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EXHIBIT 10.55
AMENDED AND RESTATED
CLINIC SERVICES AGREEMENT
by and among
Cleveland Ear, Nose and Throat Center, Inc.
PSC Management Corp.
and
Physicians' Specialty Corp.
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TABLE OF CONTENTS
Page
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Section 1. Definitions...................................................1
1.1 Clinic.........................................................1
1.2 Clinic Expenses................................................1
1.3 GAAP...........................................................3
1.4 Net Clinic Revenues............................................3
1.5 Physician Shareholders.........................................3
1.6 Practice Employees.............................................3
1.7 Pre-Distribution Margin........................................4
Section 2. Advisory Board................................................4
2.1 Formation and Operation of the Advisory Board..................4
2.2 Functions of the Advisory Board................................4
Section 3. Obligations of Manager........................................6
3.1 Provision of Management Services...............................6
3.2 Medical Offices................................................6
3.3 Furniture, Fixtures and Equipment..............................6
3.4 Financial Planning and Goals...................................6
3.5 Business Office Services.......................................7
3.6 Deposit of Net Clinic Revenues.................................9
3.7 Revenue Reports................................................9
3.8 Support Services...............................................9
3.9 Administrator..................................................9
3.10 Personnel......................................................9
3.11 Clinic Professional Services..................................10
3.12 Patient and Financial Records.................................10
3.13 Physician Recruitment.........................................11
3.14 Expansion of Clinic...........................................11
3.15 Performance of Business Office Services.......................11
3.16 Force Majeure.................................................11
3.17 Non-Clinic Expenses...........................................11
3.18 Budgets.......................................................12
Section 4. Obligations of Practice......................................13
4.1 Non-Clinic Expenses...........................................13
4.2 Professional Standards........................................13
4.3 Provider and Payor Relationships..............................15
4.4 Physician Powers of Attorney..................................15
4.5 Restrictive Covenants.........................................15
4.6 Professional Dues and Education Expenses......................17
4.7 Cooperation...................................................17
4.8 Corporation and Employment Agreements.........................17
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Section 5. Practice Compensation........................................18
5.1 Compensation to Manager.......................................18
5.2 Payment of Clinic Expenses....................................18
5.3 Draws.........................................................18
5.4 Determination and Payment of Practice Compensation............19
5.5 Assignment of Fees for Medical Services.......................19
Section 6. Term and Termination.........................................21
6.1 Term..........................................................21
6.2 Termination...................................................21
6.3 Duties and Remedies Upon Expiration or Termination............22
6.4 Repurchase of Assets..........................................23
6.5 Closing of Repurchase of Assets...............................25
Section 7. Representations and Warranties of Practice...................25
7.1 Organization and Good Standing................................26
7.2 No Violations.................................................26
7.3 Financial Information.........................................26
7.4 Professional Liability........................................26
Section 8. Insurance and Indemnity......................................26
8.1 Insurance to be Maintained by Practice........................26
8.2 Indemnification by Manager....................................27
8.3 Indemnification by Practice...................................27
8.4 Key Man Insurance.............................................27
Section 9. Assignment...................................................28
Section 10. Compliance with Regulations..................................28
10.1 Practice of Medicine..........................................28
10.2 Subcontracts..................................................28
Section 11. Independent Relationship.....................................29
11.1 Independent Contractor Status.................................29
11.2 Referral Arrangements.........................................30
Section 12. Confidential Information.....................................30
Section 13. Guaranty by Parent...........................................30
Section 14. Miscellaneous................................................31
14.1 Notices.......................................................31
14.2 Additional Acts...............................................32
14.3 Governing Law.................................................32
14.4 Captions......................................................32
14.5 Severability..................................................32
14.6 Changes in Reimbursement......................................33
14.7 Modifications.................................................33
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14.8 No Rule of Construction.......................................33
14.9 Counterparts..................................................33
14.10 Binding Effect................................................33
14.11 Enforcement Rights............................................34
14.12 Costs of Enforcement..........................................34
Section 15. Physicians' Guaranty.........................................34
Section 16. Consent and Release..........................................35
Appendix A ..............................................................1
Exhibit A ..............................................................2
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AMENDED AND RESTATED
CLINIC SERVICES AGREEMENT
THIS AMENDED AND RESTATED CLINIC SERVICES AGREEMENT, made and executed
as of the 1st day of October, 1998 (the "Effective Date"), by and among
CLEVELAND EAR, NOSE, AND THROAT CENTER, INC., an Ohio corporation ("Practice");
PSC MANAGEMENT CORP., a Delaware corporation ("Manager"); and PHYSICIANS'
SPECIALTY CORP., a Delaware corporation ("Parent").
WITNESSETH:
WHEREAS, Practice, MedPartners Acquisition Corporation, a Delaware
corporation ("MAC"), and MedPartners/Mullikan, Inc., a Delaware corporation, now
known as MedPartners, Inc. ("MPI"), entered into that certain Clinic Services
Agreement dated July 30, 1996 (the "Prior Agreement");
WHEREAS, Manager and Parent have agreed to purchase all of MAC's and
MPI's right, title and interest in and to the Prior Agreement pursuant to that
certain Asset Purchase Agreement dated October 8, 1998, by and among Manager,
Parent, MAC, MPI and MedOhio, L.P. ("the Asset Purchase Agreement"), and as a
condition to consummation of such acquisition Manager, Parent and Practice
desire to amend and restate the Prior Agreement to change the parties thereto
and to amend and restate the Prior Agreement in its entirety in accordance with
the terms and conditions contained herein.
NOW THEREFORE, in consideration of the premises and the mutual promises
and covenants herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties to
this Agreement, Practice, Manager and Parent hereby agree as follows:
SECTION 1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings ascribed to them below:
1.1 CLINIC. The term "Clinic" shall mean the professional medical
services rendered by Practice, utilizing the management services of Manager,
regardless of the location where such services are rendered.
1.2 CLINIC EXPENSES. The term "Clinic Expenses" shall mean the
operating and non-operating expenses incurred by Manager in the operation of the
Clinic and the Medical Offices, including, but not limited to: (a) salaries,
benefits and other direct costs (including, without
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limitation, professional liability insurance) of all employees of the Clinic
(but not including Practice Employees (except as otherwise set forth in this
Section 1.2(a)) or Physician-Shareholders) and the salaries, benefits, and other
direct costs (including, without limitation, professional liability insurance)
of Audiologists and leased Practice Employees, if any; (b) obligations under
leases or subleases for the Medical Offices, any central billing office or
off-site storage of the Clinic and equipment used by the Clinic; (c) personal
property, personal property "use" and intangible taxes assessed against assets
used by the Clinic; (d) charitable contributions budgeted and approved by
Manager and Practice; (e) depreciation and amortization (other than amortization
described in (k) below); (f) interest expenses (other than interest expenses
described in (1) below); and costs and expenses incurred in recruiting
physicians and other Clinic personnel; (g) utility expenses relating to the
Medical Offices, and all other costs relating to the Medical Offices, including
without limitation, costs of repairs, maintenance, telephone, electric, gas and
water utility expenses, general liability insurance, security, workers'
compensation for Manager employees, normal janitorial services, refuse disposal,
and medical and office supplies, including pharmaceuticals; (h) if billing and
collecting is conducted at the Medical Offices, the actual costs and expenses
for billing and collecting; if billing and collecting is conducted at Manager's
central billing office, a reasonable charge for billing and collecting as
determined by the Advisory Board; and (i) other expenses incurred by Manager in
carrying out its obligations under this Agreement, except as otherwise provided
herein.
The term "Clinic Expenses" shall not include: (j) any corporate overhead charges
from Parent (other than the reasonable charge for billing and collecting set
forth in (h) above), except as may be otherwise agreed upon; (k) any
amortization expense resulting from the amortization of service agreement costs
in connection with the execution of this Agreement, including without
limitation, development costs and goodwill purchased under the Asset Purchase
Agreement; (l) interest expense on indebtedness incurred by Manager or Parent to
finance the purchase price paid or withheld pursuant to, or the refinancing of
any liabilities assumed under, the Asset Purchase Agreement; (m) any federal,
state or local income taxes of Practice or Manager, or the costs of preparing
federal, state or local tax returns; (n) any salaries or benefits payable with
respect to Practice Employees (other than Audiologists or leased employees) or
Physician Shareholders or compensation paid or payable to physician independent
contractors; (o) physician licensure fees, board certification fees, hospital
staff privilege dues, and costs of membership in professional associations for
Practice Employees and Physician Shareholders; (p) costs of continuing
professional education for Practice Employees and Physician Shareholders; (q)
costs associated with legal, accounting and professional services incurred by or
on behalf of Practice; (r) liability judgments assessed against Practice,
Practice Employees or Physician Shareholders in excess of policy limits; (s)
direct personal expenses of Physician Shareholders or Practice Employees of a
kind which Practice has historically charged to its Physician Shareholders and
Practice Employees (including, but not limited to, cellular phone expenses, car
allowances, costs of employees providing personal services to particular
Physician Shareholders or Practice Employees, and like expenses personal in
nature); (t) any costs or expenses related to the acquisition or use of
Practice's name, or any successor or predecessor
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name, including, without limitation, any logo, trademark, or service xxxx
related thereto; or (u) any expenses which are expressly designated herein as
expenses or responsibilities of Practice.
Items (j) through (l) above are Manager Expenses (defined below), as well as
that part of item (m) that is attributable to Manager. Items (n) through (u)
above are Practice Expenses (defined below), as well as that part of item (m)
that is attributable to Practice.
1.3 GAAP. The term "GAAP" shall mean generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants, in
statements and pronouncements of the Financial Accounting Standards Board, in
such other statements by such other entity, or other practices and procedures as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination. For purposes of
this Agreement, GAAP shall be applied in a manner consistent with the historic
practices used by Manager.
1.4 NET CLINIC REVENUES. The term "Net Clinic Revenues" shall mean
all revenues, computed on an accrual basis as defined by GAAP, (after taking
into account adjustments for uncollectable accounts, discounts, Medicare,
Medicaid, workers' compensation, professional courtesy discounts and other
write-offs) generated by or on behalf of the Clinic, Practice or their
respective employees or leased employees as a result of professional medical
services personally furnished to patients, and other fees or income generated by
such persons in their capacity as Physician Shareholders, Practice Employees,
physician independent contractors, employees and leased employees of Practice or
the Clinic, whether rendered in an inpatient or outpatient setting and whether
rendered to health maintenance organizations, preferred provider organizations,
Medicare, Medicaid or other patients, including, but not limited to, payments
received under any capitation arrangement (including, without limitation,
monthly capitation payments, bonus payments, etc.). The term "Net Clinic
Revenues" shall also include any ancillary services revenues for services
provided at the Medical Offices. The term "Net Clinic Revenues" shall not
include medical director fees, expert witness fees, or amounts received as
honoraria or from royalties from inventions, and shall exclude any consulting
fees or related compensation paid by Manager or Parent to any Physician
Shareholder or Practice Employee.
1.5 PHYSICIAN SHAREHOLDERS. The term "Physician Shareholders"
shall mean those individuals who are duly licensed to practice medicine in the
State of Ohio and who are shareholders of Practice.
1.6 PRACTICE EMPLOYEES. The term "Practice Employees" shall mean:
(a) those individuals who are duly licensed to practice medicine in the State of
Ohio and who are employees of Practice, or those individuals who are otherwise
under contract with Practice as employees or leased employees of the Practice to
provide physician and/or medical services to
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patients of the Clinic and whose services (as determined on a full-time
equivalency basis) are separately billed, specifically including nurse
practitioners, certified registered nurse anesthetists, physician assistants,
Fellows, surgical assistants, certified nurse midwives, individuals with a
Masters in Social Work degree, physical therapists, and psychologists with a
Masters or a Doctorate degree; and (b) those individuals (other than those
described in Section 1.6(a)) who, by reason of their job description or actual
function, provide services that, under federal law, regulation or policy as of
the Effective Date, must be billed through and by a licensed physician and who
are therefor required to be employees or leased employees of Practice.
1.7 PRE-DISTRIBUTION MARGIN. The term "Pre-Distribution Margin"
shall mean the amount equal to Net Clinic Revenues less all Clinic Expenses.
SECTION 2. ADVISORY BOARD.
