillary Services (as hereinafter defined) within the geographic area
served by the Medical Group (which for purposes hereof is defined as the
geographic area within the following boundaries: (i) to the south by the Broward
County/Dade County line; (ii) to the north by route I 595; (iii) to the east by
the Atlantic Ocean; and (iv) to the west by the ▇▇▇▇▇▇▇ County/Broward County
line)), then the Management Company agrees to provide the Medical Group with a
right of first refusal to provide such services within the applicable geographic
area; provided that the pricing offered by the Medical Group to perform such
services is competitive with rates generally charged by other service providers
in such area. In the event that at such time the Management Company is then
affiliated with a competing service provider that services the same geographic
area, then in order to exercise its right of first refusal the Medical Group
must provide such services at the same rate as such competing Management Company
affiliate. In the event that such right of first refusal becomes applicable, the
Management Company shall provide the Medical Group with written notice thereof
and the
-27-
parties agree to negotiate in good faith in accordance with the provisions of
this Section 3.17(b).
3.18. Budgets.
(a) 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 and the Management Company hereby agree that the
budget(s) attached hereto as Schedule II is (are) the Budget(s) for the Medical
Group with respect to the time periods set forth thereon. All other budgets
shall be on a calendar year basis. The Management Company shall prepare and
submit to the Operations Committee all subsequent Budgets on or before December
1 of the year immediately preceding the calendar year for which such Budget is
applicable.
(b) In addition to the foregoing budgets, the Management Company shall
prepare, for the review and approval of the Operations Committee, an annual
budget (the "Excluded Ancillary Employee Budget") of the compensation (wages and
otherwise) payable to all employees (the "Excluded Ancillary Employees")
dedicated (part-time or full-time) to the provision of physical therapy
services, bone densitometry services and services offered by the Medical Group's
certified outpatient rehabilitation facilities (the "Excluded Ancillary
Services"); provided, however, that the Medical Group and the Management Company
hereby agree that the Excluded Ancillary Employee Budget attached as Schedule
II-A is approved with respect to the time period set forth therein. The
Management Committee shall prepare and submit to the Operations Committee all
subsequent Excluded Ancillary Employee Budgets on or before December 1 of the
year immediately preceding the calendar year for which such budget is
applicable.
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3.19. Force Majeure.
The Management Company shall not be liable to the Medical Group for failure
to perform any of the services required herein in the event of strikes,
lock-outs, calamities, acts of God, unavailability of supplies, changes in
applicable law or regulations or other extraordinary 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, the allocation of which has been determined
and apportioned by the Medical Group.
SECTION 5. Costs, Compensation, and Other Payments.
5.1. Ownership of Accounts; Security.
The Medical Group 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 Medical Group 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 parties agree that all of the Medical
Group's accounts receivable existing as of the close of business on August 31,
1997 and any amounts owing to the Medical Group for services provided through
such date (collectively, the "Retained Accounts Receivable") shall remain the
property of the Medical Group. Notwithstanding anything to the contrary
contained herein, the collections relating to any Retained Accounts Receivable
shall not be included in the computations of Collections, the Annual Medical
Group Compensation Amount, or the Management Fee as described in Sections 5.3
and 5.4 hereof. The Management Company shall have
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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 (the "Financing Statement") for the benefit of the Management Company
evidencing the foregoing transfer of the Accounts and perfecting the Management
Company's ownership interests therein. The Medical Group hereby acknowledges
that the Lender is a third party beneficiary of the benefits granted to the
Management Company under this Section 5.1. The Medical Group shall cooperate
with the Lender as reasonably requested by the Lender 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.
Except as otherwise provided in Section 13.4 hereof, 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"). The Medical Group shall
enter into a mutually acceptable Provider Account Agreement with the Medical
Group Bank, the Management Company, and the Management Company's lender (the
"Provider Account
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Agreement"), in order to satisfy the foregoing obligation. The parties hereto
agree and acknowledge that the Medical Group will not be obligated to transfer
to the Operating Account any funds in its separate bank accounts utilized in
connection with its operation of the Excluded Ancillary Services.
5.3. Annual Medical Group Compensation Amount.
(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).
(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. Additionally, the
Management Company may adjust the Draw Percentage from time to time based
on the actual Collections year-to-date in order to minimize the amount of
any annual settlement payment reasonably anticipated to be required under
Section 5.3(b).
(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
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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) actually paid 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 Company shall pay
to the Medical Group on or before May 15, an amount equal to the Annual
Shortfall, plus interest thereon at the rate of eight (8%) percent per
annum, commencing July 1 of the prior calendar year (or, with respect to
the first calendar year of this Agreement, if applicable, the Commencement
Date). If the Annual Medical Group Compensation Amount 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, plus interest thereon at the rate of
eight (8%)
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percent per annum, commencing July 1 of the prior calendar year (or, with
respect to the first calendar year of this Agreement, if applicable, the
Commencement Date).
(iii) With respect to this Section 5.3(b), for purposes of determining
the total Collections for all Medical Group Services provided during any
calendar year or portion thereof during the Term, all Collections during
January, February, and March of such year shall be deemed to be for Medical
Group Services rendered during the previous calendar year, and all
Collections during April through December shall be deemed to be for Medical
Group Services rendered during the calendar year in which such Collections
were received. The foregoing shall also apply with respect to determining
the Management Fee earned by the Management Company for the previous
calendar year, for purposes of this Section 5.3(b).
(iv) Notwithstanding anything to the contrary set forth herein, the
first period for which the annual settlement described in this Section
5.3(b) shall be applicable is the period commencing on the Commencement
Date and ending on December 31, 1997.
(c) For purposes of this Agreement:
(i) "▇▇▇▇▇▇▇▇" means, for any applicable period, the gross charges of
the Medical Group for all Medical Group Services furnished during such
period.
(ii) "Collections" means, for any applicable period, all cash or cash
equivalents received during such period for Medical Group Services,
including any capitation payments, less any refunds paid during such
period.
(iii) "Medical Group Services" means the following services rendered
by, through, or on behalf of the
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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 or Excluded 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;
(C) royalties payable to any Medical Group physician for medical
inventions;
(D) fees payable under consulting agreements entered into by
Medical Group physicians;
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(E) revenues from presentations, publications, medical
directorships, service as the head of a hospital department,
service on hospital committees or hospital boards of
directors, and endorsements;
(F) revenues received by individual physicians from emergency
room calls where they are not seeing patients and the
physicians are paid directly by the subject hospital;
(G) proceeds from the sale of any capital assets of the Medical
Group; and
(H) any income from investments.
Notwithstanding anything to the contrary contained therein, any revenues
received by any Billable Medical Personnel (as hereinafter defined) from any
source set forth in clauses (D) and (E) above, shall be included in ▇▇▇▇▇▇▇▇,
Collections and Medical Group Services if the revenues from Medical Group
Services generated by such Billable Medical Personnel during any year are
materially reduced by the Billable Medical Personnel's participation in such
activities.
(v) For illustrative purposes only, an example of the computation of
the Annual Settlement is set forth on Schedule VII attached hereto.
5.4. Management Fee.
(a) The compensation payable to the Management Company for the provision of
Management Services under this Agreement (the "Management Fee"), which the
Management Company may retain from funds received by the Medical Group from time
to
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time at its discretion, shall be equal to (i) the sum of (A) an amount equal
to the Applicable Percentage (as hereinafter defined) of Net Operating Income,
(B) an amount equal to sixty six and two-thirds percent (66-2/3%) of the
Professional Management Cost Savings (as hereinafter defined) and (C) any
amounts owed to the Management Company pursuant to Section 5.11 hereof, if any,
less (ii) an amount equal to the Medical Group's pro rata portion of the
Specialty Care Network Profit (as hereinafter defined) for such period, if any,
based on the number of claims generated by the Medical Group through the
specialty care network owned or operated by the Management Company during the
applicable period. The Management Fee shall not include any Professional Medical
Cost Savings (as hereinafter defined), but all of such savings will accrue for
the benefit of the Medical Group. For illustrative purposes only, an example of
the computation of the Management Fee is set forth on Schedule VII attached
hereto.
(b) For purposes of this Section 5.4, the following terms have the meanings
set forth below:
(i) "Addbacks" means, for any applicable period, the aggregate amount
of expense incurred during such period for the benefit of the Medical Group
for each of the following line items in excess of the respective amounts
budgeted therefor in the Budget for such period: (A) entertainment and (B)
automobiles;
(ii) "Adjusted Operating Expenses" means, for any period, an amount
equal to (A) Professional Practice Cost Savings (as hereinafter defined),
plus (B) Authorized Management Company Operating Costs, minus (C) Addbacks;
(iii) "Applicable Percentage" has the meaning set forth on Schedule V;
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(iv) "Net Operating Income" means, for any period, an amount equal to
Collections minus Adjusted Operating Expenses;
(v) "Professional Management Cost Savings" means the Professional
Practice Cost Savings described in Section A.1 of Schedule VI;
(vi) "Professional Medical Cost Savings" means the Professional
Practice Cost Savings described in Section A.2 of Schedule VI;
(vii) "Professional Practice Cost Savings" means the cost savings
determined in the manner described on Schedule VI; and
(viii) "Specialty Care Network Profit" means the excess of the fee(s)
received by the Management Company over the costs incurred by the
Management Company, each in connection with its ownership and/or operation
of a specialty care network.
(c) In addition to all other payments to which the Management Company is
entitled under this Agreement, the Management Company shall be promptly
reimbursed by the Medical Group for all costs associated with employing the
Excluded Ancillary Employees, as set forth on the Excluded Ancillary Employee
Budget for the subject year. The Management Company shall be entitled to such
reimbursement in accordance with its normal payroll practices for employees
working with the Medical Group.
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
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Company, and not in the name of the Medical Group, except as specifically
approved by the Medical Group. Management Company Costs shall not include any
costs or expenses incurred prior to the Commencement Date.
(b) The Management Company shall provide to the Medical Group on a monthly
basis a schedule listing all Management Company Costs paid by the Management
Company during the preceding month; provided, that the parties acknowledge that
during the initial 180-day phase-in period of this Agreement, there may be some
delays in delivering such information, which delay will not be deemed a default
hereunder. In addition, 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) Ancillary Service Start-Up Costs (as hereinafter defined);
(ii) New Medical Office Start-Up Costs;
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(iii) the cost of any FF&E provided by the Management Company to the
Medical Group, including the capital costs associated with any information
systems technology implemented by the Management Company (subject to the
provisions of Section 8.2(e) hereof); provided that the costs associated
with the maintenance of such technology shall be an expense included in the
Budget and shall be deemed an Authorized Management Company Operating Cost
for purposes of this Agreement;
(iv) depreciation, amortization, and interest; and
(v) any amounts by which Management Company Operating Costs exceed
Authorized Management Company Operating Costs; and
(vi) corporate overhead of the Management Company ("Corporate
Overhead") except to the extent that all of the following conditions are
satisfied, as determined by the Operations Committee:
(A) The Corporate Overhead is incurred in lieu of a pre-existing
Management Company Operating Cost;
(B) The amount of such Corporate Overhead does not exceed the
amount of the 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.
-39-
Any Corporate Overhead with respect to which all of the above conditions are
satisfied shall be considered Management Company Operating Costs; provided that
notwithstanding the foregoing, Corporate Overhead relating to the provision of
legal, accounting, financing, purchasing or human resources services pursuant to
the provisions of Section 3 hereof, but in each case excluding any of such
services which are solely for the benefit of or performed at the request of the
Medical Group or its stockholders, shall constitute Excluded 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 documentation or other backup detail which has not
been furnished by the Management Company or which does not reasonably
establish the appropriateness of such costs; and
(iii) any costs that have been determined pursuant to an audit under
Section 5.9 not to have been reasonably incurred in connection with the
Management Services required to be provided under this Agreement.
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.
-40-
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.
(b) At the end of the New Medical Office Start-Up Period (as hereinafter
defined), the funds allocated to the New Office Division will be retroactively
included in the general accounts of the Medical Group and the Management
Company, respectively, as contemplated in Sections 5.3, 5.4, 5.5 and 5.7 of this
Agreement in accordance with the following: (i) the Management Company shall be
reimbursed for all of the Management Company Operating Costs incurred by the
Management Company for each New Medical Office, (ii) the Management Company
shall be entitled to receive the aggregate Management Fee as described in
Section 5.4 and (iii) the Medical Group shall be entitled to receive the Annual
Medical Group Compensation Amount for such new Medical Office, in each case, as
if such New Medical Office had been any other office of the Medical Group during
the New Medical Office Start-Up Period; provided, however, that notwithstanding
the foregoing, if the aggregate Collections for such New Medical Office during
the New Medical Office Start-Up Period is equal to or less than sum of (x) the
New Medical Office Start-Up Costs associated with such New Medical Office and
(y) the Management Fee payable with respect to the Collections of such New
Medical Office, in each case during the New Medical Office Start-up Period, then
(A) the Management Company and the Medical Group shall not be entitled to
receive the Management Fee or the Annual Medical Group Compensation Amount, as
applicable and (B) the Management Company shall be responsible for the deficit,
if any, associated with such New Medical Office; provided that the aggregate
amount of Collections received during the New Medical Office Start-Up Period for
such New Medical Office shall belong solely to the Management Company.
-41-
(c) In the event that the New Medical Office is not profitable (as
reasonably determined by the Management Company) as of the end of the New
Medical Office Start-Up Period, and the Management Company desires to close such
New Medical Office, it must provide the Medical Group with written notice (the
"Closing Notice") thereof within 15 days after the end of the New Medical Office
Start-Up Period. The Medical Group shall then have the right (the "Continuation
Right"), which it must exercise by delivering written notice to the Management
Company within five (5) days after receipt of the Closing Notice, to keep the
New Medical Office open. In the event that the Medical Group exercises its
Continuation Right, then the Medical Group shall be required to fund all costs
that fall within the definition of New Medical Office Start-Up Costs incurred
during the period from the expiration of the New Medical Office Start-Up Period
through and including the date that the New Medical Office becomes profitable
(as reasonably determined by the Management Company) (the "Secondary Period").
Upon the conclusion of the Secondary Period, the funds allocated to the New
Office Division during the Secondary Period shall be included in the general
accounts of the Medical Group and the Management Company, respectively, in the
manner set forth in 5.6(b) above; provided, however, that notwithstanding the
foregoing, if the aggregate Collections for such New Medical Office during the
Secondary Period are equal to or less than the sum of (x) the costs that fall
within the definition of New Medical Office Start-Up Costs associated with such
New Medical Office and (y) the Management Fee payable with respect to the
Collections of such New Medical Office, in each case during the Secondary
Period, then (A) the Management Company and the Medical Group shall not be
entitled to receive the Management Fee or the Annual Medical Group Compensation
Amount, as applicable and (B) the Medical Group shall be responsible for the
deficit, if any, associated with such New Medical Office; provided, however,
that the aggregate amount of Collections received during the Secondary Period
for such New Medical Office shall belong solely to the Medical Group.
Notwithstanding the
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foregoing, if the Medical Group elects to close such New Medical Office prior to
its becoming profitable, the aggregate amount of Collections received during the
Secondary Period for such New Medical Office shall belong solely to the Medical
Group.
(d) Notwithstanding anything contained herein to the contrary, in the event
that either (i) the Operations Committee determines not to open a potential New
Medical Office proposed by the Medical Group, or (ii) the Operations Committee
is deadlocked as to whether to open such New Medical Office proposed by the
Medical Group, or (iii) the Operations Committee is deadlocked as to whether to
open such New Medical Office proposed by the Medical Group, and the decision of
the arbitrator pursuant to Section 8.2 hereof is not to open such New Medical
Office, then in any such event the Medical Group shall have the right (the
"Opening Right"), upon delivery of written notice to the Management Company, to
open such New Medical Office. In the event that the Medical Group exercises its
Opening Right, the Medical Group shall be required to fund all costs within the
definition of New Medical Office Start-Up Costs incurred during the Special New
Medical Office Start-Up Period (as hereinafter defined). Upon the conclusion of
the Special New Medical Office Start-Up Period, the funds allocated to the New
Office Division during the Special New Medical Office Start-Up Period shall be
included in the general accounts of the Medical Group and the Management
Company, respectively, in the manner set forth in 5.6(b) above; provided,
however, that notwithstanding the foregoing, (i) no Management Fees shall be
payable to the Management Company during the Special New Office Start-Up Period
and (ii) if the aggregate Collections for such New Medical Office during the
Special New Medical Office Start-Up Period are equal to or less than the sum of
(x) the costs that fall within the definition of New Medical Office Start-Up
Costs associated with such New Medical Office, plus (y) interest at the rate of
ten (10%) percent per annum on such costs which shall be paid to the Medical
Group, then (A) the Management Company and the Medical
-43-
Group shall not be entitled to receive the Management Fee or the Annual Medical
Group Compensation Amount, as applicable, and (B) the Medical Group shall be
responsible for the deficit, if any, associated with such New Medical Office;
provided that the aggregate amount of Collections received during the Special
New Medical Office Start-Up Period for such New Medical Office shall belong
solely to the Medical Group. Notwithstanding the foregoing, if the Medical Group
elects to close such New Medical Office prior to its becoming profitable, then
the aggregate amount of Collections received during the Special New Medical
Office Start-Up Period for such New Medical Office shall belong solely to the
Medical Group. As used herein, "Special New Medical Office Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of the subject New Medical Office and ending
on the date that the New Medical Office becomes profitable (i.e., generated
Collections sufficient to pay the applicable New Medical Office Start-Up Costs,
plus 10% per annum interest thereon, as reasonably determined by the Operations
Committee).