2.1 FORMATION AND OPERATION OF THE ADVISORY BOARD. Manager and
Practice shall establish an Advisory Board responsible for advising Manager in
connection with the development of management and administrative policies for
the overall operation of the medical practice of Practice. The Advisory Board
shall consist of four (4) members. Manager shall designate, in its sole
discretion and from time to time, two (2) members of the Advisory Board.
Practice shall designate, in its sole discretion and from time to time, two (2)
members of the Advisory Board. Except as may otherwise be provided, the act of a
majority of the members of the Advisory Board shall be the act of the Advisory
Board.
2.2 FUNCTIONS OF THE ADVISORY BOARD. The Advisory Board shall
review, evaluate and make recommendations to Practice and Manager with respect
to the following matters:
(a) Annual Budgets. All annual capital and operating
budgets prepared by Manager, as set forth in Section 3.4, shall be subject to
review and approval by the Advisory Board, which may recommend changes therein.
(b) Physician Employment and Recruitment. The Advisory
Board shall advise Manager and Practice with respect to the types of physicians
required for the efficient operation of the medical practice of Practice and the
content of all physician employment and recruitment contracts to be utilized by
Practice. Before any binding offer of employment is extended by Practice,
Practice shall provide Manager at least fifteen (15) days prior notice.
(c) Strategic Planning. The Advisory Board shall make
recommendations to Manager regarding the development of long-term strategic
planning objectives for Practice.
(d) Capital Expenditures. The Advisory Board shall make
recommendations to Manager regarding the priority of major capital expenditures
for the medical practice of Practice.
(e) Capital Improvements and Expansion. Any renovation
and expansion plans and capital equipment expenditures with respect to the
operations of the medical practice of
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Practice shall be subject to the Advisory Board's approval and shall be based,
in the reasonable judgment of Manager, upon economic feasibility, physician
support, productivity and then-current market conditions.
(f) Provider and Payor Relationships. The Advisory Board
shall review and advise Manager and Practice with respect to the establishment
or maintenance of relationships with institutional healthcare providers and
payors.
(g) Ancillary Services. The Advisory Board shall review
and make recommendations to Manager and Practice regarding the provision of
ancillary services based upon the pricing, access to and quality of such
services.
(h) Patient Fees; Collection Policies. At least annually,
the Advisory Board shall review and advise Practice with respect to the fee
schedule for all physicians and ancillary services rendered by the Clinic.
Billing and collecting shall be conducted at the Medical Offices until such time
as the Advisory Board determines that billing and collecting should be conducted
elsewhere.
(i) Advertising. The Advisory Board shall advise Practice
with respect to advertising and other marketing of services including design of
signage, logo and letterhead. All such advertising and marketing shall be in
accordance with applicable laws.
(j) Exceptions to Inclusion in Net Practice Revenues. The
Advisory Board will review and make recommendations to Manager and Practice with
respect to the proposed exclusion of any revenue from Net Clinic Revenues.
(k) Grievance Referrals. The Advisory Board shall
consider, review and make recommendations to Manager and Practice with respect
to any matters arising in connection with the operations of Practice that are
not specifically addressed in this Agreement and as to which Manager or Practice
requests consideration by the Advisory Board.
(l) Quality Assurance and Utilization Review. The
Advisory Board shall advise Manager and Practice regarding all quality assurance
and utilization review programs undertaken by Practice either independently or
in connection with any managed care contracts maintained by Practice, and
Manager shall assist the Practice in preparing, reviewing, revising and
performing the quality assurance and utilization review functions of the
Practice in consultation with the Advisory Board.
Notwithstanding any contrary provision of this Agreement, it is acknowledged and
agreed that other than as provided in Section 2.2(a), recommendations of the
Advisory Board are intended for the advice and guidance of Manager and Practice
and that the Advisory Board does not have the power to bind Manager or Practice.
Where discretion with respect to any matter is vested in Practice under the
terms of this Agreement, Practice shall have ultimate responsibility for the
exercise of such discretion, notwithstanding any recommendation of the Advisory
Board. Where discretion with respect to any matter is vested in Manager under
the terms of this Agreement, Manager shall have ultimate responsibility for the
exercise of such discretion, notwithstanding
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any recommendation of the Advisory Board. Manager and Practice shall, however,
take such recommendations of the Advisory Board into account in good faith in
the exercise of such discretion.
SECTION 3. OBLIGATIONS OF MANAGER.
3.1 PROVISION OF MANAGEMENT SERVICES. Manager shall provide to the
Clinic the management services, personnel, equipment and supplies provided for
in this Section 3 (collectively "Management Services"). Manager shall provide
the Management Services at the medical offices set forth in Exhibit A attached
hereto and incorporated herein by this reference, or at such other place or
places as may be agreed upon by the parties. The medical offices at which the
Management Services are to be provided are hereinafter referred to as the
"Medical Offices."
3.2 MEDICAL OFFICES. Manager shall pay out of Net Clinic Revenues
all Clinic Expenses incurred from the Effective Date of this Agreement forward
with respect to the Medical Offices. Manager shall consult with Practice with
respect to the condition, use and needs of the Medical Offices, as expanded,
improved or relocated from time to time.
3.3 FURNITURE, FIXTURES AND EQUIPMENT. Manager agrees to provide
to the Clinic those supplies and items of furniture, fixtures and equipment as
are determined by Manager, after consultation with Practice, to be necessary
and/or appropriate for Practice's operations at the Medical Offices during the
term of this Agreement (all such items of furniture, fixtures and equipment are
collectively referred to hereinafter as the "FFE") subject, however, to the
following conditions:
(a) Practice shall have the use of the FFE only during
the term of this Agreement and title to the FFE shall be and remain in Manager
at all times during such term.
(b) Manager shall be responsible for, and pay for out of
Net Clinic Revenues, all repairs and maintenance of the FFE, except for repairs
and maintenance replacement necessitated by the gross negligence or willful
misconduct of Practice, its employees and agents.
3.4 FINANCIAL PLANNING AND GOALS. Manager will prepare, in
consultation with Practice, annual capital budgets for the Clinic, reflecting in
reasonable detail anticipated revenues and sources and uses of capital for
growth in the Clinic. The Advisory Board shall be responsible for determining
the amount of capital to be invested in the Clinic annually, including, without
limitation, amounts for capital used to acquire or affiliate with other
physician practices that become part of the Clinic, and other capital used for
capital expenditures and working capital. Interest expense shall be charged for
funds utilized for capital, whether the source of capital is from outside
sources or from Parent. Interest charges on funds from Parent will be computed
at a floating rate that is equal to the current blended borrowing rate in effect
for actual
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and available outside borrowings of Parent. Nothing contained herein shall
prevent Manager from transferring excess cash to Parent for other uses provided
funds are made available when required hereunder.
3.5 BUSINESS OFFICE SERVICES. Practice hereby appoints Manager as
its sole and exclusive manager and administrator of all business functions and
services related to Practice's services at the Clinic during the term of this
Agreement. Without limiting the generality of the foregoing, in providing the
Management Services, Manager shall perform the following functions:
(a) Manager shall evaluate, negotiate and administer all
managed care contracts on behalf of Practice and shall consult with Practice on
all professional or clinical matters relating thereto. All managed care
contracts will be subject to review and approval by the Advisory Board as set
forth in Section 2.2(f).
(b) Manager shall provide ongoing assessment of business
activity including product line analysis, outcomes monitoring and patient
satisfaction.
(c) Manager shall be responsible for ordering and
purchasing all medical and office supplies reasonably required in the day-to-day
operation of the Clinic at the Medical Offices.
(d) Except as provided in Section 3.5(e) below, Manager
shall xxxx and collect from patients, third party payors and fiscal
intermediaries all professional fees for medical services and for ancillary
services performed at the Medical Offices by Practice and Practice's employees
and agents, including, but not limited to, Physician Shareholders and Practice
Employees. Practice hereby appoints Manager for the term of this Agreement as
its true and lawful attorney-in-fact for the following purposes:
(i) To xxxx patients , third party payors and
fiscal intermediaries in Practice's name and on Practice's behalf, under its
provider number(s), in the name and on behalf of all Physician Shareholders and
Practice Employees;
(ii) To collect accounts receivable and claims
for reimbursement generated by such xxxxxxxx in Practice's name and on
Practice's behalf, and in the name and on behalf of all Physician Shareholders
and Practice Employees;
(iii) To receive, on behalf of Practice and all
Physician Shareholders and Practice Employees, payments from patients, Blue
Shield, insurance companies, Medicare, Medicaid and all other payors with
respect to services rendered by Practice, Physician Shareholders and Practice
Employees, and Practice hereby covenants to forward such payments to Manager for
deposit;
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(iv) To take possession of and endorse in the
name of Practice, or in the name of any Physician Shareholder or Practice
Employee, any notes, checks, money orders, insurance payments and any other
instruments received as payment of such accounts receivable and claims for
reimbursement; and
(v) To collect in Practice's name and on its
behalf, and in the name and on behalf of all Physician Shareholders and Practice
Employees, all Net Clinic Revenues.
(e) All amounts received in payment of Medicare,
Medicaid, and CHAMPUS accounts receivable shall be deposited into an account in
the name of and controlled by Practice (the "Physician Deposit Account") with a
bank whose deposits are insured by the Federal Deposit Insurance Corporation.
The Physician Deposit Account shall at all times be maintained and funds
withdrawn in accordance with the provisions in the Billing Agreement for
Governmental Receivables of even date herewith between Manager, Practice and
Physician Shareholders in the form attached hereto as Exhibit 3.5(e) and made a
part hereof (the "Billing Agreement"). The Physician Deposit Account shall be
maintained by Manager solely for the purpose of collecting amounts in payment of
Medicare, Medicaid, and CHAMPUS accounts receivable unless otherwise expressly
agreed by Manager.
3.6 DEPOSIT OF NET CLINIC REVENUES. Except as provided in Section
3.5(e) and Exhibit 3.5(e), during the term of this Agreement, all revenues
collected, which revenues were generated by or on behalf of the Clinic, Practice
or their respective employees, shall be transferred to or deposited directly
into a bank account at its "Credit Facility Lender" (as defined in Section
5.5(c)), of which Manager shall be the owner and from which Manager shall have
the sole right to make withdrawals ("Account"). Manager shall maintain its
accounting records in such a way as to clearly segregate Net Clinic Revenues
from other funds of Manager. Practice hereby appoints Manager as its true and
lawful attorney-in-fact to deposit in the Account all Net Clinic Revenues
collected. Practice and Manager hereby agree to execute from time to time such
documents and instructions as shall be required by the Credit Facility Lender
and mutually agreed upon to effectuate the foregoing provisions and to extend or
amend such documents and instructions. Any funds in the Physician Deposit
Account which are not made available to Manager due to any revocation of its
authority under the Billing Agreement shall, at Manager's election, be deemed
delivered for purposes of this section.
3.7 REVENUE REPORTS. Manager shall maintain revenue reports, as
determined by the books and records of Manager, with respect to the Clinic.
Revenue reports shall reflect the total gross revenues and Net Clinic Revenues
generated by or on behalf of the Clinic. Manager shall provide Practice with
monthly revenue reports and shall provide a year-end revenue report for the
Clinic within ninety (90) days after the end of each calendar year. Practice
shall have the right, upon reasonable notice to Manager, to inspect the books
and records of Manager as they relate to the determination of Net Clinic
Revenues, Clinic Expenses, Pre-Distribution Margin, or Practice Compensation.
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3.8 SUPPORT SERVICES. Manager shall provide all reasonable and
necessary computer, bookkeeping, billing and collection services, accounts
receivable and accounts payable management services, laundry, linen, janitorial
and cleaning services and management services to improve efficiency and workflow
systems and procedures, as determined by Manager after consultation with
Practice.
3.9 ADMINISTRATOR. Manager shall provide an Administrator to
manage and administer all of the day-to-day business functions and services of
the Clinic. The Administrator will be selected by Manager with the prior consent
of Practice, which consent shall not be unreasonably withheld. Manager shall
determine the salary and fringe benefits of the Administrator, but shall consult
with Practice with respect thereto. Manager shall offer [XXXXX XXXXX] such
position as Administrator.