(e) In the event that the Medical Group elects to open a New Medical Office
in accordance with the provisions of Section 5.6(d) above, and does so open such
an office, the Management Company will pay the Medical Group an additional
amount of consideration (the "New Office Payment") if the following conditions
are satisfied: (i) the Net Operating Income for such New Medical Office for the
12-month period beginning on the New Office Net Profit Date (as hereinafter
defined) and ending on the first anniversary thereof (such period being referred
to herein as, the "Determination Period") is greater than zero, and (ii) the
Management Fee payable by the Medical Group pursuant to Section 5.4 hereof for
the Determination Period is at least equal to the Management Fee paid to the
Management Company by the Medical Group for the 12-month period ending on the
New Office Net Profit Date. The amount of the New Office Payment will be
determined by taking six times 15% of the Net
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Operating Income of such New Medical Office for the Determination Period, which
amount will be payable 65% in cash and 35% in shares of common stock of the
Management Company (at the Fair Market Value (as hereinafter defined) of such
common stock at such time). The Management Company shall, within 30 days after
the end of the Determination Period, notify the Medical Group if the conditions
set forth in clauses (i) and (ii) above have been satisfied and, if so, the
amount of the New Office Payment due to the Medical Group. The Management
Company shall deliver the New Office Payment to the Medical Group within 15 days
following delivery of such notice. In connection with the delivery of the New
Office Payment to the Medical Group, the Medical Group shall transfer to the
Management Company for no additional consideration all of its right, title and
interest in all of the Equipment used at such New Medical Office and, to
effectuate such transfer, the Medical Group shall execute and deliver to the
Management Company an assignment and assumption agreement and a ▇▇▇▇ of sale,
each of which shall be satisfactory to the Management Company. As used herein,
"New Office Net Profit Date" means, as to any New Medical Office, that day on
which the Operations Committee determines that the aggregate revenues of such
New Medical Office are greater than the sum of (a) those costs that fall within
the definition of New Medical Office Start-Up Costs associated with such New
Medical Office (including physician compensation), and (b) the accrued interest
payable to the Medical Group pursuant to Section 5.6(d) above with respect to
the amount of such costs.
(f) Except to the extent provided in Section 5.6(b), (c) and (d) above, the
▇▇▇▇▇▇▇▇, collections, costs and expenses relating to any New Medical Office
shall not, during the New Medical Office Start-Up Period or the Secondary
Period, be included in the computations of Annual Medical Group Compensation
Amount, the Management Fee, Management Company Costs, Ancillary Service Start-Up
Costs, or Medical Group Costs
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as described in Sections 5.3, 5.4, 5.5, 5.8, or 5.7, respectively.
(g) All Medical Equipment utilized at any New Medical Office shall be
acquired by the Management Company and provided to the Medical Group in
accordance with the terms of Section 3.3 hereof.
(h) 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.
(i) 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, but not including any
Corporate Overhead, provided that, the costs incurred in connection with any New
Physician (as hereinafter defined) shall be borne in accordance with the
provisions of Section 5.11 hereof.
(j) For purposes of this Agreement, "New Medical Office Start-Up Period"
means the period commencing on the date that any costs are incurred in
connection with the establishment of a New Medical Office and ending on the last
day of the calendar month in which a period of twelve (12) months has elapsed
from and after the date on which the New Medical Office first opened for the
treatment of patients.
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
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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; and
(c) the cost of any items which are not required to be provided by the
Management Company under this Agreement and/or which were ordered,
purchased, or incurred by the Medical Group 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
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generally accepted accounting principles in determining and accounting for
the profits and losses related to the operations of each New Ancillary
Service. Notwithstanding anything to the contrary contained herein,
Corporate Overhead shall not be included in determining the costs and
expenses associated with any New Ancillary Service.
(ii) Profits and/or losses of any Ancillary Division arising from and
after the Ancillary Service Start-Up Period 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 shall be provided to the
Medical Group on terms substantially similar to those set forth in Section
3.3 hereof.
(iv) The Management Company shall pay all of the Ancillary Service
Start-Up Costs (as hereinafter defined). Beginning with the month
immediately following the expiration of the Ancillary Service Start-Up
Period (as hereinafter defined), the Management Company shall be entitled
to recoup all of the Ancillary Service Start-Up Costs previously paid by
the Management Company in sixty (60) equal monthly installments of
principal, plus interest on the unrecouped portion of such costs at the
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prevailing prime rate as set forth in the Wall Street Journal or at the
actual rate paid by the Management Company with respect to any part of such
costs that have been financed by the Management Company, if applicable.
(v) The Management Company shall provide, in connection with any New
Ancillary Service, the full range of management services described in this
Agreement.
(vi) The ▇▇▇▇▇▇▇▇, collections, costs and expenses relating to any New
Ancillary Service shall not be included in the computations of Annual
Medical Group Compensation Amount, 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 an Average Profit (as hereinafter defined) at least equal to the
amount of the Ancillary Service Reimbursement Payment (as hereinafter defined)
or (ii) the last day of the twelfth month after the establishment of such New
Ancillary Service.
(c) As used herein, "Ancillary Service Reimbursement Payment" means an
amount determined by (i) taking the total Ancillary Service Start-Up Costs for
the period ending on the date of determination, (ii) adding an amount equal to
the total of the projected interest payable on such amount during the repayment
term (which interest amount shall be a good faith
-49-
estimate by the Management Company) and (iii) dividing the sum by 60.
(d) "Average Profit", at any point during the New Ancillary Start-Up
Period, means the average for any consecutive two month period of the remainder
(as determined in good faith by the Management Company) of the revenues less the
expenses for such New Ancillary Service.
(e) For purposes of this Section 5.8, "Ancillary Service Start-Up Costs"
means the total of all of the following costs incurred in connection with the
establishment of a New Ancillary Service during the Ancillary Service Start-Up
Period (whether such costs would otherwise be considered Management Company
Costs or Medical Group Costs):
(i) Any lease payments for New Ancillary Service Medical Equipment;
(ii) All costs of acquiring furniture, fixtures, and office equipment;
(iii) All initial occupancy costs, if any, including but not limited
to prepaid rent, and tenant improvements;
(iv) All costs related to the acquisition of materials and supplies
related to the provision of such New Ancillary Service; and
(v) All ongoing costs of the New Ancillary Service, including but not
limited to personnel (other than the Billable Medical Personnel) and
related benefits, the cost of operating any equipment utilized in providing
the service, supplies, insurance, rent, repairs and maintenance, outside
services, telephone, taxes, utilities, storage and other ordinary ongoing
expenses of providing the New Ancillary Service.
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5.9. Review and Audit of Books and Records.
Each of the parties shall have the right, during ordinary business hours
and upon reasonable notice, to review and make copies of, or to audit through a
qualified certified public accountant approved by the other party (which
approval shall not be unreasonably withheld), the books and records of the other
party relating to the billing, collection, and disbursement of fees, and the
determination of costs, under this Agreement. Any such review or audit shall be
performed at the cost of the requesting party; provided, however, that in the
event that such review or audit requested by the Medical Group discloses a
discrepancy indicating that the Medical Group has actually been underpaid by an
amount in excess of three and one half (3.5%) percent, but not more than five
percent (5%) of the total amount of Annual Medical Group Compensation Amount
otherwise payable to the Medical Group for the period covered by the audit (the
"Audit Compensation Amount"), the Management Company shall pay up to $5,000 of
the cost of such audit, and if the audit reveals an underpayment in excess of
five (5%) percent of the Audit Compensation Amount, the entire cost of the audit
shall be borne by the Management Company. All documents and other information
obtained in the course of such review or audit shall be held in strict
confidence.
5.10. Start-Up Period.
(a) 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
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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.
(b) Supplementing the provisions of Section 5.10(a) above, the parties
agree that the Medical Group has heretofore funded certain costs and expenses
(collectively, the "Prepaid Expenses") incurred during the period from the
Commencement Date to the Signature Date. On the Signature Date, the Management
Company has paid to the Medical Group $800,000 (the "Estimated Expenses"), by
delivery of a promissory note to the Medical Group for such amount which is due
on January 2, 1998 ("Note No. 3"), which represents the parties' good faith
estimate of the Prepaid Expenses. The parties agree that within sixty (60) days
from the Signature Date, they will mutually determine the actual amount of the
Prepaid Expenses. If the actual amount of the Prepaid Expenses exceeds the
Estimated Expenses, the Management Company shall remit such excess amount to the
Medical Group within five (5) days of the date of determination. If the
Estimated Expenses exceed the actual amount of the Prepaid Expenses, the Medical
Group shall refund the difference to the Management Company within five (5) days
of the date of determination. The parties acknowledge that any payments for
Prepaid Expenses shall not be included in the computation of Collections and
may, subject to the reconciliation provided herein, be freely distributed by the
Medical Group to its shareholders.
5.11. New Physician Compensation Costs.
(a) Notwithstanding anything contained herein to the contrary, during the
period beginning on the New Physician Start Date (as hereinafter defined) and
ending on the Physician
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Breakeven Date (as hereinafter defined), the Management Company shall be
responsible for the payment of (or with respect to insurance benefits, for the
prompt reimbursement of the Medical Group for, to the extent applicable) all New
Physician Compensation (as hereinafter defined) and all New Physician Personnel
Expense (as hereinafter defined), and notwithstanding anything to the contrary
contained in this Agreement, shall receive, in consideration therefor, sixty six
and two-thirds percent (66-2/3%) (such amount being referred to herein as the
"New Physician Net Collections") of all Collections generated by such New
Physician for those Medical Group Services performed by such New Physician, and
such amounts shall not be included in determining Collections for purposes of
this Agreement. The remaining thirty three and one-third percent (33 1/3%) of
such Collections shall belong to the Medical Group, and such amounts shall not
be included in determining Collections for purposes of this Agreement. As of the
Physician Breakeven Date, the New Physician Compensation shall be payable by,
and become the responsibility of, the Medical Group in accordance with Section
5.7 hereof, and all of the ▇▇▇▇▇▇▇▇ and Collections generated by such New
Physician thereafter shall be considered ▇▇▇▇▇▇▇▇ and Collections for purposes
of this Agreement.
(b) "New Physician" means, any physician who, at any time after the
Commencement Date, becomes affiliated with or employed by the Medical Group;
provided that if such physician becomes affiliated with or employed by the
Medical Group pursuant to a transaction between the Management Company 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.
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(c) "New Physician Breakeven Date" means, with respect to any New
Physician, the date on which the New Physician Net Collections for the period
beginning on the New Physician Start Date and ending on the date of
determination first equal or exceed (i) the aggregate amount of New Physician
Compensation paid to such New Physician for the foregoing period plus (ii) that
portion of the Medical Group Costs and Management Company Costs associated with
such New Physician and/or the Medical Group Services provided by such New
Physician.
(d) "New Physician Compensation" means, with respect to any New Physician
and for any period in question, the amount of compensation (wages and insurance
benefits) payable to or for the benefit of such New Physician by the Medical
Group.
(e) "New Physician Personnel Expense" means with respect to any New
Physician and for any period in question, the amount of compensation (wages and
otherwise) payable to any one (1) physician assistant who is retained by the
Management Company primarily to accommodate the increased patient flow generated
by such New Physician.
(f) "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 professional association duly organized, validly
existing, and in good standing under the laws of the State of Florida and has
all requisite power and authority to own, lease, and operate its properties, to
carry on its business as now being conducted and as proposed to be conducted, to
enter into this Agreement, the Asset Purchase Agreement, the
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Assignments of Lease, the Financing Statement, the Provider Account Agreement
and the Stockholder Non-Competition Agreements (as hereinafter defined)
(collectively, the "Medical Group Transaction Documents"), to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The Medical Group has delivered to the
Management Company a true and correct copy of its Articles of Incorporation and
its Bylaws, each as in effect on the date hereof.
6.2. Equity Investments.
Except as set forth on Schedule 6.2, the Medical Group currently has no
subsidiaries, nor does the Medical Group currently own any capital stock or
other proprietary interest, directly or indirectly, in any corporation,
association, trust, partnership, joint venture, or other entity.
6.3. Authority.
The execution, delivery and performance of this Agreement and the other
Medical Group Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of the Medical Group. This Agreement and the other
Medical Group Transaction Documents have been duly and validly executed and
delivered by the Medical Group and constitute the legal, valid and binding
obligations of the Medical Group enforceable in accordance with their respective
terms, except as enforcement may be limited by applicable 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
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the Medical Group, cause a default (with due notice, lapse of time or both), or
give rise to any right of termination, cancellation or acceleration, under any
of the terms, conditions or provisions of any note, bond, lease, mortgage,
indenture, license or other instrument, obligation or agreement to which the
Medical Group is a party or by which the Medical Group or any of its properties
or assets may be bound (with respect to which defaults or other rights all
requisite waivers or consents shall have been obtained at or prior to the date
hereof) or violate any law, statute, rule or regulation or order, writ,
judgment, injunction or decree of any court, administrative agency or
governmental body applicable to the Medical Group or any of its properties or
assets or the Medical Business. Except as provided on Schedule 6.3, to the best
of the Medical Group's knowledge, no permit, authorization, consent or approval
of or by, or any notification of or filing with, any person (governmental or
private) is required in connection with the execution, delivery or performance
by the Medical Group of this Agreement or any other Medical Group Transaction
Document or the consummation of the transactions contemplated hereby and
thereby.
6.4. Financial Information.
Schedule 6.4 contains the Medical Group's internal statement of assets,
liabilities and stockholders' 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
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thereof, and (iii) are true, correct and complete in all material respects as of
the dates thereof.
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
payers, 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) except for merit review increases in the ordinary course of
business, any general uniform increase in the compensation of employees of
the Medical Group or the Medical Business (including, without limitation,
any increase pursuant to any bonus, pension, profit-sharing, deferred
compensation arrangement or other plan or commitment) or any increase in
compensation payable to any officer, employee, consultant or agent thereof,
or the entering into of any employment contract with any officer or
employee, or the making of any loan to, or
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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 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
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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 Internal Revenue
Code of 1986, as amended the "Code").
(c) The Medical Group has provided the Management Company with true and
complete copies of all Federal, state and foreign Returns of the Medical Group
for the calendar years ending December 31, 1996 and 1995.
(d) For purposes of this Agreement, "Tax" means any of the Taxes and
"Taxes" means, with respect to any person or entity, (i) all Federal, state,
local and foreign income taxes
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(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 any partner in or stockholder of 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 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.
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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. To the best knowledge
of the Medical Group, neither the Medical Group nor any of the Medical Personnel
employed by the Medical Group is now or in the last four years has been the
subject of or involved in any investigation by any Federal, state or local
regulatory agency related to its or his Medicare, Medicaid or other third party
payor billing practices.
6.10. Accounts Receivable: Accounts Payable.
(a) Except as set forth on Schedule 6.10, all of the accounts receivable
owing to the Medical Group in connection with the Medical Business as of the
date hereof constitute valid and enforceable claims arising from bona fide
transactions in the ordinary course of the Medical Business, the amounts of
which are actually due and owing, and as of the date hereof, to the best
knowledge of the Medical Group, there are no claims, refusals to pay or other
rights of set-off against any thereof. Except as set forth on Schedule 6.10, as
of the date hereof, there is no account receivable or note receivable of the
Medical Business
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pledged to any third party. The Medical Group has provided the Management
Company with an accounts receivable aging report dated as of June 30, 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, 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
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between such person and any previous employer (private or governmental) or (ii)
agreement restricting or prohibiting the use of any information or materials
used or being used by such person in connection with such person's employment by
or association with the Medical Group or the Medical Business.
6.12. Employee Benefit Plans.
(a) Schedule 6.12 identifies each 'employee benefit plan', as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and all other written or oral plans, programs, policies or agreements
involving direct or indirect compensation (including any employment agreements
entered into between the Medical Group or the Medical Business and any Employee
of the Medical Group or in connection with the Medical Business, but excluding
workers' compensation, unemployment compensation and other government-mandated
programs) currently or previously maintained or entered into, within the six
years prior to the Closing Date, by the Medical Group or in connection with the
Medical Business for the benefit of any Employee or former employee of the
Medical Group or in connection with the Medical Business under which the Medical
Group, any affiliate thereof or the Medical Business has any present or future
obligation or liability (the "Employee Plans"). The Medical Group has provided
the Management Company with true and complete salary, service and related data
for Employees of the Medical Group and in connection with the Medical Business.
(b) Schedule 6.12 lists each employment, severance or other similar
contract, arrangement or policy and each plan or arrangement (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation or other forms of incentive
compensation or post-retirement
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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) to the best knowledge of the
Medical Group, 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, disclosure and
bonding obligations imposed under ERISA and the Code have been satisfied, or
will have been satisfied when due, with respect to each Employee Plan and (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.
(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), if applicable, including attachments, for each Employee
Plan, and (iii) the most recently received IRS determination letter, if
applicable.
6.13. Insurance.
Schedule 6.13 contains a list of all policies of professional liability
(medical malpractice), general liability, theft, fidelity, fire, product
liability, errors and omissions, health and other property and casualty forms of
insurance held by the Medical Group covering the assets, properties or
operations of the Medical Group 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
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assets, properties or operations of the Medical Group or the Medical Business.
6.14. Real Property.
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. The Medical Group does not own any real
property.
6.15. Burdensome Restrictions.
Except as set forth on Schedule 6.15, neither the Medical Group nor the
Medical Business is bound by any oral or written agreement or contract which by
its terms prohibits or restricts it from conducting the Medical Group or the
Medical Business (or any material part thereof).
6.16. Disclosure.
Neither the Medical Group Transaction Documents (including the Exhibits and
Schedules attached thereto) nor any 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.
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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, and the
Stockholder Non-Competition Agreements (collectively, the "Management Company
Transaction Documents"), to perform its obligations hereunder and thereunder,
and to consummate the transactions contemplated hereby and thereby.
7.2. Authority.
The execution, delivery and performance of this Agreement and the other
Management Company Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of the Management
Company. This Agreement and each Management Company Transaction Document has
been duly and validly executed and delivered by the Management Company, and this
Agreement and each such Management Company Transaction Document is the valid and
binding obligation of the Management Company, enforceable in accordance with its
respective terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally. Neither the execution, delivery or performance of this
Agreement or any other Management Company Transaction Document, nor the
consummation by the Management Company of the transactions contemplated hereby
or
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thereby, nor compliance by the Management Company with any provision hereof or
thereof, will (a) conflict with or result in a breach of any provisions of the
Amended and Restated Certificate of Incorporation or the Bylaws of the
Management Company, (b) cause a default (with due notice, lapse of time or
both), or give rise to any right of termination, cancellation or acceleration,
under any of the terms, conditions or provisions of any material note, bond,
lease, mortgage, indenture, license or other instrument, obligation or agreement
to which the Management Company is a party or by which it or any of its
properties or assets is or may be bound (with respect to which defaults or other
rights all requisite waivers or consents shall have been 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 10,105,518 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 issued and
outstanding. Each of
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the outstanding shares of capital stock has been duly and validly authorized and
issued, is fully paid for and non-assessable, and was issued in compliance with
all applicable Federal and state securities laws.