3.10 PERSONNEL. Manager shall provide such non-physician personnel
as determined by the Advisory Board to be reasonably necessary for the effective
operation of the Clinic at the Medical Offices, subject, however, to the
following:
(a) Manager shall provide to Practice all nurses, medical
records personnel and other medical support personnel as requested by Practice
and as shall be reasonably necessary for the operation of Practice's medical
practice at the Medical Offices. As to the nursing and non-physician medical
support personnel provided under this Section 3.10(a), Manager shall determine
the salaries and benefits of all such personnel, but shall consult with Practice
with respect thereto. All nursing, audiologists and other non-physician medical
support personnel required by law or regulatory authority to be billed through
and by a licensed physician shall be either employees or leased employees of the
Practice. Manager shall also recommend the assignment of all such personnel to
perform services at the Medical Offices; provided, however, that Practice shall
have the right to approve, based solely on professional competence, the
assignment of all non-physician medical support personnel to provide services at
the Medical Offices and Manager shall, at Practice's request, reassign and
replace such personnel from time to time who are not, in Practice's judgment,
adequately performing the required professional services.
(b) Manager shall provide to Practice all business office
personnel (i.e., clerical, secretarial, bookkeeping and collection personnel)
reasonably necessary for the maintenance of patient records, collection of
accounts receivable and upkeep of the financial books of account to the extent
that same are required for, and directly related to, the operation of the
Clinic. As to the personnel provided under this Section, Manager shall determine
the salaries and fringe benefits of all such personnel, but shall consult with
Practice with respect thereto.
(c) In exercising its judgment with regard to personnel
as provided in Sections 3.8 and 3.9 and this Section 3.10, Practice agrees not
to discriminate against such personnel on the basis of race, religion, age, sex,
disability or national origin.
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(d) Notwithstanding any provision herein to the contrary,
the Advisory Board shall determine the number of Audiologists to be employed by
Practice and the salaries and benefits payable with respect thereto.
3.11 CLINIC PROFESSIONAL SERVICES. Manager shall not be responsible
for any services requested by or rendered to any individual, employee or agent
of Practice not directly related to the operations of the Clinic, nor shall
Manager be responsible for rendering any legal or tax advice or services or
personal financial services to Practice or any employee or agent of Practice.
3.12 PATIENT AND FINANCIAL RECORDS. Manager shall maintain all
files and records relating to the operation of the Clinic, including, but not
limited to, customary financial records and patient files. The management of all
files and records shall comply with all applicable federal, state and local
statutes and regulations, and all files and records shall be located so that
they are readily accessible for patient care, consistent with ordinary records
management practices. Practice shall supervise the preparation of, and direct
the contents of, patient medical records, all of which shall be and remain
confidential and the property of Practice. Manager shall have reasonable access
to such records and, subject to applicable laws, regulations and accreditation
policies, Manager shall be permitted to retain true and complete copies of such
records. Practice shall have reasonable access to such financial records and,
subject to applicable laws, regulations and accreditation policies, Practice
shall be permitted to retain true and complete copies of such records. Each of
Manager and Practice hereby agrees to preserve the confidentiality of such
patient financial and medical records and to use the information in such records
only for the limited purposes necessary to perform the services to be performed
hereunder and, within the limits of its responsibilities hereunder, to ensure
that provision is made for appropriate care for patients of the Clinic.
3.13 PHYSICIAN RECRUITMENT. At the request of Practice, Manager
shall perform administrative services relating to the recruitment of physicians
for Practice. Practice shall determine the need for additional physicians in
consultation with Manager. It shall be the responsibility of Practice to
interview and select physicians for Practice. All such physicians recruited by
Manager as may be accepted by Practice shall be shareholders or employees of
Practice (if such physicians are hired as employees) and not of Manager. Any
expenses incurred in the recruitment of physicians shall be treated as Clinic
Expenses.
3.14 EXPANSION OF CLINIC. Manager shall use reasonable efforts to,
and will assist Practice in attempting to, add additional office-based
procedures, establish satellite office(s), as determined by Practice and Manager
to be beneficial to the Clinic. Upon request of Practice, Manager will consult
and advise Practice regarding development of relationships and affiliations with
physicians and other specialists, hospitals, networks, health maintenance
organizations, preferred provider organizations, and similar organizations to
assist in the continued growth and development of the Clinic. Practice will not
enter into any agreements with respect to any such matters without the prior
consent of Manager.
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3.15 PERFORMANCE OF BUSINESS OFFICE SERVICES. Manager is hereby
expressly authorized to perform its business office services hereunder in
whatever reasonable manner it deems appropriate to meet the day-to-day
requirements of the non-medical business functions of Practice's medical
practice at the Medical Offices. Manager may perform some or all of the business
office functions of Practice at locations other than at the Medical Offices.
3.16 FORCE MAJEURE. Manager shall not be liable to Practice for
failure to perform any of the services required herein in the event of strikes,
lockouts, calamities, acts of God, unavailability of supplies or other events
over which Manager has no control for so long as such event continues and for a
reasonable period of time thereafter.
3.17 NON-CLINIC EXPENSES. Manager shall be solely responsible for
the payment of all costs and expenses incurred in connection with Manager's
operations that are not Clinic Expenses or Practice Expenses, but are expenses
of Manager ("Manager Expenses"), including, but not limited to, any corporate
overhead charges from Parent (other than the reasonable charge for billing and
collecting set forth in 1.2(h) above), except as may be otherwise agreed upon.
Manager shall pay all Manager Expenses as they fall due; provided, however,
Manager may contest in good faith any claimed Manager Expenses as to which there
is any dispute regarding the nature, existence or validity of such claimed
Manager Expenses.
3.18 BUDGETS.
(a) As part of the Manager's responsibilities under this
Agreement, the Manager shall prepare annual capital and operating budgets for
the Practice for each budget period in accordance with the provisions of this
Section 3.18. As used herein, a budget period means a calendar year of Practice
unless otherwise provided.
With respect to each budget period following the initial
budget period, the Manager shall prepare and deliver a preliminary draft of each
such budget to the Advisory Board at least 30 days prior to the commencement of
the budget period to which such budget relates. The Advisory Board shall provide
any comments or suggested changes to such preliminary drafts to the Manager
within 15 days after receipt thereof. The Manager shall then submit a revised
budget to the Advisory Board for approval by the Advisory Board no later than 15
days after the end of the 15-day period referred to in the immediately preceding
sentence. The Advisory Board shall then approve or disapprove of, but not modify
or amend the revised budget within 15 days of receiving it. The foregoing time
periods during which drafts of the budget are to be delivered and approved shall
be subject to adjustment from time to time as determined appropriate by the
Advisory Board and Manager.
If prior to the commencement of any budget period, the
Advisory Board has not yet approved the budget or provided comments or suggested
changes to the proposed budget, then the Manager and the Advisory Board will
work diligently in good faith to obtain such approvals, and until such approvals
are obtained, with respect to the budget, (i) as to any disputed
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line items, the immediately preceding budget period's budget shall be
controlling until such time, if any as agreement is reached on the amounts to be
allocated to such disputed line items, specifically as follows: (A)
non-recurring or extraordinary items shall not be continued from the budget for
the immediately preceding budget period, (B) if the previous budget was for a
budget period of less than 12 months, it shall be annualized, (C) all items
subject to an automatic increase, such as rent and taxes, shall be budgeted at
the increased rate, (D) for items such as employee salaries and benefits, the
total salary and benefits number shall be adjusted to take into account changes
in the number and classifications of employees employed or contracted, (E) as to
any line items which are not in dispute, the revised budgets submitted by the
Manager shall control, and (F) those items reasonably deemed medically necessary
by Practice shall be acquired. With respect to the initial budget for the
calendar year 1999, Manager shall deliver a draft of such budget to the Advisory
Board within sixty (60) days of the date of this Agreement. If the Advisory
Board has not approved the budget for 1999 within fifteen (15) days thereafter,
actual 1998 costs of the Practice shall be deemed to be the "immediately
preceding budget period's budget" for purposes of this paragraph.
(b) The parties agree that the Manager shall have the
authority and discretion in its reasonable business judgment to reallocate cost
and expense line items within the budget, so long as the pre-tax income targets
within such budgets are not adversely impacted and Manager's staffing
obligations under Sections 3.8, 3.9 and 3.10 are not materially adversely
affected.
(c) Manager agrees that expenses of the Practice which
are shared by any other practices which are managed by Manager in Cleveland,
Ohio shall be allocated as "Clinic Expenses" to Practice and such other
practices based on actual expenses incurred where such expenses are directly
identifiable by Manager, or on a pro rata basis in accordance with the
respective "Net Clinic Revenues" of Practice and such other practices, or such
other fair and reasonable basis as Manager may determine.
SECTION 4. OBLIGATIONS OF PRACTICE.
4.1 NON-CLINIC EXPENSES. Practice shall be solely responsible for
the payment of all costs and expenses incurred in connection with Practice's
operations that are not Clinic Expenses or Manager Expenses ("Practice
Expenses"), including, but not limited to, insurance premiums for policies of
malpractice insurance, deductibles under such policies of malpractice insurance,
any and all costs and expenses incurred with respect to claims under such
policies of malpractice insurance, salaries and benefits, workers' compensation,
retirement plan contributions, health, disability and life insurance premiums,
payroll taxes, cellular phone and automobile expenses incurred by or in
connection with the employment of all Physician Shareholders and Practice
Employees. Practice shall pay all Practice Expenses as they fall due; provided,
however, Practice may contest in good faith any claimed Practice Expenses as to
which there is any dispute regarding the nature, existence or validity of such
claimed Practice Expenses.
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4.2 PROFESSIONAL STANDARDS.
(a) It is expressly acknowledged by the parties to the
Agreement that all medical services provided at the Medical Offices shall be
performed solely by physicians duly licensed to practice medicine in the State
of Ohio. The professional services provided by Practice and its Physician
Shareholders and Practice Employees shall at all times be provided in accordance
with applicable ethical standards, laws and regulations applying to the medical
profession. Practice will cooperate with Manager in taking steps to resolve any
utilization review or quality assurance issues which may arise in connection
with the Clinic. If any disciplinary actions or professional liability actions
are initiated against any Physician Shareholder or Practice Employee, Practice
shall immediately inform Manager of such action and the underlying facts and
circumstances. Practice shall establish and maintain procedures to assure the
consistency and quality of all professional medical services provided at or
through the Clinic. Practice agrees to implement and maintain a program to
monitor the quality of medical care provided by Practice, and Manager shall
render administrative assistance to Practice on an as-requested basis to assist
Practice in implementing and maintaining such program.
(b) Practice shall at all times during the term of this
Agreement use its best efforts to assure that each physician employed by the
Practice shall:
(i) maintain an unrestricted license to practice medicine
and surgery in all its branches in the State of Ohio and maintain good
standing with the Medical Board of the State of Ohio;
(ii) maintain a federal Drug Enforcement Administration
certificate without restrictions, to prescribe controlled substances as
are customarily prescribed by physicians practicing in Physician's
practice specialties;
(iii) maintain hospital medical staff memberships and
clinical privileges at those facilities at which such Physician treats
or sees patients;
(iv) perform all professional services through Practice
and in accordance with all laws and with prevailing standards of care
and medical ethics in accordance with any Employment Agreement between
Practice and Physician and with practice protocols and policies as
adopted from time to time by Practice;
(v) maintain Physician's skills through continuing
education and training, including participation in those programs
designated by Practice from time to time;
(vi) maintain eligibility for insurance under the
professional liability policy or policies at a commercially reasonable
cost as determined by Practice carried by or on behalf of Practice for
Physician's practice specialties, to the extent Physician is to be
covered by such policy or policies pursuant to the Physician Employment
Agreement;
(vii) maintain Physician's board-certified or board
eligible status in Physician's practice specialties;
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(viii) qualify and maintain Physician's qualification as a
participating provider in the Medicare and State of Ohio Medicaid
programs;
(ix) abide by the Principles of Medical Ethics of the
American Medical Association, and the ethical principles or statements
as adopted and amended from time to time by the American Board of
Otolaryngology;
(x) comply with all laws applicable to the conduct of
Physician's activities, as well as with the articles of incorporation,
bylaws and other corporate governance documents of Practice and other
rules or regulations adopted from time to time by Practice;
(xi) promptly disclose to Practice (i) the commencement or
pendency of any legal action, administrative proceeding or
investigation, medical staff or professional disciplinary actions
against Physician or (ii) the existence of any circumstances that could
reasonably be expected to form the basis of or lead to any such action,
proceeding or investigation;
(xii) abide by any guidelines adopted by Practice or any
person or entity providing management services to Practice designed to
encourage the appropriate, efficient and cost-effective delivery of
medical services, subject always to the clinical judgment of Physician,
and cooperate with and participate in all Practice programs regarding
quality assurance, utilization review, risk management and peer review;
(xiii) maintain appropriate and accurate medical records in
accordance with accepted medical standards and Practice policies with
respect to all patients evaluated and treated; and
(xiv) satisfy such other reasonable requirements as are
established from time to time by Practice.