(b) The Management Company has taken all action necessary or appropriate to
duly authorize the creation, issuance and sale of the common stock to be issued
hereunder. Such shares of common stock, when issued, sold and delivered, as
provided for herein and in the Restricted Stock Agreements, will be validly
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership of the shares. The issuance of such shares of common stock will
not violate any preemptive or similar right of any person.
7.4. Financial Information.
Schedule 7.4 contains (a) the unaudited statements of assets, liabilities
and stockholders' equity of the Management Business as of the date set forth
therein (the "Management Company Balance Sheet"; and the date thereof being
referred to as the "Management Company Balance Sheet Date"), and the related
unaudited statements of revenue and expenses for the periods then ended
(including the notes thereto and other financial information included therein)
(collectively, the "Unaudited Financial Statements"). The Unaudited Financial
Statements (i) were prepared in accordance with the books and records of the
Management Business, (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.
7.5. Absence of Undisclosed Liabilities.
Except as set forth on Schedule 7.5, as of the Management Company Balance
Sheet Date, (a) the Management Business did not have any material liability of
any nature required to be disclosed on a balance sheet (matured or unmatured,
fixed or contingent, known or unknown) which was not
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provided for or disclosed on the Management Company Balance Sheet, (b) all
liability reserves established by the Management Business on the Management
Company Balance Sheet were adequate and (c) there were no loss contingencies (as
such term is used in Statement of Financial Accounting Standards No. 5 issued by
the Financial Accounting Standards Board in March 1975) which were not
adequately provided for or disclosed on the Management Company Balance Sheet.
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
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of the Management Business except in the ordinary course of the Management
Business and consistent with past practice;
(f) any cancellation of any debts or claims of, or any amendment,
termination or waiver of any rights of material value to, the Management
Business;
(g) any change in the accounting methods or practices followed in
connection with the Management Business or any change in depreciation or
amortization policies or rates theretofore adopted;
(h) any other transaction relating to the Management Business other
than in the ordinary course of the Management Business and consistent with
past practice; or
(i) any agreement or understanding, whether in writing or otherwise,
for the Management Business to take any of the actions specified in items
(a) through (h) above.
7.7. Litigation, Etc.
Except as set forth on Schedule 7.7, there are no (a) actions, suits,
claims, investigations or legal or administrative or arbitration proceedings
pending or, to the best knowledge of the Management Company, threatened against
the Management Company or in connection with the Management Business, whether at
law or in equity, or before or by any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
which, if adversely determined, could have a material adverse effect on the
Management Company or (b) judgments, decrees, injunctions or orders of any
court, governmental department, commission, agency, instrumentality or
arbitrator against the Management Company its assets or affecting the Management
Business.
7.8. Compliance; Governmental Authorizations.
The Management Company and the Management Business shall have complied in
all material respects with all applicable material Federal, state, local or
foreign laws, ordinances,
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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 prohibits it from conducting the Management Company or the
Management Business (or any material part thereof).
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7.12. Disclosure.
Neither the Management Company Transaction Documents (including the
Exhibits and Schedules attached thereto) nor any other document, certificate or
written statement furnished to the Medical Group by or on behalf of the
Management Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein not
misleading.
SECTION 8. Operations Committee.
8.1. Formation and Operation of the Operations Committee.
The Management Company and the Medical Group shall establish a committee
(the "Operations Committee") responsible for directing the Management Company in
connection with the development of certain specific management and
administrative policies for the overall operation of the Medical Group. The
Operations Committee shall consist of up to six (6) members. The Medical Group
shall designate up to three (3) members of the Operations Committee, each of
whom shall be a physician in the Medical Group, and the Management Company shall
designate an equal number of members of the Operations Committee, not to exceed
three (3). The business of the Operations Committee shall 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 respect to such functions shall be
binding on the Management Company and the Medical Group:
(a) Approve the annual budgets for:
(i) ▇▇▇▇▇▇▇▇ and Collections;
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(ii) Medical Group Costs;
(iii) Capital expenditures to be made by the Management Company
in fulfillment of its obligations hereunder;
(iv) Management Company Operating Costs (which, in the absence of
approval by the Operations Committee, shall be increased by
an amount equal to the lesser of (x) five percent (5.0%)
over the total amount approved for the preceding period) or
(y) a percentage equal to the "Annual CPI Adjustment" for
such period. The Annual CPI Adjustment shall be calculated
as follows:
Annual CPI Adjustment = (CPIC - CPIP)
-----------
CPIP
Where:
"CPIC" is the U.S. Consumer Price Index (All Cities)
for the most recent month-end which is then available;
and
"CPIP" is the U.S. Consumer Price Index (All Cities)
for the month-end which is twelve (12) months prior to
the date utilized in determining the CPIC).
(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) ▇▇▇▇▇▇▇▇
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(ii) Claims submission
(iii) Collections of fees
(iv) Delinquent account collection policies
(v) Turnover of delinquent accounts to outside collection
agencies
(vi) Write-off 5 of account balances
(vii) Claim review requests
(viii) "Insurance only" and other courtesy write-off policies
(ix) Lien account collection policies
(x) Student Athlete account policies
(e) Approve the acquisition, replacement, relocation, or other
disposition of Medical Equipment and FF&E, approve the
integration of new technologies into the professional practice of
the Medical Group as contemplated by Section 3.11 hereof, and
approve the renovation and expansion of any offices of the
Medical Group ("Tenant Improvements"); provided, however, that
the approval of the Management Company also shall be required
prior to (i) the acquisition of any Equipment (including any
Medical Equipment, FF&E or other items relating to or necessary
in connection with the integration of new technologies into the
professional practice of the Medical Group) 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)
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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.
(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.
(h) Determine whether a New Medical Office should be opened based
upon a feasibility study performed at the direction of the
Operations Committee, which study should strictly relate to the
factors directly involved in determining whether to open such
proposed New Medical Office, including, without limitation, all
physician compensation attributable to such New Medical Office.
In the event of any deadlock in the vote of the Operations Committee, the
parties hereto shall jointly submit such dispute to binding arbitration in
Florida, 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 22. 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
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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 arbitrator.
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.
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
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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; provided that the Medical Group will be notified of the time and
place thereof at least three days prior to any meeting so that it may notify its
stockholders thereof. A meeting of the Operations Committee also may be called
by at least two (2) members of the Operations Committee or by the Chairman or
Vice Chairman thereof
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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. Any stockholder of the
Medical Group may attend Operations Committee meetings in an unofficial,
non-voting capacity.
(c) No action of the Operations Committee shall be effective unless
authorized by the vote of a majority of the members of the Operations Committee
present or represented by proxy at the applicable meeting. A quorum of the
Operations Committee shall be a majority of the members of the Operations
Committee, in person, by telephone, or by proxy, and a quorum must remain for
the duration of the meeting. The Operations Committee may establish such
procedures to act by written consent, without a meeting, as the Operations
Committee determines are advisable, provided that all of the members (in person
or by proxy) must sign any written consent.
SECTION 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 licensed by the State of Florida. The Medical Group shall
monitor the quality of medical care practiced by physicians and
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other health care personnel associated with the Medical Group. In the event that
any medical malpractice actions are filed or any disciplinary actions are
initiated against any such physician by any payor, patient, state or Federal
regulatory agency or any other person or entity which could have a material
adverse effect on the Medical Group in the Medical Business, the Medical Group
shall promptly 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 thirty business days any Medical Personnel who is not so insurable or who
loses his or her malpractice insurance eligibility unless the Medical Group
makes (within such 30-day period) other arrangements reasonably appropriate
under the circumstances and reasonably acceptable to the Management Company. The
Medical Group shall notify the Management Company in writing of any change in
the insurance status of any Medical Personnel within two days after the Medical
Group receives notice of any such change. The Medical Group shall require all
Medical Personnel to participate in an on-going risk management program.
9.6. Medicare.
The Medical Group shall cause all physicians to be participating providers
and accept assignment under Medicare.
9.7. Accounts Receivable; Billing.
From the Commencement Date, the Medical Group acknowledges and agrees that
all Accounts of the Medical Group or its Medical Personnel shall be the property
of the Management
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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, the Retained Accounts Receivable and Accounts arising
from the provision of Excluded Ancillary Services shall each 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 cooperate with
and take direction from the Management Company in
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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 stockholders, the transfer of
ownership interests, or the reorganization or restructuring of the Medical
Group, if in any such case the effect would be to transfer a majority of the
ownership interest in the Medical Group, without the prior written consent of
the Management Company, which consent shall not be unreasonably withheld or
delayed.
10.2. Legend on Securities.
During the Term of this Agreement, any certificate or similar evidence
representing an equity interest in the Medical Group issued by the Medical Group
shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO THE RESTRICTIONS ON TRANSFER CONTAINED IN THE MANAGEMENT
SERVICES AGREEMENT EFFECTIVE AS OF SEPTEMBER 1, 1997,
BETWEEN BROWARD INSTITUTE OF ORTHOPAEDIC SPECIALTIES, P.A.,
A FLORIDA PROFESSIONAL ASSOCIATION, AND BONE, MUSCLE AND
JOINT, INC., A DELAWARE CORPORATION."
Nothing herein shall be construed as requiring the Medical Group to issue any
certificate or other evidence representing an equity interest in the Medical
Group, if such has not been issued prior to the date hereof.
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SECTION 11. Records.
11.1. Medical Records.
Upon termination of this Agreement, the Medical Group shall retain all
patient medical records maintained by the Medical Group or the Management
Company in the name of the Medical Group.
11.2. Management Business Records.
All books and records relating in any way to the operation of the
Management Business which are not patient medical records shall at all times be
the property of the Management Company. The Management Company shall maintain
custody of such records, and the Medical Group shall, upon its written request,
be entitled to copies of any such records relating to the Management Services
performed by the Management Company.
11.3. Access to Records Following Termination.
Following the termination of this Agreement, the Medical Group shall grant
(to the extent permitted by law) to the Management Company, for the purpose of
preparing for any actual or anticipated legal proceeding or for any other
reasonable purpose, reasonable access (which shall include making photocopies)
to the patient medical records described in Section 11.1 hereof and any other
pertinent information regarding the Medical Group during the Term. Prior to
accessing such patient medical records, the Management Company shall obtain any
required patient authorization.
Following the termination of this Agreement, the Management Company shall
provide to the Medical Group, promptly upon the Medical Group's written request,
photocopies of the Management Business records described in Section 11.2 hereof,
and shall grant to the Medical Group, for the purpose of preparing for any
actual or anticipated legal proceeding or for any other
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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 $250,000 per claim and with aggregate policy limits of not less than
$750,000 (or such higher amounts as may be necessary to comply with any
regulatory requirement and/or contractual requirement to which such Medical
Personnel or the Medical Group may be subject) covering the Medical Group and
each of the Medical Personnel of the Medical Group, including coverage for
claims made after the Commencement Date relating to events or occurrences at any
time prior thereto. The parties hereto acknowledge that the Management Company
is procuring the malpractice insurance referenced herein to ensure that the
Management Company has protection in the event it is sued as a result of an act
or omission of an employee of the Medical Group. The Management Company shall
pay the premiums for such general and medical malpractice liability coverage,
which payments shall be considered Management Company Operating Costs under this
Agreement, subject to recoupment by the Management Company under Section 5
hereof. The Management Company shall be designated as an additional insured
under all such insurance policies.
12.2. Life Insurance.
The Management Company may, at its option, obtain a $500,000 life insurance
policy for each duly licensed physician partner in or equity owner of the
Medical Group. The Medical Group shall, and shall cause each such partner in or
equity owner of the Medical Group to, cooperate with the Management Company in
the procurement of such policies. The Management Company shall
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be designated as the beneficiary under any such policies. The premiums for such
policies shall be paid by the Management Company and shall not be included as
Management Company Operating Costs or otherwise charged to the Medical Group.
12.3. Indemnification by Medical Group.
The Medical Group shall indemnify, hold harmless and defend the Management
Company, its officers, directors, shareholders, employees, agents and
independent contractors from and against any and all liabilities, losses,
damages, claims, causes of action and expenses (including reasonable attorneys'
fees and expenses), whether or not covered by insurance, caused or asserted to
have been caused, directly or indirectly, by or as a result of (i) the
performance of Medical Group Services, including without limitation the
performance of such services prior to the Commencement Date, (ii) any other acts
or omissions of the Medical Group and its Medical Personnel, including without
limitation any such acts or omissions that occurred prior to the Commencement
Date, or (iii) any breach of or failure to perform any obligation under this
Agreement or the Medical Group Transaction Documents (which, for purposes
hereof, shall be deemed to include the Restricted Stock Agreement to be signed
by the Management Company and each partner, stockholder or employee of the
Medical Group receiving stock of the Management Company, in the form of Exhibit
C attached hereto (the "Restricted Stock 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 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
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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. In
addition, the Management Company shall indemnify and hold harmless the Medical
Group, its officers, directors, shareholders, employees, agents and independent
contractors from and against any legal and related out of pocket costs actually
incurred in defending any violation or alleged violation of applicable law
arising as a direct result of the structure of this Agreement or the underlying
economic and financial arrangements thereof; provided, however, that in no event
shall the liability of the Management Company in connection with the
indemnification obligation set forth in this sentence exceed the aggregate
amount of $50,000.
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 reasonable action commencing curing of
such default within thirty
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(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; provided, however, that the Management
Company shall have only 10 days after written notice to cure a default arising
as a result of its failure to pay the Monthly Draw pursuant to Section 5.3(a) or
any other monetary obligation owed to the Medical Group hereunder, (c) in the
event that any of the representations and warranties made by the Management
Company in Section 7 is untrue or misleading in any material respect, provided
that the Medical Group shall have previously given written notice to the
Management Company describing in reasonable detail the nature of the item in
question and the Management Company shall not have cured such matter within
thirty (30) days of such notice, (d) in the event the Management Company shall
have been sanctioned in writing by the Health Care Finance Administration for
any violation of the Social Security Act, the Health Care Quality Improvement
Act or any similar Federal law in a final, nonappealable proceeding and such
sanction prevents the Management Company from fulfilling its obligations
hereunder in accordance with all applicable law or (e) in the event the
Management Company shall have failed to pay any amount due pursuant to the terms
of any of Note ▇▇. ▇, ▇▇▇▇ ▇▇. ▇ or Note No. 3 within 30 days after such payment
was due.
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
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action to completion; provided, however, that the Medical Group shall have only
10 days after written notice to cure a default arising as a result of its
failure to pay any monetary obligation owed to the Management Company hereunder,
(c) in the event that any of the representations and warranties made by the
Medical Group in Section 6 is untrue or misleading in any material respect,
provided that the Management Company shall have previously given written notice
to the Medical Group describing in reasonable detail the nature of the item in
question and the Medical Group shall not have cured such matter within thirty
(30) days of such notice, or (d) in the event the Medical Group is excluded from
the Medicaid or Medicare program for any reason and the Medical Group has not
successfully appealed such exclusion within 120 days after the effectiveness
thereof.
13.3. Termination by Medical Group or Management Company.
The Medical Group and the Management Company shall each have the right to
terminate this Agreement effective immediately 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 3.16(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
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the year ending on the termination date (if the termination date is other than
December 31). In making such computation, all Collections during January,
February, and March of such year shall be excluded, and all Collections during
the three-month period following termination shall be included. All Collections
during the three-month period following termination shall continue to be owned
by the Management Company (and the Medical Group shall immediately forward any
amounts received in connection therewith to the Management Company) and all
Collections thereafter shall be owned by the Medical Group. Any payment required
under the terms of Section 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. Notwithstanding anything contained herein to the contrary, in the event
that this Agreement is terminated due to the Management Company's failure to pay
an amount due pursuant to any of Note ▇▇. ▇, ▇▇▇▇ ▇▇. ▇ or Note No. 3, then any
such amounts which the Management Company failed to so pay shall be
automatically set-off against any amounts due (whether presently or in the
future) to the Management Company pursuant to the terms of this Agreement,
including, without limitation, for Management Fees or Management Company Costs.
(c) Upon termination of this Agreement, the Management Company agrees to
deliver to the Medical Group upon request by the Medical Group, a Financing
Statement amending the terms of any Financing Statement filed with the Secretary
of State of the state in which the principal place of business of the Medical
Group is located, excluding from the collateral thereunder any accounts
receivable generated after the date of termination of this Agreement. In
addition, the Management Company shall, within 15 days after final resolution of
the settlement described in Section 5.3(b) of this Agreement, deliver to the
Medical Group an additional Financing Statement terminating any Financing
Statement previously filed with respect
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to the Medical Group's accounts receivable, whether relating to services
performed during or after the Term.
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 but otherwise
free and clear of any liens, claims or encumbrances; provided that any leased
equipment or property shall be assigned to the Medical Group subject to the
applicable lease agreement and any liens granted thereunder:
(a) the Medical Equipment owned by the Management Company;
(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 (provided that no
value shall be attributed to leasehold improvements); 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. In
making such appraisals, no value shall be included in respect of good will,
going concern value or other similar intangibles. 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. Rescission.
14.1. Rescission By Medical Group.
The Medical Group may, in its sole discretion at any time during the period
beginning August 1, 2004 and ending August 31, 2004 (such 30-day period being
referred to herein as the "Rescission Period"), rescind (the "Rescission
Option") this Agreement and disengage itself from its obligations under this
Agreement. The Medical Group may exercise its Rescission Option during the
Rescission Period by giving written notice (the
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"Rescission Notice") to the Management Company and by complying with the other
provisions contained in this Section 14.1. The effective date (the "Rescission
Effective Date") of the rescission shall be that date which is 30 days after the
date of the Rescission Notice; provided that such date shall not be prior to the
seventh anniversary of the Commencement Date. The Medical Group must comply with
the provisions set forth in this Section 14.1 in order to effectively exercise
its Rescission Option.