4.3 PROVIDER AND PAYOR RELATIONSHIPS. Manager, upon request of
Practice, shall consult with Practice on matters relating to the establishment
or maintenance of relationships with institutional healthcare providers and
third-party payors, including, but not limited to, managed care programs, health
maintenance organizations and preferred provider organizations. Practice shall
not be required by Manager to sign up or contract with any particular provider
or payor.
4.4 PHYSICIAN POWERS OF ATTORNEY. Practice shall require all
Physician Shareholders and physician Practice Employees to execute and deliver
to Manager powers of attorney, satisfactory in form and substance to Manager,
appointing Manager as attorney-in-fact for each such Physician Shareholder and
physician Practice Employee for the purposes set forth in Sections 3.5 and 3.6.
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4.5 RESTRICTIVE COVENANTS.
(a) Practice acknowledges and agrees that the services to
be provided by Manager hereunder are feasible only if Practice operates a
vigorous medical practice to which its Physician Shareholders and Practice
Employees devote their full time and attention. Accordingly, Practice agrees
that, during the term of this Agreement, it shall not, without the prior written
consent of Manager, establish, operate or provide physician services at any
medical office, clinic or other health care facility providing services
substantially similar to those offered by the Clinic. Practice shall cause its
Physician Shareholders and physician Practice Employees to enter into written
agreements, satisfactory in form and substance to Manager, pursuant to which
Physician Shareholders and physician Practice Employees shall agree not to
establish, operate or provide physician services, without the prior written
consent of Manager, at any medical office, clinic or other health care facility
providing services substantially similar to those provided by the Clinic during
the term of this Agreement. If such person shall cease to be a Physician
Shareholder or physician Practice Employee during the term of this Agreement,
for a period of eighteen (18) months following the termination of the
professional relationship between such person and Practice such person shall
agree not to establish, operate, or provide physician services, without the
prior written consent of Manager, at any medical office, clinic or other health
care facility providing services substantially similar to those provided by the
Clinic within Cleveland, Ohio or any location within a ten (10) mile radius of
the Medical Offices. Manager shall be expressly named as a third-party
beneficiary to such agreements between Practice and each Physician Shareholder
and physician Practice Employee. Notwithstanding the foregoing, the Advisory
Board may waive the restrictive covenant set forth in this Section 4.5(a) as it
applies to any individual physician who ceases to be a Physician Shareholder or
physician Practice Employee.
(b) During the term of this Agreement and for a period of
eighteen (18) months following the termination or expiration of this Agreement,
Practice shall not, without the prior written consent of Manager, employ, hire
or contract for services with any employee or former employee of Manager, nor
shall Practice solicit any such person to leave the employ of Manager. For
purposes of this Section 4.5(b), a "former employee" shall be any person who was
employed by Manager within six (6) months prior to the termination or expiration
of this Agreement. Practice shall cause its Physician Shareholders and physician
Practice Employees to enter into written agreements, satisfactory in form and
substance to Manager, pursuant to which such persons shall agree to be bound by
the same restrictions as set forth in this Section 4.5(b) with respect to
Practice, and Manager shall be expressly named as a third-party beneficiary to
such agreements between Practice and each Physician Shareholder and physician
Practice Employee. This Section 4.5(b) shall not apply to the individuals set
forth on Schedule 4.5(b).
(c) If this Agreement is terminated by Manager pursuant
to Sections 6.2(a) hereof, Practice shall not, for a period of eighteen (18)
months following the effective date of such termination, engage or contract with
any person, firm or entity (or group of affiliated entities) for the provision
of comprehensive management services to the Clinic of the kind contemplated by
this Agreement.
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(d) Manager and Practice acknowledge and agree that
Manager's remedy at law for any breach or attempted breach of the foregoing
provisions will be inadequate and that Manager shall be entitled to specific
performance, injunction or other equitable relief in the event of any such
breach or attempted breach, in addition to any other remedies which might be
available at law or in equity. If the duration, scope or geographic area
contemplated by the foregoing provisions is determined to be unenforceable by a
court of competent jurisdiction, the parties agree that such duration, scope or
geographic area shall be deemed to be reduced to the greatest scope, duration or
geographic area which would be enforceable.
(e) If the equitable relief contemplated by the foregoing
paragraph is not available for any reason, or if any court of competent
jurisdiction shall refuse to enforce the foregoing paragraph for reasons of
public policy or otherwise, the parties agree that Manager shall be entitled to
receive liquidated damages from the breaching party in an amount equal to two
times the then-current Practice Compensation (as hereinafter defined), or, in
the event of a breach by a Physician Shareholder or physician Practice Employee,
two times the breaching person's aliquot share of the then-current Practice
Compensation. The parties acknowledge and agree that such liquidated damages are
appropriate because actual damages to Manager would be speculative and difficult
to determine at the time of any such breach.
4.6 PROFESSIONAL DUES AND EDUCATION EXPENSES. Practice and its
Physician Shareholders and Practice Employees shall be solely responsible for
all costs and expenses associated with membership in professional associations
and continuing professional education. Practice shall ensure that each of its
Physician Shareholders and Practice Employees participates in such continuing
medical education activities as are necessary for such physicians to remain
current in their respective specialties, including, but not limited to, the
minimum continuing medical education requirements imposed by applicable laws and
policies of applicable specialty boards.
4.7 COOPERATION. Practice shall, and shall cause its Physician
Shareholders and Practice Employees to, exercise diligence in assisting Manager
in keeping costs and expenses of the Clinic to a minimum without sacrificing
professional standards or high quality patient care. Practice shall exercise due
care to ensure that, when being used by Physician Shareholders and Practice
Employees, medical equipment of the Clinic is being used in a safe and efficient
manner, and shall timely report any unsafe or unsatisfactory medical equipment
of which Practice, or any of its Physician Shareholders or Practice Employees,
is aware. Practice acknowledges and agrees that on execution of this Agreement,
Manager will implement its own policies and procedures, including, but not
limited to, policies and procedures regarding cash management and revenue
controls. These policies and procedures will be implemented as soon as
reasonably practicable after execution of this Agreement and may be revised or
amended by Manager from time to time thereafter during the term of this
Agreement. Practice agrees to
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cooperate with any such implementation, revision, or amendment of Manager's
policies and procedures. Practice also agrees to cooperate with, and participate
in, any patient satisfaction surveys and/or outcomes management surveys or
programs instituted or implemented by Manager.
4.8 CORPORATION AND EMPLOYMENT AGREEMENTS. Practice represents
that it has delivered to Manager a true and correct copy of the Close
Corporation Agreement and Physician Employment Agreements between Practice and
its Physician Shareholders and will cause all new shareholders of Practice to
execute such agreements prior to becoming a shareholder (or employee) in
Practice. Practice shall not amend the Close Corporation Agreement so as to
cause the Close Corporation Agreement to contravene or conflict with this
Agreement and shall not amend the Physician Employment Agreements between
Practice and its physician employees. Practice shall not waive any material
rights thereunder without the prior consent of Manager. The shareholders of the
Practice are and shall be individual physicians.
SECTION 5. PRACTICE COMPENSATION.
5.1 COMPENSATION TO MANAGER. As compensation for services rendered
in connection with the Clinic ("Manager Compensation"), Manager shall receive
compensation determined as set forth on Appendix A, attached hereto and made a
part hereof, which amends, restates and replaces Appendix A in the Prior
Agreement. Practice hereby releases MAC, MPI, Manager and Parent, and their
respective successors and assigns, from any obligation to pay compensation under
Part 2 of Appendix A of the Prior Agreement. Manager shall be entitled, on a
monthly basis, to pay itself from Net Clinic Revenues the amount specified in
Section 5.1 and Appendix A as Manager Compensation for providing its services
under this Agreement. Practice acknowledges and agrees that the amount to be
retained by Manager as Manager Compensation in accordance with this Agreement is
reasonable and fair, given the undertakings of Manager as set forth in this
Agreement and the other benefits and value that accrue to Practice as a result
of Manager's services under this Agreement.
5.2 PAYMENT OF CLINIC EXPENSES. Manager shall pay all Clinic
Expenses, as they fall due, out of Net Clinic Revenues; provided, however, that
Manager may, in the name of and on behalf of Practice, contest in good faith any
claimed Clinic Expenses as to which there is any dispute regarding the nature,
existence or validity of such claimed Clinic Expenses.
5.3 DRAWS.
(a) Following the end of each month, Manager shall make
an estimate of the collection percentage ("Estimated Collection Percentage") for
such month's gross production. The Estimated Collection Percentage may vary
depending on historical collection percentages, changes in fee schedules,
changes in third party reimbursement, bad debt write-offs and similar
adjustments. The Estimated Collection Percentage will then be applied to such
month's gross production, resulting in estimated Net Clinic Revenues for such
month. Clinic Expenses will
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then be subtracted from estimated Net Clinic Revenues, resulting in estimated
Pre-Distribution Margin for such month. Draws attributable to such month are
determined by applying the formula discussed under Section 5.1 and Appendix A to
the estimated Pre-Distribution Margin. Manager shall pay Practice such amount by
the 15th day of the following month.
(b) Practice and Manager mutually recognize and
acknowledge that it is the intent of the parties that all management fees paid
to Manager under this Agreement be reasonable and approximate Manager's actual
costs and expenses plus a reasonable profit. Payment of the management fee is
not intended to be, and shall not be, interpreted or applied as permitting the
Manager to share in Practice's fees for professional services rendered, but is
acknowledged as the parties' negotiated agreement as to the reasonable, fair
market value of the management services being furnished by the Manager pursuant
to this Agreement, considering the nature and volume of such services.
5.4 DETERMINATION AND PAYMENT OF PRACTICE COMPENSATION.
(a) Within one hundred eighty (180) days after the end of
each calendar year, Manager will adjust the Estimated Collection Percentage
based on actual net cash collections attributable to the gross production for
such year, and shall determine actual Net Clinic Revenues and actual
Pre-Distribution Margin. Within forty-five (45) days after the end of such one
hundred eighty (180) day period, Manager shall cause a payment to be made to
Practice in the following amount, as determined from the financial statements
prepared by Manager pursuant to Section 3.7: Practice shall be paid an amount
equal to the aggregate Practice Compensation payable with respect to such
calendar year, less the aggregate sum of all draws by Practice pursuant to
Section 5.3 during such period. All Pre-Distribution Margin in excess of
Practice Compensation shall be the sole property of Manager.
(b) In the event that, after making the calculation
contemplated by Section 5.4(a), it is determined that draws by Practice under
Section 5.3 for the applicable calendar year exceed the amount which Practice is
ultimately entitled to receive with respect to such year (an "overdraft"),
Practice shall pay the amount of such overdraft to Manager within thirty (30)
days after receipt by Practice of written notice from Manager specifying the
amount of such overdraft or, at the option of Practice, Practice shall have the
amounts payable to it pursuant to Section 5.1 with respect to the next
succeeding four months reduced pro rata by the amount of such overdraft. In the
event Practice disagrees with Manager's computation of Net Clinic Revenues,
Pre-Distribution Margin or Practice Compensation, it shall have the right to
review, upon reasonable notice to Manager, the books and records, and other
documents used in determining such amounts.
5.5 ASSIGNMENT OF FEES FOR MEDICAL SERVICES.
(a) The parties acknowledge and agree that the
compensation and benefits payable to Practice pursuant to Section 5.1 are
intended to be in lieu of charges which Practice or
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its Physician Shareholders or Practice Employees would otherwise earn for the
provision of medical services to patients of their medical practice and which
Practice or the Physician Shareholders or Practice Employees would otherwise
xxxx and retain for their own account. Accordingly, Practice hereby irrevocably
assigns and sets over to Manager all of its rights to receive payment for such
services and retain such payment for its own account, and shall obtain a like
assignment from all Physician Shareholders and Practice Employees; provided,
that in the case of revenue and accounts receivable generated as a result of
billing for services under Medicare or Medicaid such assignment shall only be an
assignment of proceeds of accounts receivable consistent with the provisions of
applicable law. Except as otherwise provided in Section 3.5(e) and the Billing
Agreement, Practice shall endorse (and shall cause each Physician Shareholder or
Practice Employee to endorse) any payments received on account of such services
to the order of Manager and shall take such other actions as may be necessary to
confirm to Manager the rights set forth in this Section 5.5(a).
(b) Without limiting the generality of the foregoing, it
is the intent of the parties that the assignment to Manager of the rights
described in Section 5.5(a) above shall be inclusive of the rights of Practice
and the Physician Shareholders and Practice Employees to receive payment with
respect to any services rendered prior to the effective date of any expiration
or termination of this Agreement. Practice agrees and shall cause each Physician
Shareholder and Practice Employee to agree, that Manager shall retain the right
to collect and retain for its own account any accounts receivable relating to
any such services rendered prior to the effective date of any such expiration or
termination ("Pre-Termination Accounts Receivable"), and that the proceeds
thereof will be transferred to Manager's account to be applied in accordance
with Section 3.5 and 3.6 and the other provisions of this Agreement and the
Billing Agreement.
(c) Practice acknowledges that it is the intent of
Manager and Parent to grant a security interest in the Pre-Termination Accounts
Receivable to the lender(s) under its working capital credit facility (whether
one or more, "Credit Facility Lender"), as in effect from time to time. Practice
agrees that such security interest of the Credit Facility Lender is intended to
be a first priority security interest and is superior to any right, title or
interest which may be asserted by Practice or any Physician Shareholder or
Practice Employee with respect to Pre-Termination Accounts Receivable or the
proceeds thereof. Practice further agrees, and shall cause each Physician
Shareholder and Practice Employee to agree, that, upon the occurrence of an
event which, under the terms of such working capital credit facility, would
allow the Credit Facility Lender to exercise its right to collect
Pre-Termination Accounts Receivable and apply the proceeds thereof toward
amounts due under such working capital credit facility, the Credit Facility
Lender will succeed to all rights and powers of Manager under the powers of
attorney provided for in Sections 3.6 and 4.4 above as if such Credit Facility
Lender had been named as the attorney-in-fact therein.
(d) If, contrary to the mutual intent of Manager and
Practice, the assignment of rights described in this Section 5.5 shall be
deemed, for any reason, to be ineffective as an outright assignment, then
Practice and each Physician Shareholder and Practice Employee shall, effective
as of the date of this Agreement, be deemed to have granted (and Practice does
hereby
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grant, and shall cause each Physician Shareholder and Practice Employee to
grant) to Manager a first priority lien on and security interest in and to any
and all interests of Practice and such Physician Shareholders and Practice
Employees in any accounts receivable generated by the medical practice of
Practice and its Physician Shareholders and Practice Employees or otherwise
generated through the operations of the Clinic, and all proceeds with respect
thereto, to secure the payment to Manager of all Net Clinic Revenues in excess
of Practice Compensation, and this Agreement shall be deemed to be a security
agreement to the extent necessary to give effect to the foregoing. Practice
shall execute and deliver, and cause each Physician Shareholder and Practice
Employee to execute and deliver, all such financing statements as Manager may
request in order to perfect such security interest. Practice shall not grant
(and shall not suffer any Physician Shareholder or Practice Employee to grant)
any other lien on or security interest in or to such accounts receivable or any
proceeds thereof.
SECTION 6. TERM AND TERMINATION.
6.1 TERM. The term of this Agreement shall continue from the
Effective Date and end on July 30, 2036. Thereafter, this Agreement may be
extended for separate and successive five-year periods (each such five-year
period referred to hereinafter as an "extended term"), under such terms and
conditions as stated herein with respect to any such extended term; provided,
however, that: (a) Practice and Manager mutually agree to extend the term hereof
and mutually agree upon the documents to be in effect during any such extended
term hereto, not less than sixty (60) days prior to expiration of the initial
term or extended term then in effect; and (b) Practice is not in material
default hereunder on the date of commencement of the extended term.
6.2 TERMINATION.
(a) Manager may terminate this Agreement, and have no
further liability or obligation hereunder, upon the occurrence of one or more of
the following events:
(i) Practice ceases to materially perform its
material duties and responsibilities hereunder or materially breaches any
material term or condition of this Agreement, and such cessation or breach
continues uncured for a period of sixty (60) days (or such longer period as is
reasonably necessary to cure if such cessation or breach is of such a nature
that it cannot be cured within such sixty (60) day period and if Practice
commences the cure within such sixty (60) day period and diligently prosecutes
such cure to completion) after Practice's receipt of written notice specifying
such breach; provided, however, that if Practice or any Physician Shareholder or
Practice Employee breaches Section 4.5 hereof, Manager may terminate this
Agreement immediately upon written notice to Practice.
(ii) Practice voluntarily files a petition in
bankruptcy or makes an assignment for the benefit of creditors or otherwise
seeks relief from creditors under any federal
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or state bankruptcy, insolvency, reorganization or moratorium statute, or
Practice is the subject of an involuntary petition in bankruptcy which is not
set aside within sixty (60) days of its filing.
(iii) Practice materially breaches or defaults
under any other written agreement with Manager, subject to any applicable notice
and cure periods provided in any such agreement.
(iv) The representations and warranties made by
Practice in this Agreement cease to be true and correct.
(v) If the license of any Physician Shareholder
or physician Practice Employee to practice medicine in the State of Ohio is
suspended or revoked, or he is subjected to any final disciplinary action by the
Ohio State Board of Medicine or any similar body on any grounds, other than
minor, immaterial or insubstantial grounds, or he dies or becomes mentally or
physically disabled and, by reason of such disability, is in the reasonable
judgment of Manager unable to conduct his medical practice on substantially the
same basis as it was conducted prior to such disability, or if any Physician
Shareholder retires or sells his interest in Practice and ceases to practice
medicine on substantially a full-time basis as a Practice Employee; provided,
however, that in any such event Practice shall have one hundred eighty (180)
days from the date on which Manager gives Practice written notice of its intent
to terminate this Agreement pursuant to this Section 6.2(a)(v) to replace the
affected physician with another physician satisfactory to Manager, in its
reasonable discretion; provided further, however, that Manager and Practice may
agree to bring in a locum tenens to provide physician services during such one
hundred eighty (180) day period.
(b) Practice may terminate this Agreement, and have no
further liability hereunder, upon the occurrence of one or more of the following
events:
(i) Manager ceases to materially perform its
material duties and responsibilities hereunder or materially breaches any term
or condition of this Agreement, and such cessation or breach continues uncured
for a period of sixty (60) days (or such longer period as is reasonably
necessary to cure if such cessation or breach is of such a nature that it cannot
be cured within such sixty (60) day period and if Practice commences the cure
within such sixty (60) day period and diligently prosecutes such cure to
completion) after Manager's receipt of written notice specifying such breach.
(ii) Manager voluntarily files a petition in
bankruptcy or makes an assignment for the benefit of creditors or otherwise
seeks relief from creditors under federal or state bankruptcy, insolvency,
reorganization or moratorium statute, or Manager is the subject of an
involuntary petition in bankruptcy which is not set aside within sixty (60) days
of its filing.
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(iii) Manager fails to remit to Practice the
balance of the Pre-Distribution Margin minus Manager Compensation when due and
payable hereunder and such failure continues uncured for a period of ten (10)
days after Manager's receipt of written notice from Practice specifying such
failure.
6.3 DUTIES AND REMEDIES UPON EXPIRATION OR TERMINATION. Upon the
expiration or earlier termination of this Agreement, neither party shall have
any further obligation hereunder with the exception of: (a) obligations accruing
prior to the date of such expiration or earlier termination; and (b)
obligations, promises and covenants contained herein which are expressly
provided to extend beyond the term hereof, including, without limitation, any
indemnities, restrictive covenants, and access to books and records. Upon the
expiration or earlier termination of this Agreement, Manager Compensation shall
be prorated between the parties to reflect any partial calendar year. Manager
shall disburse funds for such payment on the closing date of the repurchase of
assets provided for in Section 6.5. If this Agreement is terminated pursuant to
Sections 6.2(a)(i), 6.2(a)(iii), 6.2(b)(i) or 6.2(b)(iii) hereof, the
non-breaching party may pursue such other legal or equitable relief as may be
available in addition to such proration. From and after any termination, each
party shall provide the other with reasonable access to books and records then
owned by it to permit such requesting party to satisfy reporting and contractual
obligations which may be required of it.
6.4 REPURCHASE OF ASSETS.
(a) Upon the expiration, or earlier termination by either
Practice or Manager (other than termination pursuant to Section 6.2(b)), of this
Agreement, Practice shall:
(i) Purchase from Manager the accounts
receivable of the Clinic at the closing under Section 6.5 at an amount equal to
the net realizable value of the accounts receivable as determined in accordance
with GAAP;
(ii) Purchase from Manager the FFE, all then
unused supplies and inventory, and other tangible and intangible personal
property, located at the Medical Offices or purchased for specific use for the
Clinic (except pharmaceutical supplies), for cash in an amount equal to the book
value thereof as reflected by Manager's books and records of account.
Notwithstanding any provision in this Agreement to the contrary, nothing in this
Agreement is intended, nor should it be construed, to give Practice any right to
acquire any proprietary software of Manager (including software licensed by
Manager from others) used by Manager in its provision of the Management
Services;
(iii) Purchase from Manager any real estate owned
by Manager and associated with the Clinic, and acquired through the Asset
Purchase Agreement or with the Approval of the Advisory Board, at the greater of
(i) the appraised fair market value thereof, or (ii) the then book value thereof
as reflected by Manager's books and records of account. In the event of any
repurchase of such real property, the appraised fair market value shall be
determined
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by each of Manager and Practice selecting a duly qualified appraiser, who will
then select a third appraiser. This third appraiser shall perform the appraisal,
which appraisal shall be binding on Manager and Practice. If either party fails
to select an appraiser within fifteen (15) days of the selection of an appraiser
by the other party, the appraiser selected by the other party shall make the
selection of the third-party appraiser;
(iv) Purchase from Manager all improvements,
additions and leasehold improvements, which were acquired through the Asset
Purchase Agreement or with the approval of the Advisory Board, and which relate
primarily to the operation of the Clinic, at book value as reflected by
Manager's books and records of account;
(v) Purchase from Manager the service agreement
costs and any other intangible assets of Manager primarily relating to the
operation of the Clinic (other than those intangible assets accounted for in
Section 6.4(a)(ii)), including goodwill, at book value as if purchase accounting
were used to record the transaction, which transaction includes, without
limitation this Agreement and the Asset Purchase Agreement, and as adjusted
through the last day of the month most recently ended prior to the date of such
expiration or earlier termination, in accordance with GAAP to reflect the
amortization or depreciation of restrictive covenants and intangibles, including
goodwill; and
(vi) Assume all debt and all payables, leases and
other contracts entered into or assumed in connection with and primarily related
to the operation of the Clinic, on such terms and conditions of such obligations
and instruments, such assumption to be accomplished by execution and delivery of
an assumption agreement, in form reasonably satisfactory to Manager and
Practice.
In the event that Practice is unable for any reason to fulfill its obligations
and requirements set forth in this Section 6.4(a) or Section 6.5 below, then the
undersigned Physician Shareholders shall fulfill such obligations and duties as
if such Physician Shareholders were the primary obligors hereunder.
(b) Upon termination of this Agreement by Practice
pursuant to Section 6.2(b) Practice shall:
(i) Purchase from Manager the accounts
receivable of the Clinic at the closing under Section 6.5 at an amount equal to
the net realizable value of the accounts receivable as determined in accordance
with GAAP;
(ii) Purchase from Manager the FFE, all then
unused supplies and inventory, and other tangible and intangible personal
property, located at the Medical Offices or purchased for specific use for the
Clinic (except pharmaceutical supplies), for cash in an amount equal to the book
value thereof as reflected by Manager's books and records of account.