(a) Effect of Rescission. In the event that the Medical Group exercises its
Rescission Option pursuant to this Section 14.1, the procedures set forth in
Section 13.4 above shall apply.
(b) Repurchase of Assets. Within 30 days following the Rescission Effective
Date the Management Company shall, subject to the prior receipt of any required
landlord and third party consents, transfer, convey and assign to the Medical
Group, and the Medical Group shall purchase, assume and accept from the
Management Company, the property described in Section 13.5 above according to
the provisions set forth in such Section.
(c) Repayment of Consideration.
(i) In the event that the Medical Group elects to exercise its
Rescission Option, the Medical Group shall cause each physician receiving
capital stock of the Management Company as of the date hereof to, and each
such physician shall, deliver to the Management Company, on or before the
Rescission Effective Date, stock certificates representing an aggregate
230,004 shares of common stock of the Management Company, which shares were
issued to each such physician pursuant to a Restricted Stock Agreement.
Certificates delivered pursuant to this Section 14.1(c) shall be duly
endorsed for transfer to the Management Company. In the event that any
portion of the shares to be returned pursuant to this paragraph shall have
been previously transferred by any such physician, the Fair
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Market Value of those previously transferred shares required to be
returned, determined as of September 1, 2001, shall be payable by such
physician to the Management Company in cash, by cashier's or certified
check or by wire transfer of funds delivered to a depository institution
designated by the Management Company. Notwithstanding anything contained
herein to the contrary, the Medical Group will not be obligated to return
to the Management Company any of the cash consideration received by the
Medical Group pursuant to the Asset Purchase Agreement, except as set forth
in paragraph (b) above.
(ii) As used herein, "Fair Market Value" of each share of the common
stock of the Management Company means the average of the closing prices of
the sales of the common stock on all securities exchanges on which the
common stock may at the time be listed, or, if there have been no sales on
any such exchange on any given day, the average of the last bid and asked
prices on all such exchanges at the end of such day, or, if on any given
day the common stock is not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq Stock Market National Market
System ("Nasdaq") as of 4:00 P.M., New York time, or, if on any given day
the common stock is not quoted in Nasdaq, the average of the bid and asked
prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau Incorporated, or any similar successor
organization, in each such case averaged over a period of 21 days
consisting of the day as of which the Fair Market Value is being determined
and the 20 consecutive trading days prior to such day. If at any time the
common stock is not listed on any securities exchange or quoted in Nasdaq
or the over-the-counter market, the Fair Market Value shall be that value
jointly determined by the Medical Group and the Management Company,
provided that if they cannot so agree, such value shall be determined by a
mutually
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acceptable investment banking or other qualified firm of national or
regional reputation, retained jointly by the Management Company and the
Medical Group, and all fees, expenses and other charges of such firm
incurred in connection with such determination of Fair Market Value shall
be borne and shared equally by the Management Company and the Medical
Group. In the event that the parties are unable to agree upon such an
investment banking or other qualified firm within ten (10) days after the
date on which either party may initially propose such a firm, a qualified
firm shall be selected in the following manner:
First, the Medical Group shall send a list of four such firms,
arranged in order of the Medical Group's preference, by written notice to
the Management Company within seven (7) days after the expiration of the
above referenced 10-day period. If the Medical Group does not furnish such
list to the Management Company within the required time period, the
Management Company may, within seven (7) days following expiration of the
initial seven-day period, submit a list of four such firms to the Medical
Group.
Second, the Management Company (or the Medical Group, as applicable)
shall select, within seven (7) days after receipt of the above-referenced
list, one of the firms identified on such list and shall give written
notice thereof to the other party. If the recipient of such list does not
make any such selection, the firm identified as the first choice on such
list shall be deemed acceptable and agreeable to each of the parties.
(d) Repayment of Management Fee. Notwithstanding anything contained herein
to the contrary, in the event that the Medical Group exercises its Rescission
Option under this Section 14.1, the Management Company shall not be required to
refund to
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the Medical Group any portion of the Management Fees paid, or due to be
paid, by the Medical Group under the terms of this Agreement for the period
prior to the Rescission Effective Date.
(e) Waiver of Rescission Option. Notwithstanding anything contained
herein to the contrary, the parties hereto expressly agree and acknowledge
that if the Medical Group shall fail to deliver the Rescission Notice prior
to the end of the Rescission Period, then the Medical Group shall be deemed
to have expressly and irrevocably waived its right to rescind this
Agreement and to disengage itself from its obligations hereunder.
14.2. Disengagement of Individual Member.
In the event that, during the Rescission Period, any Eligible Party
terminates his affiliation with the Medical Group (such person being referred to
herein as a "Disengaging Member"), such Disengaging Member shall return or remit
to the Management Company (a) stock certificate(s) representing that number of
shares of common stock of the Management Company as is set forth opposite such
Disengaging Member's name on Annex A attached hereto, which shares were issued
to such Disengaging Member pursuant to a Restricted Stock Agreement or (b) in
lieu of delivery of all or any portion of such stock certificates, cash,
cashier's or certified checks or a wire transfer of funds delivered to a
depository institution designated by the Management Company, in an amount equal
to the Fair Market Value, determined as of September 1, 2001, of all or such
portion, as the case may be, of shares of common stock of the Management
Company.
SECTION 15. Non-Disclosure of Confidential Information.
15.1. 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
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person, firm, corporation, association or other entity, nor shall either party,
or their respective employees, stockholders, consultants or agents make use of
any of such Confidential or Proprietary Information for its or their own
purposes or for the benefit of any person, firm, corporation or other entity
except the parties hereto or any subsidiary or affiliate thereof. The foregoing
obligation shall not apply to any information which a party hereto can establish
to have (a) become publicly known without breach of this Agreement by it or
them, (b) to have been given to such party by a third party who is not obligated
to maintain the confidentiality of such information, or (c) is disclosed to a
third party with the prior written consent of the other party hereto. Nothing
contained herein shall be construed to prevent any party hereto from disclosing
any Confidential or Proprietary Information of any other party to its
professional advisers for purposes of evaluating, negotiating or otherwise
assisting such party in connection with the transactions contemplated by this
Agreement; provided that such party shall be liable to such other party for the
disclosure by any of its professional advisers of such other party's
Confidential or Proprietary Information, unless such information falls within
one of the categories set forth in clauses (a), (b) or (c) of the preceding
sentence.
(b) For purposes of this Section 14, the term "Confidential or Proprietary
Information" means all information known to a party hereto, or to any of its
employees, stockholders, officers, directors or consultants, which relates to
the Transaction Documents, patient medical and billing records, trade secrets,
books and records, supplies, pricing and cost information, marketing plans,
strategies and forecasts. Nothing contained herein shall prevent a party hereto
from furnishing Confidential or Proprietary Information pursuant to a direct
order of a court of competent jurisdiction.
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SECTION 16. 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
D.
SECTION 17. Obligations of the Management Company.
17.1. No Practice of Medicine.
The Medical Group and the Management Company acknowledge that certain
federal and state statutes severely restrict or prohibit the Management Company
from providing medical services. Accordingly, during the Term, the Management
Company shall not provide or otherwise engage in services or activities which
constitute the practice of medicine, as defined in applicable state or Federal
law, except in compliance therewith.
17.2. No Interference with Professional Judgment.
Without in any way limiting Section 16.1 hereof, during the Term, the
Management Company shall not interfere with the exercise of professional
judgment by any physician or other licensed health care professional who is a
partner, employee, or contractor of the Medical Group, nor shall the Management
Company interfere with, control, direct, or supervise any physician or other
licensed health care professional in connection with the provision of Medical
Group Services. The foregoing shall not
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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.
17.3. Operational Evaluations.
The Management Company shall, within 180 days after the Signature Date, at
no cost to the Medical Group:
(a) begin a feasibility study for the purchase or lease of a magnetic
resonance imaging unit to be used by the Medical Group;
(b) perform a code analysis and operational review of the Medical Business
to capture lost revenues and enhance revenue recovery for the Medical
Group;
(c) evaluate the practice management requirements of the Medical Group and
implement appropriate systems therefor; and
(d) implement a new information system which will create synergy among the
multiple offices of the Medical Group. At a minimum such information
system will include the use of the same software for each of the
Medical Group's offices and will link each of the offices together
through some electronic communications system which will enable the
offices to share information electronically.
17.4. Physician Advisory Board.
The Management Company is developing an advisory group (the "Physician
Advisory Board") to be comprised of physicians practicing in the State of
Florida. Upon the establishment of the Physician Advisory Board, and in
accordance with the governing documents thereof, the Management Company shall,
or
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shall cause the Physician Advisory Board to, appoint ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, M.D., to
serve on the Physician Advisory Board.
SECTION 18. Assignment.
(a) The Management Company shall have the right to assign its rights and
delegate its obligations hereunder for security purposes or as collateral to any
affiliate and to assign its rights hereunder to any lending institution from
which the Management Company or any affiliate obtains financing. Except as set
forth in the preceding sentence, neither the Management Company nor the Medical
Group shall have the right to assign their respective rights and delegate their
respective obligations hereunder without the prior written consent of the other
party; provided, however, that after the consummation of an initial public
offering of the Management Company's common stock, the Medical Group's consent
shall not be required in connection with any assignment by the Management
Company arising out of or in connection with a sale of all or substantially all
of the stock or assets of the Management Company or the merger, consolidation,
or reorganization of the Management Company.