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Notwithstanding any provision in this Agreement to the contrary, nothing in this
Agreement is intended, nor should it be construed, to give Practice any right to
acquire any proprietary software of Manager (including software licensed by
Manager from others) used by Manager in its provision of the Management
Services;
(iii) Purchase from Manager any real estate owned
by Manager and associated with the Clinic, and acquired through the Asset
Purchase Agreement or with the Approval of the Advisory Board, at the greater of
(i) the appraised fair market value thereof, or (ii) the then book value thereof
as reflected by Manager's books and records of account. In the event of any
repurchase of such real property, the appraised fair market value shall be
determined by each of Manager and Practice selecting a duly qualified appraiser,
who will then select a third appraiser. This third appraiser shall perform the
appraisal, which appraisal shall be binding on Manager and Practice. If either
party fails to select an appraiser within fifteen (15) days of the selection of
an appraiser by the other party, the appraiser selected by the other party shall
make the selection of the third-party appraiser;
(iv) Purchase from Manager all improvements,
additions and leasehold improvements, which were acquired through the Asset
Purchase Agreement or with the approval of the Advisory Board, and which relate
primarily to the operation of the Clinic, at book value as reflected by
Manager's books and records of account;
(v) Assume all debt and all payables, leases and
other contracts entered into or assumed in connection with and primarily related
to the operation of the Clinic, on such terms and conditions of such obligations
and instruments, such assumption to be accomplished by execution and delivery of
an assumption agreement, in form reasonably satisfactory to Manager and
Practice.
In the event that Practice is unable for any reason to fulfill its obligations
and requirements set forth in this Section 6.4(b) or Section 6.5 below, then the
undersigned Physician Shareholders shall fulfill such obligations and duties as
if such Physician Shareholders were the primary obligors hereunder.
6.5 CLOSING OF REPURCHASE OF ASSETS. Practice shall pay cash for
the repurchased assets, as contemplated by Section 6.4. The amount of the
purchase price shall be reduced by the amount of debt and liabilities (other
than contingent liabilities, such as leases) of Manager assumed by Practice and
shall also be reduced by any payment Manager has failed to make under this
Agreement. Practice, Physician Shareholders and physician Practice Employees
shall execute such documents as may be required to assume the liabilities set
forth in Section 6.4(a)(vi) or 6.4(b)(v) and to remove Manager and Parent from
any liability or guaranty with respect to such repurchased assets and with
respect to any property leased or subleased by Manager. The closing date for the
repurchase shall be determined by the parties hereto, but in no event shall
occur later than ninety (90) days from the date of termination or the notice of
termination, as applicable.
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SECTION 7. REPRESENTATIONS AND WARRANTIES OF PRACTICE.
Practice hereby represents and warrants to Manager as follows:
7.1 ORGANIZATION AND GOOD STANDING. Practice is a professional
corporation, duly organized, validly existing and in good standing under the
laws of the State of Ohio. Practice has all necessary power to own all of its
properties and assets and to carry on its business as now being conducted.
7.2 NO VIOLATIONS. Practice has the corporate authority to
execute, deliver and perform this Agreement and all agreements executed and
delivered by it pursuant to this Agreement, and has taken all action required by
law, its Articles or Certificate of Incorporation, its Bylaws or otherwise to
authorize the execution, delivery and performance of this Agreement and such
related documents. The execution and delivery of this Agreement does not and,
subject to the consummation of the transactions contemplated hereby, will not,
violate any provisions of the Articles or Certificate of Incorporation or Bylaws
of Practice or any provisions of or result in the acceleration of, any
obligation under any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree, to which Practice is a party, or by which
it is bound. This Agreement has been duly executed and delivered by Practice and
constitutes the legal, valid and binding obligation of Practice, enforceable in
accordance with its terms.
7.3 FINANCIAL INFORMATION. Practice has hereto furnished Manager
with complete copies of certain financial information about Practice which
information is true and correct and presents fairly the financial results
experienced by Practice for the periods set forth in such information.
7.4 PROFESSIONAL LIABILITY. No Physician Shareholder or physician
Practice Employee has ever (a) had his license to practice medicine in any state
or his Drug Enforcement Agency number suspended, relinquished, terminated,
restricted or revoked; (b) been reprimanded, sanctioned or disciplined by any
licensing board, or any federal, state or local society or agency, governmental
body or specialty board; (c) had entered against him final judgment in, or
settle without judgment, a malpractice or similar action for an aggregate award
or amount to the plaintiff in excess of Fifty Thousand and No/100 Dollars
($50,000.00); or (d) had his medical staff privileges at any hospital or medical
facility suspended, terminated, restricted or revoked.
SECTION 8. INSURANCE AND INDEMNITY.
8.1 INSURANCE TO BE MAINTAINED BY PRACTICE. Practice shall
provide, or shall arrange for the provision of, and maintain throughout the
entire term of this Agreement, professional liability insurance coverage on
Practice and each of Practice's employees and agents, including,
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but not limited to, all Physician Shareholders and Practice Employees, in the
minimum amount of One Million and No/100 Dollars ($1,000,000.00) per occurrence
and Three Million and No/l00 Dollars ($3,000,000.00) annual aggregate. Practice
shall provide to Manager written documentation evidencing such insurance
coverage. Practice shall, at its sole cost and expense, pay the premium costs of
all such professional liability insurance coverage during the term of this
Agreement. Practice shall provide, or shall arrange for the provision of, and
shall maintain throughout the entire term of this Agreement, workers'
compensation insurance coverage on Practice and each of its employees and
agents, including, but not limited to, all Physician Shareholders and Practice
Employees, in the amounts required by law. Practice shall provide to Manager
written documentation evidencing such insurance coverage. Practice shall, at its
sole cost and expense, pay the premium costs of all such workers' compensation
insurance coverage.
8.2 INDEMNIFICATION BY MANAGER. MANAGER SHALL INDEMNIFY, HOLD
HARMLESS AND DEFEND PRACTICE FROM AND AGAINST ANY AND ALL LIABILITY, LOSS,
DAMAGES, CLAIMS, CAUSES OF ACTIONS AND EXPENSES ASSOCIATED THEREWITH (INCLUDING
REASONABLE ATTORNEY'S FEES), CAUSED OR ASSERTED TO HAVE BEEN CAUSED, DIRECTLY OR
INDIRECTLY, BY OR AS A RESULT OF THE GROSS NEGLIGENCE OR INTENTIONAL ACTS OR
OMISSIONS OF MANAGER, ITS EMPLOYEES OR AGENTS DURING THE TERM HEREOF. THE
PROVISIONS OF THIS SECTION 8.2 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS AGREEMENT.
8.3 INDEMNIFICATION BY PRACTICE. PRACTICE SHALL INDEMNIFY, HOLD
HARMLESS AND DEFEND MANAGER AND PARENT FROM AND AGAINST ANY AND ALL LIABILITY,
LOSS, DAMAGES, CLAIMS, CAUSES OF ACTION AND EXPENSES ASSOCIATED THEREWITH
(INCLUDING REASONABLE ATTORNEYS' FEES) CAUSED OR ASSERTED TO HAVE BEEN CAUSED,
DIRECTLY OR INDIRECTLY, BY OR AS A RESULT OF THE PERFORMANCE OF MEDICAL SERVICES
BY PRACTICE AND ITS EMPLOYEES OR AGENTS DURING THE TERM HEREOF, OR THE GROSS
NEGLIGENCE OR INTENTIONAL ACTS OR OMISSIONS OF PRACTICE, ITS EMPLOYEES OR AGENTS
DURING THE TERM. THE PROVISIONS OF THIS SECTION 8.3 SHALL SURVIVE THE EXPIRATION
OR EARLIER TERMINATION OF THIS AGREEMENT.
8.4 KEY MAN INSURANCE. Practice agrees, and shall cause its
Physician Shareholders and Practice Employees to agree, that Manager may obtain,
at its sole expense and for its sole benefit, "key man" life and/or disability
insurance policies on any or all Physician Shareholders and Practice Employees.
Neither Practice nor any Physician Shareholder or Practice Employee shall have
any right, title or interest in or to the proceeds of any such insurance
policies. Practice shall cause its Physician Shareholders and Practice Employees
to cooperate with Manager, as reasonably requested by Manager from time to time,
in obtaining any such insurance policies, including, but not limited to, causing
such Physician Shareholders and Practice Employees to
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submit to such physical examinations and providing such information relating to
insurability as Manager may reasonably request from time to time. The costs and
expenses of obtaining such "key man" insurance shall be a Manager Expense.
SECTION 9. ASSIGNMENT.
The parties hereby agree that this Agreement shall not be assigned or
transferred by Manager or Practice without the prior written consent of the
other; provided, however, that this Agreement may be assigned by Manager, in its
sole discretion, without the consent of Practice, to any parent, subsidiary or
affiliate of Manager or to any person or entity that acquires all or
substantially all of the assets of Manager or Parent. Notwithstanding the
foregoing, the Practice agrees and consents to the Manager granting to the
Credit Facility Lender a security interest in all of the Manager's right, title
and interest in and under this Agreement as security for the Manager's
obligations under a guaranty of all of the Parent's indebtedness and other
obligations owing to the Credit Facility Lender.
SECTION 10. COMPLIANCE WITH REGULATIONS.
10.1 PRACTICE OF MEDICINE. The parties hereto acknowledge that
Manager is not authorized or qualified to engage in any activity which may be
construed or deemed to constitute the practice of medicine. To the extent any
act or service herein required of Manager should be construed or deemed to
constitute the practice of medicine, the performance of said act or service by
Manager shall be deemed waived and forever unenforceable. The Practice shall
have unfettered control in the exercise of its professional medical judgment
with respect to medical matters.
10.2 SUBCONTRACTS. Pursuant to Title 42 of the United States Code
and applicable rules and regulations thereunder, until the expiration of four
(4) years after termination of this Agreement, Manager shall make available,
upon appropriate written request by the Secretary of the United States
Department of Health and Human Services or the Comptroller General of the United
States General Accounting Office, or any of their duly authorized
representatives, a copy of this Agreement and such books, documents and records
as are necessary to certify the nature and extent of the costs of the services
provided by Manager under this Agreement. Manager further agrees that if it
carries out any of its duties under this Agreement through a subcontract with a
value or cost of Ten Thousand and No/100 Dollars ($10,000.00) or more over a
twelve (12) month period with a related organization, such subcontract shall
contain a clause to the effect that until the expiration of four (4) years after
the furnishing of such services pursuant to such subcontract, the related
organization shall make available, upon appropriate written request by the
Secretary of the United States Department of Health and Human Services or the
Comptroller General of the United States General Accounting Office, or any of
their duly authorized representatives, a copy of such subcontract and such
books, documents and records of such
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organization as are necessary to verify the nature and extent of such costs.
Disclosure pursuant to this Section shall not be construed as a waiver of any
other legal right to which Manager may be entitled under law or regulation.
SECTION 11. INDEPENDENT RELATIONSHIP.
11.1 INDEPENDENT CONTRACTOR STATUS.
(a) It is acknowledged and agreed that Practice and
Manager are at all times acting and performing hereunder as independent
contractors. Manager shall neither have nor exercise any control or direction
over the methods by which Practice, Physician Shareholders and Practice
Employees practice medicine. The sole function of Manager hereunder is to
provide all Management Services in a competent, efficient and satisfactory
manner. Manager shall not, by entering into and performing its obligations under
this Agreement, become liable for any of the existing obligations, liabilities
or debts of Practice unless otherwise specifically provided for under the terms
of this Agreement. In its management role, Manager will have only an obligation
to exercise reasonable care in the performance of the Management Services.
Manager shall have no liability whatsoever for damages suffered on account of
the willful misconduct or negligence of any employee, agent or independent
contractor of Practice. Each party shall be solely responsible for compliance
with all state and federal laws pertaining to employment taxes, income
withholding, unemployment compensation contributions and other employment
related statutes regarding their respective employees, agents and servants.
(b) If any court or regulatory authority shall determine
that the independent contractor relationship established hereby violates any
statutes, rules or regulations (or in the event that Manager, in good faith,
determines that there is a material risk that such a determination would be made
by any court or regulatory authority), then, at the request of Manager given by
written notice to Practice, the parties will negotiate in good faith to enter
into an employment arrangement between Manager and the then-current Physician
Shareholders and Practice Employees which substantially preserves for the
parties the relative economic benefits of this Agreement. If the parties cannot
reach agreement on such an arrangement after a period of 30 days of good faith
negotiations which shall commence after the aforesaid determination or opinion
is delivered, then either Practice or Manager may elect by notice to the other
to require that the parties enter into binding mediation in accordance with this
Section 11.1(b) to determine such arrangement. Pursuant to any such notice of
mediation Manager and Practice shall each choose an expert possessing knowledge
regarding health care management arrangements in the State of Ohio, and the two
experts so chosen shall select a third expert (the "Mediator") who shall be a
lawyer or accountant with a nationally recognized firm possessing knowledge and
experience regarding health care management arrangements in the State of Ohio.
Following selection the Mediator shall meet with Manager and Practice and, if
the parties are still unable to agree after two (2) such meetings, the Mediator
shall propose in a writing labeled "Binding
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Arrangement" an arrangement which best complies with statutes, rules and
regulations and which substantially preserves for the parties the relative
economic benefits of this Agreement, and such proposed binding arrangement shall
be final and binding on the parties. Each party shall bear the costs associated
with the retention of its chosen expert, and the costs associated with the
Mediator shall be paid by Manager in a percentage amount equal to a fraction,
the numerator of which is Manager's annual Manager Compensation for the most
recent fiscal year ended, and the denominator of which is Net Practice Revenues
for such fiscal year. The balance of the Mediator's cost shall be a Practice
Expense.
11.2 REFERRAL ARRANGEMENTS. The parties hereby acknowledge and
agree that no benefits to Practice hereunder require or are in any way
contingent upon the admission, recommendation, referral or any other arrangement
for the provision of any item or service offered by Manager or any of its
affiliates, to any patients of Practice, Practice's employees, leased employees
or agents.
SECTION 12. CONFIDENTIAL INFORMATION.
Except as required to perform its obligations under this Agreement,
Manager shall not, without the express written consent of Practice, distribute,
market, publish, or divulge to any person or entity, or use or modify for use,
directly or indirectly, any "Practice Confidential Information" during the term
of this Agreement and for a period of three (3) years after the final date of
the term of this Agreement; provided, however, that Manager may disclose
Practice Confidential Information, (i) to other medical practices which are
potential acquisition or merger partners for Manager or the Clinic, (ii) as
required by law, governmental order or regulation, or by subpoena or other legal
process (provided Practice will be provided advance notice of such disclosure in
order to afford it the opportunity to seek an appropriate protective order),
(iii) in any litigation involving Practice, Manager or a Physician Shareholder,
and (iv) to Manager's lenders, financial advisors, accountants, investment
bankers, investors, and attorneys. For purposes of this Agreement "Practice
Confidential Information" shall mean valuable, non-public competitively
sensitive data and information relating to Practice that is not generally known
by or readily available to competitors of Practice, including payor and managed
care contract fees and rates under exclusive arrangements of Practice with third
party payors, and Practice revenue and expense reports and related financial
information.
SECTION 13. GUARANTY BY PARENT.
To induce Practice to execute and deliver this Agreement, Parent hereby
absolutely and unconditionally guarantees the full, prompt and faithful
performance by Manager of all covenants and obligations to be performed by
Manager under this Agreement, including, but not limited to, the payment of all
sums stipulated to be paid by Manager pursuant to this Agreement. If Manager
fails to fully perform all such covenants and obligations in accordance with
their terms or pay all or any part of such sums when due, Parent will perform
all such covenants and obligations in accordance with their terms or immediately
pay to Practice (or such other payee as
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may be provided in any such agreement) the amount due and unpaid by Manager, it
being understood that each such covenant or obligation and each obligation to
pay any such amount constitutes the direct and primary obligation of Parent.
Parent hereby waives presentment, demand of payment, protest, dishonor, notice
of protest or dishonor, and notice of acceptance of the guaranty set forth in
this Section 13 and all rights to require Practice to proceed against Manager,
or to pursue any other remedy it may have against Manager in the event of a
breach by Manager of any obligation or covenant contained in this Agreement. If
Manager is not liable to perform any such obligation or covenant because the act
creating such obligation or covenant is ultra xxxxx or unauthorized, and for
such reason such obligation or covenant cannot be enforced against Manager, such
fact shall not affect Parent's liability under this Section 13. In the event of
termination, liquidation or dissolution of Manager, this unconditional guaranty
shall continue in full force and effect.
SECTION 14. MISCELLANEOUS.
14.1 NOTICES. Any notice required or permitted by this Agreement or
any agreement or document executed and delivered in connection with this
Agreement shall be deemed to have been served properly if hand delivered or sent
by overnight courier, charges prepaid and properly addressed, to the respective
party to whom such notice relates at the following addresses:
If to Practice:
Cleveland Ear, Nose and Throat Center, Inc.
0000 Xxxxxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxx 00000-0000
Attention: President
with a copy to:
Xxxxxx X. Xxxxx, Esq.
Xxxxxx & Xxxxxxxxxx
0000 Xxxxxxxx Xxxxx
Xxxxxxxxx, Xxxx 00000-0000
If to Manager or Parent:
PHYSICIANS' SPECIALTY CORP.
0000 Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Chief Executive Officer
with a copy of each notice directed to Manager or Parent to:
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Xxxxxxx X. Xxxxx, Esq.
Xxxxxxxx Xxxxxxx LLP
0000 XxxxxxxXxxx Xxxxx
000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000-0000
or such other address as shall be furnished in writing by any party to the other
party. All such notices shall be considered received when hand delivered or one
business day after delivery to the overnight courier.
14.2 ADDITIONAL ACTS. Each party hereby agrees to perform any
further acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
14.3 GOVERNING LAW. This Agreement shall be interpreted, construed
and enforced in accordance with the laws of the State of Ohio, applied without
giving effect to any conflicts-of-law principles.
14.4 CAPTIONS. The captions or headings in this Agreement are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this
Agreement.
14.5 SEVERABILITY. The provisions of this Agreement shall not be
severable, and if any material provision shall be determined to be invalid, void
or unenforceable in whole or in part for any reason by a court of competent
jurisdiction, Manager shall have the right to terminate this Agreement upon five
(5) business days prior written notice.
14.6 CHANGES IN REIMBURSEMENT. If Medicare, Medicaid, Blue Shield
or any other third party payor, or any other Federal, state or local laws,
rules, regulations or interpretations, at any time during the term of this
Agreement, prohibit, restrict or in any way materially and adversely change the
method or amount of reimbursement or payment for services rendered by Practice
pursuant to this Agreement or of the method of compensation for either party
provided for in this Agreement, then the Practice and Manager shall each have
the option to request the other that the parties consider negotiating in good
faith to amend this Agreement to provide for payment of compensation in a manner
consistent with any such prohibition, restriction or limitation and which takes
into account any materially adverse change in reimbursement or payment from such
third party payors for such physician services. If the parties cannot reach
agreement on such amendment prior to the effective date of such rule, regulation
or interpretation, this Agreement shall continue in full force and effect in
accordance with its terms.
14.7 MODIFICATIONS. This instrument contains the entire agreement
of the parties and supersedes any and all prior or contemporaneous negotiations,
understandings or agreements between the parties, written or oral, with respect
to the transactions contemplated hereby and
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amends, restates and replaces the Prior Agreement in its entirety. This
Agreement may not be changed or terminated orally, but may only be changed by an
agreement in writing signed by a duly authorized officer of Manager if Manager
is the party against whom enforcement of any such waiver, change, modification,
extension, discharge or termination is sought, or by Practice if Practice is the
party against whom enforcement of any such waiver, change, modification,
extension, discharge or termination is sought. The parties expressly acknowledge
that this Section 14.7 may not be waived, modified or changed by any other
persons except the President of Manager and Practice.
14.8 NO RULE OF CONSTRUCTION. The parties acknowledge that this
Agreement was initially prepared by Manager solely as a convenience and that all
parties and their counsel have read and fully negotiated all the language used
in this Agreement. The parties acknowledge and agree that because all parties
and their counsel participated in negotiating and drafting this Agreement, no
rule of construction shall apply to this Agreement which construes any language,
whether ambiguous, unclear or otherwise, in favor of, or against any party by
reason of that party's role in drafting this Agreement.
14.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
14.10 BINDING EFFECT. This Agreement shall be binding on an shall
inure to the benefit of the parties hereto, and their successors and permitted
assigns.
14.11 ENFORCEMENT RIGHTS. Practice acknowledges that both Practice
and Manager will be directly or indirectly affected by the enforcement of
Practice's contractual and other legal rights against Physician Shareholders and
Practice Employees with respect to the restrictive covenants and liquidated
damages provisions contained in the Physician Employment Agreements. Therefore,
Practice appoints Manager its nonexclusive true and lawful attorney-in-fact to
enforce any and all rights of Practice, to the extent not contrary to applicable
law, with respect to the provisions pertaining to restrictive covenants and
liquidated damages in the Physician Employment Agreements. Practice agrees to
execute any instrument reasonably requested by Manager to evidence such
appointment or to reappoint Manager as such attorney-in-fact upon any
termination of the appointment made hereby. Such appointment is coupled with an
interest and irrevocable during the term of this Agreement.
14.12 COSTS OF ENFORCEMENT. If either party files suit in any court
against the other party to enforce the terms of this Agreement against the other
party or to obtain performance by it hereunder, the prevailing party will be
entitled to recover all reasonable costs, including reasonable attorneys' fees,
from the other party as part of any judgment in such suit. The term "prevailing
party" shall mean the party in whose favor final judgment after appeal (if any)
is rendered with respect to the claims asserted in the Complaint. "Reasonable
attorneys' fees" are those attorneys' fees actually incurred in obtaining a
judgment in favor of the prevailing party.
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SECTION 15. PHYSICIANS' GUARANTY.
To induce Manager and Parent to execute and deliver this Agreement,
each of the undersigned Physician Shareholders during the term of his or her
employment with Practice and for a period of five (5) years thereafter, hereby
absolutely and unconditionally guarantees the full, prompt and faithful
performance by Practice of all covenants and obligations to be performed by
Practice under Sections 3.6, 4.4, 4.5, 5.5, 6.4, 6.5, 8.1, 8.3, and 14.7 of this
Agreement. If Practice fails to fully perform all such covenants and obligations
in accordance with their terms or pay all or any part of such sums when due, the
Physician Shareholders will perform all such covenants and obligations in
accordance with their terms or immediately pay to Manager the amount due and
unpaid, it being understood that each such covenant or obligation and each
obligation to pay any such amount constitutes the direct and primary obligation
of the Physician Shareholders. The Physician Shareholders hereby waive
presentment, demand of payment, protest, dishonor, notice of protest or
dishonor, and notice of acceptance of the guaranty set forth in this Section 15
and all rights to require Manager to proceed against Practice, or to pursue any
other remedy it may have against Practice in the event of a breach by Practice
of any obligation or covenant contained in the aforesaid sections of this
Agreement. If Practice is not liable to perform any such obligation or covenant
because the act creating such obligation or covenant is ultra xxxxx or
unauthorized, and for such reason such obligation or covenant cannot be enforced
against Practice, such fact shall not affect the Physician Shareholders'
liability under this Section 15. In the event of termination, liquidation or
dissolution of Practice, this unconditional guaranty shall continue in full
force and effect.
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SECTION 16. CONSENT AND RELEASE.
To induce Manager to acquire all of MAC's and MPI's right, title and
interest in, to, and under the Agreement and other assets of MAC, MPI and
MedOhio, L.P. pursuant to the Asset Purchase Agreement, and to enter into this
Agreement, the Practice and the undersigned Physician Shareholders hereby
consent to the assignment to Manager of all right, title and interest of MAC and
MPI in, to, and under the Agreement. The undersigned Physician Shareholders and
Practice confirm and agree that no breach or default, or event which with notice
or lapse of time or both notice and lapse of time would constitute a breach or
default, exists under the Agreement or Prior Agreement as of the Effective Date.