(b) Notwithstanding anything contained herein to the contrary, in the event
that the Management Company is merged with or into, or any significant portion
of the Management Company's assets (being defined as at least fifty one (51%)
percent of the total book value thereof), is acquired by, ▇▇▇▇▇ Healthcare
Corp., Columbia HCA Healthcare Corp., or any of their respective affiliates (any
such case, a "Corporate Acquisition"), on or before the end of the Rescission
Period, the parties will determine (i) the aggregate Collections for the
12-month period ending immediately prior to the consummation of the Corporate
Acquisition (the "Base Collections Amount") and (ii) the aggregate Annual
Medical Group Compensation Amount payable for the 12-month period ending
immediately prior to the consummation of the Corporate Acquisition (the "Base
Compensation Amount"). Thereafter, in the event that for any subsequent 12-month
period
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commencing on the date of the consummation of the Corporate Acquisition through
and including the 12 month period which includes the Rescission Period (each, a
"Comparison Year"), the Collections for such Comparison Year is at least fifteen
(15%) percent less than the Base Collections Amount, the Management Company
shall, within 30 days after such determination, pay to the Medical Group the
entire difference between the Base Compensation Amount and the Annual Medical
Group Compensation Amount for such Comparison Year. This provision shall
automatically terminate, without the need for any further action, upon the
earlier of (a) the conclusion of the Rescission Period, if no Corporate
Acquisition has been consummated by the conclusion of the Rescission Period, and
(b) the conclusion of the Comparison Year that includes the Rescission Period,
if a Corporate Acquisition has been consummated by the conclusion of the
Rescission Period.
SECTION 19. Notices.
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed sufficient if personally delivered, telecopied
(with original sent by mail), sent by nationally-recognized overnight courier,
or by registered or certified mail, return receipt requested and postage
prepaid, addressed as follows:
If to the Management Company:
BMJ Medical Management, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, M.D., President
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇;
with a copy to:
▇'▇▇▇▇▇▇▇▇ Graev & Karabell, LLP
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. Held, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇; and
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If to the Medical Group:
BROWARD INSTITUTE oF ORTHOPAEDIC
SPECIALTIES, P.A.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Administrator
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Broad and ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇;
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 20. 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 21. Severability.
It is the desire and intent of the parties hereto that the provisions of
this Agreement be enforced to the fullest extent permissible under the laws and
public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the
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remaining provisions of this Agreement or affecting the validity or
enforceability of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction. Notwithstanding the foregoing, if such
provision could be more narrowly drawn so as not to be invalid, prohibited or
unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so
narrowly drawn, without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 22. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida without giving effect to the
laws and principles thereof, or of any other jurisdiction, which would direct
the application of the laws of another jurisdiction. The parties to this
Agreement agree that jurisdiction and venue in any action brought by any party
hereto pursuant to this Agreement shall lie exclusively in any Federal or state
court located in Broward County, Florida or the Southern District of Florida. By
execution and delivery of this Agreement, the parties hereto irrevocably submit
to the exclusive 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. The parties hereto shall act in good faith and shall refrain from taking
any actions to circumvent or frustrate the provisions of this Agreement.
SECTION 23. Headings.
Section headings are used for convenience only and shall in no way affect
the construction of this Agreement.
SECTION 24. Entire Agreement; Amendments.
This Agreement and the exhibits and schedules hereto contain
the entire understanding of the parties with respect to
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its subject matter, and neither this Agreement nor any part of it may in any way
be altered, amended, extended, waived, discharged or terminated except by a
written agreement signed by all of the parties against whom enforcement is
sought.
SECTION 25. 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 26. 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 27. 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 28. Survival of Termination.
Notwithstanding anything contained herein to the contrary, Sections 3.3(f),
11, 12.3, 12.4, 13, 14, 15, 16, 19, 20, 21, 22, 24, 25 and this Section 28 shall
survive any expiration or termination of this Agreement.
SECTION 29. 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
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regulations, the Medical Group and the Management Company shall amend this
Agreement as necessary to avoid such violation. To the maximum extent possible,
any such amendment shall preserve the underlying economic and financial
arrangements between the Medical Group and the Management Company. If an
amendment is not possible, either party shall have the right to terminate this
Agreement. Any dispute between the parties hereto arising under this Section 29
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 Florida, 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 22. 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 Management Services
Agreement as of the date first above written.
BROWARD INSTITUTE OF ORTHOPAEDIC
SPECIALTIES, P.A.
By:______________________________
Name:
Title:
BMJ MEDICAL MANAGEMENT, INC.
By:______________________________
Name:
Title:
Acknowledged and Agreed to
(as to Sections 4, 9.7, 12.2,
14, 15 and 16):
------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
------------------------------
▇▇▇▇▇▇▇ ▇. Worth, M.D.
------------------------------
▇▇▇▇▇▇▇ ▇. Crantnopol, M.D.
------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, M.D.
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------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.
SCHEDULE 7.2
Consents
The authorization of the Management Company's board of directors is
required in connection with the consummation of the transactions contemplated by
this Agreement.
SCHEDULE 7.4
Financial Information
See attached.
SCHEDULE 7.5
Absence of Undisclosed Liabilities
The Management Company has incurred the following liabilities:
Loan and Security Agreement dated as of July 11, 1997 between the Management
Company and HCFP Funding, Inc. (the "Senior Lender"), for a working capital loan
in the aggregate principal amount of $1,000,000.
Subordinated Loan and Security Agreement dated as of August 1, 1997, between the
Management Company and Comdisco, Inc., for a subordinated loan in the aggregate
principal amount of $5,000,000.
Subordinated Loan and Security Agreement dated as of August 22, 1997, between
the Management Company and ▇▇▇▇▇▇▇ Corporate Services, Inc., for a subordinated
loan in the aggregate principal amount of $1,500,000.
Secured Term Note dated as of October 14, 1997 between the Senior Lender and the
Management Company for a loan in the aggregate principal amount of $2,500,000.
Loan and Security Agreement dated as of October 14, 1997 between the Management
Company and the Senior Lender for a working capital loan in the aggregate
principal amount of $2,000,000.
Loan and Security Agreement dated as of October 14, 1997 between the Management
Company and the Senior Lender for a working capital loan in the aggregate
principal amount of $1,000,000.
Note Agreement dated as of October 15, 1997 among the Management Company and the
Purchasers named therein for a loan in the aggregate principal amount of
$3,375.000.
SCHEDULE 7.6
Absence of Changes
None.
SCHEDULE 7.7
Litigation, Etc.
A former employee of the Parent has filed a complaint in the District Court of
▇▇▇▇▇▇ County, Texas, which asserts claims arising out of his termination by the
Company and an alleged stock purchase agreement among the Parent, such employee
and the individuals mentioned in item numbered two below. The Parent has removed
the case to the United States District Court for the Southern District of Texas.
Certain individuals have filed a complaint in the District Court of ▇▇▇▇▇▇
County, Texas, which claims that the Parent has breached an agreement for the
sale of the Parent's securities to such individuals. The Parent has removed the
case to the United States District Court for the Southern District of Texas.
SCHEDULE 7.8
Employees
None.
SCHEDULE 7.11
Burdensome Restrictions
None.
Annex A
Disengaging Shares Being Returned Upon Rescission
Member
▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D. 23,389
▇▇▇▇▇▇▇ ▇. Worth, M.D. 32,487
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, M.D. 27,225
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D. 53,493
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, M.D. 23,608
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D. 28,088
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D. 22,400
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D. 19,547
========
230,237
ATTACHMENTS
SCHEDULES
---------
SCHEDULE I -- New Ancillary Services -- Exceptions
SCHEDULE II -- Management Company Operating Cost Budget
SCHEDULE III -- Equity Participation
SCHEDULE IV -- Draw Date and Draw Percentage
SCHEDULE V -- Management Fee -- Applicable Percentage
SCHEDULE VI -- Professional Practice Cost Savings
SCHEDULE VII -- Computation Example
SCHEDULE VIII -- Non-Competition
SCHEDULE 6.2 -- Equity Investments
SCHEDULE 6.3 -- Consents
SCHEDULE 6.4 -- Financial Information
SCHEDULE 6.5 -- Absence of Undisclosed Liabilities
SCHEDULE 6.6 -- Absence of Changes
SCHEDULE 6.7 -- Tax Matters
SCHEDULE 6.8 -- Litigation, Etc.
SCHEDULE 6.10 -- Accounts Receivable; Accounts Payable
SCHEDULE 6.11 -- Labor Relations; Employees
SCHEDULE 6.12 -- Employee Benefit Plans
SCHEDULE 6.13 -- Insurance
SCHEDULE 6.15 -- 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
--------
EXHIBIT A -- Asset Purchase Agreement
EXHIBIT B -- Assignment of Lease
EXHIBIT C -- Restricted Stock Agreement
EXHIBIT D -- Stockholder Non-Competition Agreement