The undersigned Physician Shareholders and Practice hereby release and forever
discharge MAC, MPI and MedOhio L.P. from and against any and all claims, sums,
losses, damages and expenses of any kind based on or arising out of any act,
event or occurrence from the beginning of time to the date of this Agreement,
whether arising out of the Asset Acquisition Agreement dated July 30, 1996, the
Prior Agreement, the Agreement, or otherwise, excluding, however, any and all
claims for payment of unpaid amounts of "Practice Compensation" accrued under
the Prior Agreement for the period prior to the Effective Date, and the
undersigned Physician Shareholders and Practice covenant and agree never to xxx
or to assert any claim, demand, counterclaim, right of offset or cause of action
against Manager or Parent based on or arising out of any act or omission of MAC,
MPI or MedOhio, L.P. or any breach or alleged breach by MAC or MPI of the Prior
Agreement, including any failure of MAC, MPI or MedOhio, L.P. to pay accrued and
unpaid "Practice Compensation" for any period prior to the Effective Date.
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IN WITNESS WHEREOF, Practice, Manager and Parent have duly executed
this Agreement on the day and year first above written.
PHYSICIANS' SPECIALTY CORP. CLEVELAND EAR, NOSE AND THROAT CENTER, INC.
BY: /s/ BY: /s/ Xxxxxxx Xxxxxxxxx
------------------------ -------------------------------
ITS: Vice President ITS: President
----------------------- -------------------------------
PSC MANAGEMENT CORP.
BY: /s/
-----------------------
ITS: Treasury & Vice President
-----------------------
By execution below, both MAC and MPI confirm and agree that they have
assigned all their right, title and interest in, to and under the Agreement to
Manager, that they have no further rights or interests under the Prior
Agreement, and that they hereby release and forever discharge Practice and the
Physician Shareholders from and against any and all claims, sums, losses,
damages and expenses of any kind based on or arising out of any act, event or
occurrence from the beginning of time to the date of this Agreement, whether
arising out of the Asset Acquisition Agreement dated July 30, 1996, the Prior
Agreement, the Agreement, or otherwise. Notwithstanding the foregoing, MAC and
MPI agree to pay all amounts of accrued and unpaid "Practice Compensation" to
Practice for all periods prior to the Effective Date in accordance with the
terms of the Prior Agreement.
MEDPARTNERS ACQUISITION CORPORATION MEDPARTNERS, INC., AS SUCCESSOR TO
MEDPARTNERS/XXXXXXXX, INC.
BY: /s/ Xxxx X. Xxxxxxxxx, M.D. BY: /s/ Xxxx X. Xxxxxxxxx, M.D.
------------------------------- -------------------------------
ITS: Vice President & Treasurer ITS: Executive Vice President & CEO
------------------------------ ------------------------------
35
40
By execution below, the undersigned Physician Shareholders agree to be
bound by the terms of the Agreement, including, but not limited to, the terms of
Sections 15 and 16.
/s/ XXXXXXX XXXXXXXXX, M.D. /s/ XXXX X. XXXXXXXXX, M.D.
------------------------------- -------------------------------
XXXXXXX XXXXXXXXX, M.D. XXXX X. XXXXXXXXX, M.D.
/s/ XXXX X. XXXXX, M.D. /s/ XXXXXXX X. XXXXXXXXX, M.D.
------------------------------- -------------------------------
XXXX X. XXXXX, M.D. XXXXXXX X. XXXXXXXXX, M.D.
/s/ XXXXXXX X. XXXXXX, M.D. /s/ XXXXXX X. XXXXXX, M.D.
------------------------------- -------------------------------
XXXXXXX X. XXXXXX, M.D. XXXXXX X. XXXXXX, M.D.
/s/ XXXXXXX X. XXXXX, M.D. /s/ XXXXXXX X. XXXXX, M.D.
------------------------------- -------------------------------
XXXXXXX X. XXXXX, M.D. XXXXXXX X. XXXXX, M.D.
36
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APPENDIX A
TO
CLINIC SERVICES AGREEMENT
A. Manager Compensation. As compensation for services rendered in
connection with the Clinic ("Manager Compensation"), Manager shall
receive twelve percent (12%) of the Pre-Distribution Margin per
calendar year. Eighty-eight percent of the Pre-Distribution Margin
shall be paid to Practice each calendar year.
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SCHEDULE 4.5(B)
Xxxx X. Xxxx, M.D.
Xxxxxxxx X. Xxxxxx, M.D.
43
EXHIBIT 3.5(e)
BILLING AGREEMENT
for
GOVERNMENTAL RECEIVABLES
THIS BILLING AGREEMENT ("Agreement") is entered into this _____ day of
___________, 1998, by and between PSC MANAGEMENT CORP., a Delaware corporation
("Manager"), and CLEVELAND EAR, NOSE AND THROAT CENTER, INC., an Ohio
corporation, and the Physician Shareholders who are signatories hereto
(collectively referred to as "Practice").
WITNESSETH:
WHEREAS, the parties entered into an Amended and Restated Clinic Services
Agreement dated ________ __, 1998 (the "Service Agreement"), under which Manager
provides certain management services to Practice, including billing and
collection services for Medicare, Medicaid and CHAMPUS receivables; and,
WHEREAS, the parties wish to set forth in detail the mechanisms under
which Manager provides and is compensated for such billing services.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. Appointment and Authority Manager shall, on behalf of Practice, xxxx
and collect from Medicare, Medicaid and CHAMPUS the professional fees for
medical services rendered by Practice to Medicare, Medicaid and CHAMPUS
patients. Practice hereby appoints Manager for the term hereof to be Practice's
true and lawful attorney-in-fact for the following purposes:
a. to xxxx Medicare, Medicaid and CHAMPUS in the name and on behalf of
Practice;
b. to collect all accounts receivable resulting from such xxxxxxxx in
the name and on behalf of Practice;
c. to take possession of and endorse in the name and on behalf of
Practice (and/or in the name of an individual physician who has
properly reassigned benefits to Practice) any notes, checks, money
orders, electronic payments, and other forms of payment of such
accounts receivable;
44
d. to deposit all such amounts collected, including electronic
payments, into an account owned by Practice (the "Physician Deposit
Account") with a bank whose deposits are insured by the Federal
Deposit Insurance Corporation, which account shall at all times be
maintained in accordance with the provisions of Section 2 below;
and,
e. to withdraw funds from the Physician Deposit Account in accordance
with the provisions of Section 2 below on behalf and in the name of
Practice for the payment of Practice Expenses, and remittance of
funds to Practice as provided in the Service Agreement.
2. Physician Deposit Account.
a. Manager shall have access to the Physician Deposit Account solely
for the purpose of paying Practice Expenses incurred by or on
behalf of Practice, including the payment of Manager's fee, in
accordance with the terms of the Service Agreement. Practice agrees
to execute and deliver to the bank any and all documents necessary
to evidence or effect the special power of attorney granted to
Manager in accordance with Section 1 above.
b. Medicare and Medicaid payments shall be deposited directly to the
Physician Deposit Account. Practice and Manager hereby agree that
if any Medicare and Medicaid payments are received by Manager on
behalf of Practice, such amounts shall be forwarded to the
Physician Deposit Account for deposit. Funds from the Physician
Deposit Account will only be drawn in the name of Practice.
Practice hereby agrees that this payment arrangement will continue
in effect only so long as Practice has sole control of the
Physician Deposit Account, and the bank is subject only to
Practice's instructions regarding the Physician Deposit Account.
c. In the event that Practice revokes Manager's right to withdraw
funds form the Physician Deposit Account, or if Practice withdraws
funds from the Physician Deposit Account or takes any other actions
with respect to the Physician Deposit Account (unless such actions
are required by applicable law) without first obtaining the
approval of the Advisory Board in accordance with the Service
Agreement (it being understood that all proceeds are intended to be
paid over to Manager to pay Practice Expenses and repay any
advances made by Manager in accordance with the Service Agreement),
and if any such actions remain uncured after notice and ten (10)
days opportunity to cure, such actions shall constitute grounds for
immediate termination of this Agreement and the Service Agreement
as a "Practice Event of Default" thereunder, and Practice hereby
acknowledges that Practice has granted to Manager a security
interest in Practice's cash
2
45
proceeds from all collections covered by this Agreement in
accordance with Section 5.5 of the Service Agreement. Practice
further agrees in the event Practice revokes Manager's right to
withdraw funds from the account that Practice shall be deemed to
have received any and all amounts retained in the Physician Deposit
Account when determining the amount to be remitted by Manager to
Practice under the Service Agreement.
3. Compensation. As reimbursement for services provided under the
Service Agreement and this Agreement, Manager shall receive the fees set forth
in Section 5.1 and Appendix A of the Service Agreement. The parties have agreed
to such fees at arms' length and have determined that such fees represent fair
market value for the services provided hereunder and under the Service
Agreement.
4. Construction of Terms. The terms of the Service Agreement shall, to
the fullest extent reasonably possible, be construed so as to be consistent
with the terms of this Agreement, and all capitalized terms herein shall,
except as otherwise expressly provided herein, have the same definitions as set
forth in the Service Agreement. In the event of any ambiguity or inconsistency
between the terms and conditions of this Agreement and the Service Agreement,
the terms and conditions of this Agreement shall govern.
5. Changes in Reimbursement Laws and Regulations. In the event of
changes in laws and regulations that would cause any portion of this Agreement
to be illegal or unenforceable, the parties shall promptly amend this Agreement
as necessary to comply with such laws and regulations.
6. Binding on Successors. This Agreement shall be binding upon the
parties hereto, and their successors, assigns, heirs and beneficiaries. Without
limitation of the foregoing, Manager shall have the same rights to assign this
Agreement as provided in Section 14.10 of the Service Agreement with respect to
assignment of the Service Agreement.
7. Governing Law. The validity, interpretation, and performance of this
Agreement shall be governed by the laws designated to govern the terms of the
Service Agreement.
8. Severability. The provisions of this Agreement shall be deemed
severable and if any portion shall be held invalid, illegal or unenforceable
for any reason, the remainder of this Agreement shall be effective and binding
upon the parties.
9. Amendments. This Agreement shall not be modified or amended except by
a written document executed by both parties to this Agreement, and any such
written modifications or amendments shall be attached hereto.
10. Notices. Any communications required or desired to be given
hereunder shall be deemed to have been served properly if hand delivered, or
sent by overnight courier, charges prepaid and properly addressed, to the
respective party to whom such notice relates at the following addresses:
3
46
If to Manager or Parent:
PHYSICIANS' SPECIALTY CORP.
0000 Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Chief Executive Officer
With a copy of each notice directed to Manager or Parent to:
Xxxxxxx X. Xxxxx, Esq.
Xxxxxxxx Xxxxxxx LLP
0000 XxxxxxxXxxx Xxxxx
000 Xxxxxxxxx Xxxxxx, X.X.
Xxxxxxx, Xxxxxxx 00000-0000
If to Practice or any Physician Shareholder:
Cleveland Ear, Nose and Throat Center, Inc.
0000 Xxxxxxxx Xxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxx 00000-0000
Attention: President
With a copy of each notice directed to Practice to:
Xxxxxx X. Xxxxx, Esq.
Xxxxxx & Xxxxxxxxxx
00 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, Xxxx 00000-0000
or such other address as shall be furnished in writing by any party to the
other party. All such notices shall be considered received when hand delivered
or one business day after delivery to the overnight courier.
11. Additional Acts. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably
necessary to carry out the provisions of this Agreement.
4
47
12. Captions, etc. The captions or headings in this Agreement are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this
Agreement. All Addenda and Exhibits to this Agreement are hereby incorporated
into this Agreement by this reference.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
5
48
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PRACTICE:
CLEVELAND EAR, NOSE, AND THROAT
CENTER, INC.
By:
----------------------------------
Title:
-------------------------------
MANAGER:
PSC MANAGEMENT CORP.
By:
----------------------------------
Title:
-------------------------------
PHYSICIAN SHAREHOLDERS:
-------------------------------
Xxxxxxx Xxxxxxxxx, M.D.
-------------------------------
Xxxx Xxxxxxxxx, M.D.
-------------------------------
Xxxx Xxxxx, M.D.
-------------------------------
Xxxxxxx XxXxxxxxx, M.D.
-------------------------------
Xxxxxxx Xxxxxx, M.D.
-------------------------------
Xxxxxx X. Xxxxxx, M.D.
-------------------------------
Xxxxxxx Xxxxx, M.D.
6
